Why are micro businesses having a difficult time getting a PPP loan?

I agree with all points in the PBS NewsHour segment about why minority owned businesses struggle to receive PPP loans. While I don’t think it is only minority owned businesses, but just any business with 10 or fewer employees.

The incentives for processing of PPP loans are all wrong. Banks get a percentage based on the loan amount:

From bizjournals:

In short, here’s what banks earn from processing and funding PPP loans:

For loans of $350,000 or less, banks earn an origination fee of 5 percent (up to $17,500 per loan)

For loans of more than $350,000 to less than $2 million, banks earn an origination fee of 3 percent (up to a $60,000 fee per loan)

From $2 million to $10 million, which is the cap, banks earn an origination fee of 1 percent (up to a $100,000 fee per loan)

If you’re a big bank, would you rather process 1 loan @ $10M loan for a $100k loan fee or 1 loan @ $350k for $17,500 loan fee?

Cross River is a tiny player with only 250 employees but they’ve done more for micro businesses than all the big banks combined IMO. They are fourth in terms of loan counts behind Bank of America, Chase, and Wells Fargo.


I’m not clear what the right incentive is, but if the loans are better served going to microenterprises (10 employees or less), then the incentives need to change. If you cap loan fees at say $10k, then there’s no incentive for banks to necessarily process bigger loans first. You could also add a bonus clause so lenders like Cross River that process a certain percentage of loans under $150k are eligible to receive from a bonus pool that gets split amongst all banks that process loans under $150k. Say you set aside $50B for the pool and you end up with 5M loans under $150k. Along with their loan fee, the bank is eligible to receive a $10k ($50B / 5M = $10k) bonus on top of the loan fees later on. This is just one example, but there should be a better way to encourage lenders to give priority to microenterprises so they can actually be supported during covid-19.