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SBA small business funding grinds to a halt as Paycheck Protection Program loans run out. What’s next?

April 16, 2020, 7:39 PM UTC

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That was fast.

Needy small businesses have struggled to receive lifeline funding to keep employees on the payroll over the past two weeks, and now the money has run out. That leaves those like James Fayal, the founder of Baltimore-based caffeinated tea company Zest Tea, in a worrisome spot.

Fayal applied through Bank of America for the Paycheck Protection Program loan when applications first went out, seeking a $125,000 loan for his 8 employees. But it was actually on Wednesday that Fayal felt the first wave of disappointment about the status of his loan: “By [Wednesday], I sort of accepted that [funds for the PPP loans are] going to run out probably before I get any communication, so yesterday was probably the day of the most disappointment.” He says he still hasn’t received an update on his loan’s approval status from Bank of America, and now that funds for the PPP loans have run out, “All I can do now is hope that there are gears turning behind the scenes and they’ve already submitted but I haven’t found out yet.” A Bank of America spokesperson told Fortune the bank is continuing to accept and process applications “in the expectation that there will be additional funding available.” (The bank told Fortune it has received about 370,000 applications seeking $50 billion).

Emergency loans from the Small Business Administration, under the Paycheck Protection Program, have been an exasperating ordeal for the SBA, lenders, and small businesses since applications were opened on April 3—But on Thursday, the administration announced loans had maxed out the $349 billion allotted for the program.

At around 10:30 a.m. ET, an SBA spokesperson announced the SBA was “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 at this time.” In a joint statement, U.S. Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said Wednesday “By law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations.”

The small business loans are first-come, first-served, can potentially become grants, and are available up to $10 million per business.

Sen. Marco Rubio tweeted on Wednesday afternoon that the loans would be capped at $339 billion until further funds are approved, as $10 billion would be needed to cover fees and processing.

As of around 8:45 a.m. ET on Thursday, the SBA confirmed it had approved over 1.6 million applications worth over $339 billion. An SBA report shows the average size of PPP loans approved was $239,152.

Now what?

Mnuchin and Carranza urged Congress on Wednesday to appropriate more funds for PPP loans, “at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks.”

Congress has thus far struggled to approve more funds for the program, as Republicans and Democrats have differing views on how the $250 billion in additional funds should be meted out. An effort by Republicans to unanimously approve more funding last week was stymied as Democrats advocated for more money to go to hospitals, food assistance, and state and local governments (in addition to more funding for PPP loans). 

A senior Democratic aide told CNBC that staffers for Senate Minority Leader Chuck Schumer and House Speaker Nancy Pelosi are expected to continue talks with the Treasury Department about new funding on Thursday.

Although well over 1 million applications were approved this time around, there are still plenty of businesses awaiting the funds—Yet even the initial $350 billion was a tall order for the SBA and lenders alike to handle. “The SBA has processed more than 14 years’ worth of loans in less than 14 days,” Mnuchin and Carranza noted in a statement. (In 2019, the SBA guaranteed a total of $28 billion in loans.)

The rollout of the program was plagued with issues from the beginning, as dozens of small business owners took to Twitter on the day of its launch to express frustrations as banks like Bank of America initially prioritized current lending customers. To wit, independent contractors and self-employed individuals were only able to begin applying for the loan on April 10, less than a week before funds ran out.

One big problem with the rollout of the PPP was its initial exclusion of non-SBA enders—including fintechs that often cater to small businesses with differing loan needs. Without other lenders like fintechs or smaller institutions able to lend to their normal client base initially, “Ironically, the very small businesses who are the ones … most at risk from this economic crisis and least resilient … are going to be the last ones in line to get money because they’re not existing bank customers, and their lenders who they trust and rely on are not able to access the program,” Plaid’s head of policy John Pitts recently told Fortune. Fintechs (including PayPal) and other non-SBA lenders were able to begin accepting applications last week after receiving an application to become an SBA-approved lender.

Another round of funds would be necessary to keep lending to businesses who already applied but hadn’t been approved yet, and for those who hadn’t been able to apply yet.

“The worst thing you could do is have desperate small businesses that have a loan application pending to tell them that, ‘Well, we’re going wait to decide what we want to do on additional funding,'” Paul Merski of the Independent Community Bankers of America told Bloomberg Wednesday.

Some fortunate small business owners like Leah Sherrill, who applied for the loan for her Texas-based preschool and childcare center, heard she was approved “not a second too soon!”

Sherrill tells Fortune she was informed by her bank American Momentum on Thursday that her $84,900 loan was approved. Sherrill says she plans to rehire two employees who were laid off, asking them to return to work on Monday.

Update, April 16: This article has been updated with a comment from Bank of America.

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