The Paycheck Protection Program, designed to save jobs and stimulate the economy by providing forgivable loans to small businesses hurt by the coronavirus, is also creating another winner: banks.
Banks that made the government-guaranteed PPP loans to small businesses are set to collect billions of dollars in fees directly from the Small Business Administration, according to a new analysis by S&P Global Market Intelligence.
Through the end of June, more than $521 billion in PPP loans had been approved, according to the latest data from the SBA.
The top 10 lenders will receive an estimated total of more than $3.8 billion, S&P Global Market Intelligence found. JPMorgan Chase, which is the largest PPP lender after extending nearly $29 billion worth of the loans, is on track to make some $864 million in fees. Bank of America, the next biggest, will rake in an estimated $755 million in fees on its PPP loans.
In its analysis, S&P Global Market Intelligence assumed banks charged a fee of 3%, which is the median fee for PPP loans, according to Keefe Bruyette & Woods. Under Treasury Department rules, PPP lenders can charge processing fees between 1% and 5%, depending on the amount of the loan.
Higher fees of 5% are charged on the smallest loans of $350,000 or less, while fees of just 1% are assessed on loans of $2 million and above. Lenders are barred from collecting the fees from the small businesses applying for PPP loans; instead, the SBA will cover the costs.
While the revenue from PPP fees is a small portion of the overall revenue of big banks, the program is likely to be a windfall for at least 31 smaller lenders, which will make more in PPP fees than they did in total revenue for all of 2019. Those smaller banks include New Jersey–based Cross River Bank, which partners with several fintech lenders: It can expect to collect more than $163 million in fees, or 170% of its 2019 revenues.
Still, S&P Global Market Intelligence notes that banks can’t count the fees as revenue immediately—they have to wait until the loans are either forgiven or paid back by the company, which could take years. While many PPP borrowers hope their loans will be forgiven—which would allow banks to collect those fees as soon as later in 2020—the requirements and timeline for loan forgiveness have been in flux, particularly as the program itself was just extended last week.