A landmark piece of the CARES Act designed to help small businesses stay in business is already out of money.
Thursday morning, the federal government’s small business rescue program, the Paycheck Protection Program, ceased accepting new applications, leaving countless businesses without an alternative to secure funding to continue paying their employees.
The program was established as part of the CARES Act and provided nearly $350 billion to help small businesses, but just over two weeks after lenders were first able to accept loan requests, the Small Business Administration said Thursday that the program’s funding has been exhausted.
Under the program, banks could apply to provide loans to small businesses to enable those businesses to continue functioning while the coronavirus has the country shut down.
The program is designed to provide small businesses with money to pay up to 8 weeks of payroll costs, including benefits. According to the SBA, the funds can also be used to pay interest on mortgages, rent, and utilities.
“Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities,” the SBA said.
But the program was beset with complications from the beginning, with lenders unable to process initial requests to provide the loans, small businesses unable to properly request PPP funding, and some banks even reportedly favoring their own clients over non-clients.
Beyond that, the entire process seemed to be very confusing and unwieldly for all involved, including those in the housing industry.
Over the last week, numerous companies in housing have complained of being unable to request PPP funding due to various reasons and being unable to actually receive funding.
In many cases, businesses in the housing industry were left confused about whether they were even eligible for PPP funding or not, getting differing advice on the matter depending on which bank or lawyer they talked to about it.
And the lenders themselves were confused about which companies they could even lend money to.
As the program’s funding wound down, the National Association of Realtors sent a letter to Congressional leaders, warning them of the problems and asking them to earmark more money for the program.
“High-demand for these programs has strained the SBA and its lenders, raising legitimate concerns that necessary funding will quickly become depleted,” NAR President Vince Malta said in the letter. “In addition, many SBA lenders are turning away PPP applicants without existing business accounts. This has left countless businesses and independent contractors unable to access funding, which within one week of opening was already nearly one-third committed.”
Despite the issues, a number of companies in housing were able to secure approval for PPP funding through the program before the money ran out.
According to the SBA, construction companies had the highest number of loans approved and the highest dollar amount of loans as well as of April 13, 2020.
Per SBA data, in that time period, 114,838 loans had been approved for construction companies for a total loan volume of just shy of $34 billion. That’s nearly 14% of all PPP loans approved.
During that same time, companies classified as “real estate and rental and leasing” had 48,940 loans approved for a total loan volume of nearly $8 billion, while companies classified as “finance and insurance” had 36,714 loans approved for a total volume of almost $5.8 billion.
Despite some companies having success in securing a loan, many others were unable to do so.
And now, the program is out of money as leaders on both sides of the political aisle blame the other for allowing the program’s funding to be depleted.
Visitors to the PPP request website are currently greeted with the following note:
“The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding. Similarly, we are unable to enroll new PPP lenders are this time.”
A notice on the site also notes the “lapse in appropriations.”
Observers across the spectrum were quick to lament the program’s quick demise.
“As NAR expressed in a letter on Monday, we’re strongly urging lawmakers to inject additional dollars into the PPP, which has provided much needed relief to small businesses, independent contractors and the self-employed in the face of tremendous fiscal uncertainty,” NAR said in a statement. “Although we anticipate a swift resolution to this funding lapse, NAR will continue to prioritize protection of the PPP and EIDL during ongoing negotiations on Capitol Hill.”
Consumer Bankers Association President and CEO Richard Hunt agreed with NAR’s sentiments.
“Banks have been working around the clock to implement the Paycheck Protection Program, which is now depleted after less than two weeks,” Hunt said.
“Small businesses are continuing to submit loan applications and existing applications are still pending SBA approval. Additional funding for all lenders is needed now to ensure there are no breaks in service to small businesses seeking assistance as a result of the coronavirus outbreak,” Hunt continued. “The millions of men and women who work at America’s small businesses and their families are battling a health crisis while also facing an economic crisis unless Congress authorizes additional funds for this program.”
The American Bankers Association also called for an injection of new funding.
“America’s banks were standing by their small business customers before the SBA’s Paycheck Protection Program and will stand by them now that PPP money is nearly depleted, which we hope is only temporary,” ABA President and CEO Rob Nichols said Wednesday evening as the funds neared depletion.
“Banks of all sizes will continue to work closely with small businesses in their communities to assess their options going forward,” Nichols added. “Given the success of PPP in getting money into the hands of small businesses quickly, we still believe that the best option is for Congress to appropriate additional federal funds as soon as possible given the potential economic damage to small businesses and their millions of employees from this pandemic.”
The Main Street Alliance, which represents small businesses across the country, said the country is on the brink of a “catastrophe” and adding more PPP funding is not enough.
“Small businesses need an improved program that recognizes this will be a longer and bumpier recovery, and that we need far fewer barriers to entry,” Main Street Alliance Executive Director Amanda Ballantyne said.
