Mark Cuban says banks are leaving small businesses 'out in the cold' by acting too slowly with emergency loans
- Banks are clogging the pipeline for key aid to reach small businesses struggling through the coronavirus shutdown, Mark Cuban told CNBC on Monday.
- Until banks grow less worried about whether "the credits are good," then firms throughout the US are at risk of laying off workers and defaulting on debt, Cuban warned.
- The loans - made through the Small Business Administration's Paycheck Protection Program - are backed by the US Treasury and forgivable for businesses that maintain payroll, quashing most risk for participating lenders.
- Several legislators have called for a second round of small business relief, and Cuban hopes "the second tranche will have clearer rules" for banks to ease hurdles.
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Banks aren't acting quickly enough to aid businesses struggling through the coronavirus shutdown, billionaire entrepreneur Mark Cuban said Monday.
The government's $2 trillion relief measure set aside roughly $350 billion for emergency small business loans, yet the nation is "at an inflection point" to grant the funds to firms in need, Cuban told CNBC in an interview.
Lending done through the Paycheck Protection Program is forgivable if firms tapping the credit lines maintain payroll. The Treasury Department guarantees PPP loans, yet numerous hurdles formed by participating banks are clogging the flow of critical aid, Cuban warned.
"Banks are playing themselves. They're being banks and they're trying to determine if the credits are good and that's leading to a lot of small businesses that are left out in the cold," Cuban said.
He added: "Until we get through that friction, there's going to be a lot of issues and there's going to be a lot of people laid off and a lot of companies that go out of business."
The government is relying on banks and other financial firms to dole out the loans - though the program's rollout was marred with technical glitches, late approval for some lenders to participate, and uncertainty around which firms are eligible. Cuban said some of the businesses he's invested in through "Shark Tank" have had banks question their need for capital with his name attached.
"If a small company has an investor with more than a 20% interest that owns other companies, then those companies are being put to the back of the line, which has really hurt my 'Shark Tank' companies," he said.
The Federal Reserve announced on April 6 it would begin buying debt backed by banks' PPP loans in an effort to shore up cash for additional emergency lending. Yet legislators are still calling for additional financial aid for the loans.
Cuban said he hopes the program will play out in a similar fashion to the Affordable Care Act and its initially faulty launch.
"Hopefully it will be the same way here, that we'll get another tranche of money and the second tranche will have clearer rules and banks will recognize that this is not a typical credit environment where you're supposed to analyze each application as it was a new loan," he said.
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