The U.S. Small Business Administration said it has stopped accepting applications and enrolling new lenders after funding ran out for a $349 billion federal relief program meant to help small businesses survive the coronavirus outbreak.
Without more money for the program, many small firms that have flooded banks with applications won’t get help because the government-backed loans were available on a first-come, first-served basis, and after just two weeks there’s no money left for the SBA to guarantee additional loans, officials said. Congress is deadlocked over refunding the program.
Brad Close, president of the National Federation of Independent Business, the largest group representing small businesses in the country, said it’s members’ worst fears just came true.
“America’s small businesses are on the brink, trying desperately to keep their doors open and support their employees,” Close said in a statement. “They have been let down by lawmakers and the bureaucracy, with the smallest businesses most disadvantaged in attempting to participate in the Paycheck Protection Program.”
Small businesses are continuing to seek loans and existing applications are still pending SBA approval, and Congress needs to act, Consumer Bankers Association President and Chief Executive Officer Richard Hunt said.
“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,” Hunt said in a statement.
Wells Fargo & Co., which was the No. 3 SBA-approved lender by volume last year, said it will continue accepting new applications so it will be ready to proceed if and when Congress adds funds to the program. The firm said Tuesday that it hadn’t funded loans anywhere close to the $9.3 billion in loans that JPMorgan Chase & Co. said Tuesday it had funded.
As of Thursday morning, the SBA reported there had been more than 1.6 million applications approved for about $339 billion. That amount is the value of loans the agency has approved for lenders to disburse, not money that has reached borrowers. Comprehensive data on how much money has actually been handed out isn’t available, but lenders report that disbursements are being made. The program launched April 3.
Loan approvals had to stop short of the $349 billion total because about $10 billion is needed to cover fees and processing, Republican Senator Marco Rubio of Florida said in a tweet.
U.S. Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza called on Congress to approve more money for the program Wednesday in a joint statement saying it’s “saving millions of jobs” and helping small firms survive the pandemic.
Republicans sought to approve an additional $250 billion for the program last week, but the effort stalled with Democrats also wanting changes to the program and more aid for other groups. Senate Democratic Leader Chuck Schumer and Mnuchin talked Wednesday as negotiations continue.
Senate Majority Leader Mitch McConnell and House Republican Leader Kevin McCarthy accused Democrats in a joint statement on Wednesday of blocking emergency aid and treating a bipartisan program “like a Republican priority which they need to be goaded” into backing.
House Speaker Nancy Pelosi said Democrats are pushing for changes that will allow help for small businesses that have been shut out of the program because they don’t have access to a lender, as well as provide more funding for “desperate” state and local governments and hospitals.
The program, which was enacted last month as part of a $2.2 trillion relief package in response to the outbreak, offers loans of as much as $10 million. The loans convert to grants if proceeds are used to keep workers on the payroll and cover rent and other approved expenses for about two months, a short-term stopgap designed to help businesses get by until the economy reopens.
The initiative got off to a rocky start after Trump administration officials said that small businesses would get funding quickly, even the same day they applied. But some borrowers couldn’t find banks to take their applications if they didn’t already have a lending relationship, and lenders couldn’t process loans because of vague guidance and an overwhelmed SBA computer system.
Of the more than 1 million applications that SBA had processed as of Monday, construction firms had a larger share of loans approved than other industries so far, followed by professional, scientific and technical service companies, manufacturers and health care and social assistance firms. The average loan amount for all applications approved was $239,152, an SBA report shows.
“Oh my god,” said Alex Steed, co-owner of Knack Factory, a video production firm in Portland, Maine, that’s awaiting funding for a loan. “This is playing out just about exactly how I expected it to. It never felt like this was for small business owners anyway, or manufactured with our needs in mind.”
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