Small-Business Aid Funds Run Dry as Program Fails to Reach Hardest Hit

April 16, 2020

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Source: The New York Times, by Jim Tankersley, Emily Cochrane and Emily Flitter

A new federal program to help small businesses weather the coronavirus pandemic is running out of money and falling short in the industries and states most battered by the crisis, risking waves of bankruptcies and millions of additional unemployed workers.

Funding for the Paycheck Protection Program, an initiative created by the $2.2 trillion stimulus law enacted last month, could be exhausted as early as Wednesday night, meaning that the Small Business Administration would have to stop approving applications. As of Wednesday evening, more than 1.4 million loans had been approved at a value of more than $315 billion, according to the Small Business Administration.

But congressional leaders and the Trump administration have failed to reach agreement on adding hundreds of billions of dollars to replenish the program, hamstrung by a dispute over whether to carry out sweeping changes to how it allocates loans to businesses across the country.

Steven Mnuchin, the Treasury secretary, and Jovita Carranza, the head of the Small Business Administration, urged Congress to approve additional funds, as the demand “underscores the need for hardworking Americans to have access to relief as soon as possible.”

The desperate situation reflects the fitful nature of the government’s efforts to put into effect the hulking stimulus plan, a measure that was hastily negotiated by Congress and the administration as both faced intense pressure to respond to an extraordinary public health and economic catastrophe. Economists warned at the time that the package allocated too little for small businesses and ran the risk of steering too much of that money away from companies that needed it the most.

The small-business loan program — which enjoys broad bipartisan support — was among the first to be unveiled, and its introduction has been plagued with problems even as businesses have inundated banks with requests for a piece of the aid.

Administration officials and congressional Republicans have pushed for a quick infusion of cash to keep the program going. But while they support the additional spending, Democrats have insisted on attaching new restrictions to ensure the money flows to minority-owned businesses and other companies that are traditionally disadvantaged in the lending market. They also want to add more money for hospitals, food-stamp recipients and state and local governments whose tax receipts have plunged.

Republicans have refused to do either, saying that policy debates and additional funding should be considered later in light of the program’s dire state.

“The notion that crucial help for working people is not appealing enough to Democrats without other additions sends a strange message about their priorities,” Senator Mitch McConnell, Republican of Kentucky, and Representative Kevin McCarthy, Republican of California, the minority leader, said in a joint statement. “The cost of continued Democratic obstruction will be pink slips and shuttered businesses.”

But Speaker Nancy Pelosi of California warned again on Wednesday that the Republican proposal would not pass the House, saying in a statement that it failed to address “critical issues.”

Senator Chuck Schumer of New York, the minority leader, spoke on Wednesday with Steven Mnuchin, the Treasury secretary, in an effort to restart talks. Mr. Mnuchin, Treasury staff and aides to Mr. Schumer and Ms. Pelosi conferred later in the day and were expected to continue discussions on Thursday.

But it was unclear if any agreement struck between Democrats and the administration would be palatable to Senate Republicans, particularly with lawmakers scheduled to remain in their respective districts and states until early May.

Without the full chamber present, any one lawmaker could block an attempt to approve the legislation — which Democrats did a week ago when Senator Mitch McConnell, the majority leader, tried to push through the administration’s $250 billion request for the program.

“We see no reason why we can’t come to an agreement,” Mr. Schumer said on Wednesday, warning that millions of jobs could be lost if additional funding was not allocated for hospitals and state and local governments. “We Democrats believe that we need more money for small business, but we need it to go to the people who are underbanked and underserved.”

The administration warned lenders on Wednesday that it would soon be unable to accept any new loan applications or applications to be lenders once the funds ran out.

The stimulus law included $349 billion for the Paycheck Protection Program, which underwrites bank loans for small businesses that will never need to be repaid if owners use most of the money to keep paying employees for two and a half months. Economists and business lobbyists warned when the bill was being debated that the money was nowhere close to the $1 trillion or more that companies would need.

“We always knew we would have to come back and replenish it — we thought we were going to have an outreach problem, letting people know that this program existed,” said Mr. Rubio, the chairman of the Senate Committee on Small Business and Entrepreneurship.

“It’s an ironic situation, because everyone’s in favor of it,” he said of the program. “I just want to see action.”

Democrats say that while they support supplying the program with additional aid, there remain challenges in ensuring that all businesses are not only receiving the loans, but the actual funds themselves.