“Massive cash infusions alone will not solve the problem,” Ballantyne added. “For those that have heard back about loans, the eight-week timeline of the loan as well as the uncertainty around forgiveness terms and the risk of a massive debt balloon exemplifies structural issues with the program. We need to support small businesses with direct payroll subsidies through the U.S. Treasury department.”
Credit unions also joined the call for more PPP funding.
“As millions of small businesses and communities across the country confront a public health crisis caused by the coronavirus outbreak, policymakers must make sure it does not snowball into a full-fledged economic crisis too,” National Association of Federally-Insured Credit Unions President and CEO Dan Berger, said.
“With the SBA’s Payment Protection Program running out of funds after two short weeks, Congress must act to replenish the fund to ensure small businesses are able to keep their lights on and their employees paid during this uncertain economic time,” Berger continued.
“Today, many credit unions have a large number of pending loan applications from small business owners looking for emergency financial assistance. With credit unions heavily engaged in serving underserved communities, which have been hit the hardest during this economic downturn, it is imperative policymakers set aside a portion of additional funding for credit unions,” Berger added. “Credit unions have a strong track record and reputation for always putting its members first, and they stand ready to help.”
The Credit Union National Association agreed.
“Credit unions have been instrumental in getting these needed funds to small businesses around the country over the past few weeks, and it’s clear that these funds are providing a needed lifeline to impacted businesses,” CUNA President/CEO Jim Nussle said. “We urge Congress to come together on a deal to add additional funds, as it’s clear that as the effects of the pandemic continue, more businesses will find themselves impacted.”
Community banks also indicated that they’re reading and willing to help, as long as there is more money.
“As they have implemented the $349 billion Paycheck Protection Program, community banks have once again proven themselves well-positioned to channel credit expeditiously to help small businesses and their employees,” Independent Community Bankers of America President and CEO Rebeca Romero Rainey said. “With Congress and the Trump administration crafting the next legislative response to the COVID-19 pandemic with an extension of the Paycheck Protection Program, ICBA is calling for program enhancements to facilitate access for community banks and their small business customers and allow the program to reach its full potential.”
The nation’s biggest banks all acknowledged the exhausting of PPP funding, but said that they plan to continue processing existing applications should the program be funded again.
Here’s what Wells Fargo had to say on the matter:
We are doing everything we can to help our small business customers navigate this difficult and uncertain time. Over the past week we have mobilized hundreds of Wells Fargo employees and launched new automation and technology so we can process the extremely high volume of Paycheck Protection Program (PPP) applications. Today the SBA announced that the $349 billion in congressional funding for the PPP has been fully allocated to thousands of participating lenders, of which Wells Fargo is one. We will continue to prepare applications in our existing pipeline from small and mid-size businesses and will submit them to the SBA when funds become available. Given the magnitude of the crisis the country is facing, we are hopeful that Congress will approve additional funds for the PPP and we will continue accepting new applications so we will be ready to proceed if and when that happens. We stand ready to help the hundreds of thousands of customers waiting for this much needed assistance during these unprecedented times.
And here’s what Citi had to say:
On April 16, 2020, the Small Business Administration announced that funding for its Paycheck Protection Program had been fully allocated.
However, at this time, we are continuing to accept and process applications from our Small Business Banking clients. If you decide to submit an application at this time, we will hold that application for processing for up to 30 days in the event that additional SBA funding becomes available under the same terms and conditions. There can be no assurance that additional funding will become available or that it will be available under the same terms and conditions.
Bank of America expressed similar sentiments:
You may be seeing reports that the Small Business Administration (SBA) has said the initial $349 billion in the Paycheck Protection Program has been committed. In hopeful anticipation that additional funds are provided by Congress, we will continue to process applications.
As did JPMorgan Chase, via a statement from Jennifer Roberts, CEO of Chase Business Banking:
As predicted, the SBA’s Paycheck Protection Program was hugely popular. In fact, we have just learned the SBA has approved loans that will exhaust all the funding available for the initial round. By tomorrow morning we will have notified all of our customers who received funding in the first round, and know many of you are disappointed, as are many other business owners around the country.
We know Congress is currently considering another round of funds soon. In the interim, we will continue to work our existing queue of applications so we can be ready. We will continue to update you here.
If you are among the many customers who have applied, we’ll call you if we have questions and email you when we make a decision once additional funding is available.
As the funds dwindled down, Department of the Treasury Secretary Steve Mnuchin and Small Business Administration Administrator Jovita Carranza called on the government to provide the program with more money.
“The SBA has processed more than 14 years’ worth of loans in less than 14 days,” Mnuchin and Carranza said.
“The Paycheck Protection Program is saving millions of jobs and helping America’s small businesses make it through this challenging time. By law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations,” they continued.
“We urge Congress to appropriate additional funds for the Paycheck Protection Program—a critical and overwhelmingly bipartisan program—at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks,” they concluded. “The high demand we have seen underscores the need for hardworking Americans to have access to relief as soon as possible. We want every eligible small business to participate and get the resources they need.”
Whether those small business will actually end up getting the money they need is a different question altogether.