Fueled by free money, this tiny Chicago lender takes over PPP loans

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The loan source is part of a largely hidden ecosystem that has grown around the PPP program, which was designed to keep small businesses afloat. He capitalizes on free Federal Reserve money to buy PPP loans from the banks that actually lent the money, with the goal of making a small profit in the unglamorous business of debt servicing.

LaHaie is one of the new generation of pandemic professionals who are trying to make some money with the P3 program, often at little risk to themselves. The loans in question are guaranteed by the government. This means that faults are not a concern whether or not small businesses survive.

A data tracking tool developed by a team of 40 researchers and policy specialists, led by Harvard University economics professor Raj Chetty, shows that the program protected very few paychecks. They found only a 3% difference in employment patterns for companies above and below the PPP threshold of 500 employees. This implies that the $ 521 billion program spent $ 289,000 for every job saved.

Field

LaHaie, meanwhile, spends much of his day on the phone with the banks, which have already made easy money, raising more than $ 10 billion in origination and processing fees. Now they are left with the heavy administrative burden of servicing the debt and helping many borrowers who qualify for loan forgiveness.

LaHaie’s pitch: sell us your PPP loans, at a small discount from their face value, and we’ll save you the headaches to come.

“They’re going to have to repay these loans for two to five years,” said LaHaie, co-founder of Loan Source and its chief investment officer, in an interview. “It’s not something you can do part time.”

The Loan Source plans to at least double its loan collection, but time is running out when the Fed’s credit line expires on December 31 (unless extended). Lawyers, brokers, and firms that initially advised LaHaie on how to set up the program, including Crestmoor Capital Partners and GreensLedge Group, are helping him get more loans from banks before the window closes. ‘opportunity.

Peapack-Gladstone Financial Corp., Northeast Bank and Bryn Mawr Bank Corp. are among the approximately 25 lenders who have announced sales to Loan Source.

Exhausting path

“There would have been very significant technological costs and salary or opportunity costs in having to move our people to service these loans,” said Richard Wayne, CEO of Lewiston, Maine, Northeast, who has sold $ 457.6 million in PPP loans to LaHaie’s. solidify. “We made the business decision that we had better sell the loans and not have to take care of the management. “

LaHaie knows it will be a grueling few years servicing thousands of small business loans, but he thinks the business can make decent money, virtually risk-free, since the loans are guaranteed by the US government. The Fed charges 35 basis points to use its line of credit. This comes with fairly favorable conditions for a borrower: 100% financing and no recourse.

LaHaie, a Michigan State University graduate who previously worked as a managing director at ExWorks Capital, a senior secured debt fund, already has 60 to 80 people working with companies hoping to get their loans canceled. . He predicts that about 80 percent of borrowers actually will.

Less certain is the degree to which taxpayer funds have helped those reeling from the economic fallout caused by the pandemic.

“If the goal of the program was to save jobs in the short term,” said Harvard’s Chetty, “it wasn’t a very effective way to do it.”


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