“It’s a critically important thing to accomplish — you want to be able to allow the small businesses to jump start on the other side of this,” said Representative Antonio Delgado of New York, whose upstate district is one of the most rural counties represented by a Democrat. He added, “the challenge has been having people access these funds.”

Early evidence suggests that the efforts have disproportionately helped manufacturers and construction firms at the expense of the hospitality businesses — including restaurants, bars and hotels — that have suffered the highest rates of job loss in a month in which nearly 17 million Americans have filed for unemployment. The loans are allocated on a first-come, first-served basis, an approach that has favored businesses that have existing relationships with lenders and the resources to navigate the government application process.

Data released on Tuesday by the Small Business Administration, which is administering the loan program, shows that construction companies have garnered nearly $34 billion, which is about 14 percent of the $250 billion that had been allocated through Monday. Manufacturers secured more than 12 percent of the loans, about $30 billion.

“Accommodation and food services” borrowers ranked fifth, with just under $23 billion in loans, or less than 10 percent of the total.

That distribution does not match the spread of damage from the crisis. Weekly data on unemployment claims released by some states suggest that food and other hospitality businesses have been devastated by a crisis that has closed dine-in establishments across the country.

In Washington State, accommodation and food service workers have accounted for nearly 20 percent of industry-categorized unemployment claims filed over the last three weeks. In Minnesota, cooks, wait staff and other food service workers have filed nearly a quarter of the state’s unemployment claims in that time.

Thus far, the geographic flow of the funds is also not lining up with the economic damage from the virus. New York companies have secured less than half as many loans as Texas companies, for example, even though the share of New York’s labor force that has filed for unemployment is twice as high as Texas’s.

Adjusted for the total amount of small-business payroll spending in their states, many less populous states are faring well, including Kansas and Nebraska — possibly because of the strength of relationships between community bankers and businesses in those states.

Bankers and borrowers alike want changes made to the program.

Restaurants and hotels have pushed for changes in how the money is allocated and in the rules for how it must be spent, including the mandatory amounts for maintaining payrolls, saying they need the flexibility to cover other costs like rent for as long as the crisis keeps them closed or their revenues low.

Robert Sawyer, the owner of the Barn Bistro, a restaurant on Martha’s Vineyard in Massachusetts, said he was expecting to have to operate with a reduced level of service for months even after an initial relaxation of the restrictions local officials put in place to stop the spread of the virus. Mr. Sawyer said it did not make sense to him to keep paying his employees when the very existence of his business was uncertain.

“The notion that we should send this payroll to our laid-off employees does not in any way help a small business,” he said.

Bankers have pushed to temporarily relax anti-money-laundering rules that force them to closely scrutinize borrowers, and they say the S.B.A.’s computer system needs to be upgraded. Some of the banks trying to participate in the program still cannot link up properly with the agency to submit applications.

The country’s smallest banks want the next round of stimulus to have a portion earmarked specifically for them — $50 billion out of $250 billion in additional stimulus money.

“Because the largest banks do not serve America’s smaller, rural communities, it would be a costly policy mistake to allow these lenders to soak up a disproportionate share of the funding,” Rebecca Romero Rainey, the chief executive of the Independent Community Bankers of America, a trade group representing the smallest banks, wrote in a letter to congressional leaders on Monday.

Whatever changes Congress makes, though, banks want lawmakers to get the next stimulus package done quickly. “Time is of the essence,” Rob Nichols, the president of the American Bankers Association, a bank trade group that represents both large and small banks, said in a call with journalists on Tuesday.

Many larger companies have found aid easier to come by, thanks to the Federal Reserve. The Fed has rolled out a series of emergency lending programs that helped calm markets, including the all-important government bond market, one for short-term business debt and an ecosystem of cash-based mutual funds that are supposed to be safe havens for conservative investors.

Thanks to those programs, bankers reported this week that market conditions were returning to something nearer to normal. The heightened trading volume from mid-March that signaled panic among financial market participants has fallen. Blue-chip companies rushed to issue more debt so they could raise cash to shore up their balance sheets, and sales of that debt were successful, bankers said.

“The amount of high-grade investment deals done in the month of March was a record,” said Bank of America’s chief executive, Brian Moynihan, on a call with journalists on Wednesday.

More recently, Mr. Moynihan added, even companies experiencing some instability, including those whose finances have been directly impacted by the crisis, have been able to borrow again.


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