Emergency small business loan program reopens under crush of demand
The Small Business Administration’s (SBA) emergency lending program reopened Monday to a crush of applications as business owners hit by coronavirus restrictions scramble to secure aid before the new round of funding runs dry.
The SBA’s Paycheck Protection Program (PPP) began accepting new applications this week for an additional $310 billion in forgivable loans to small businesses with new rules and money set aside for certain groups in order to broaden the initiative’s reach.
But the agency’s electronic filing system crashed within minutes of the program reopening, as a week-plus of backlogged applications poured through, raising concerns about how long the second round of funding may last.
The initial $349 billion allotted for PPP loans ran out in less than two weeks and left thousands of businesses across the country without desperately needed aid to weather the economic downturn.
While the program was designed to prevent cash-strapped small businesses from laying off employees, a substantial portion of the first loan recipients were larger companies with the financial resources and relationships with banks to navigate the system.
The Trump administration and lawmakers in both parties sought to prevent another overload of the SBA system and passed a new round of funding for small businesses last week.
After the initial PPP funding was depleted, Democrats insisted on stronger limitations to make sure smaller businesses and the financial firms who served them would not be boxed out by larger companies and lenders. After weeks of tense negotiations, Republicans and Democrats agreed to set aside $60 billion of the new $310 billion to be disbursed by small banks and community lenders.
The administration also warned large companies with ample access to capital in the financial markets not to seek PPP loans even if they were not explicitly prohibited from participating. The SBA on Sunday outlined how banks could submit applications in bulk and said individual banks were not allowed to issue loans totaling more than 10 percent of the program’s funding.
Still, those changes failed to manage the intense demand for the second round of funding, which bankers and policymakers fear could be depleted sooner than the first.
The SBA system faltered throughout the day Monday, leaving some banks and credit unions unable to file applications due in part to a glitches stemming from guardrails intended to pace applications and prevent any single lender from tapping too much funding.
“There’s going to be some challenges, guys. This thing is restarting. There are a lot of applications, a lot of built up demand, but they’re doing the best they can to pace the application so we can get [to] as many businesses as possible and to as many lenders as possible,” said Sen. Marco Rubio (R-Fla.), chairman of the Senate Small Business Committee, in a video posted to Twitter on Monday.
The PPP aims to prevent small businesses from laying off workers because of revenue lost amid the coronavirus pandemic. More than 26 million Americans have applied for unemployment benefits since the middle of March as employers across the country close their doors to slow the spread of COVID-19, forcing thousands of firms into financial peril.
Bank industry advocates estimate it could take up to $1 trillion to meet the demand they’ve seen for PPP loans. The SBA furnished roughly $28 billion in loans last year, roughly 4 percent of the $659 billion allocated for PPP already.
“The SBA system simply cannot handle the volume of applications banks have processed from America’s small businesses,” said an industry source.
Updated 7:21 p.m.
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