White House says new small-business loan program is out of money, leaving many firms grasping for lifelines
The program maxed out Thursday morning and stopped accepting claims, but a bitterly divided Congress looked unlikely to address that growing problem as the nation plunged into unemployment levels not seen since the Great Depression.
A new lending program for small businesses maxed out Thursday morning and stopped accepting claims, but a bitterly divided Congress looked unlikely to address that growing problem as the nation plunged into unemployment levels not seen since the Great Depression.
The Small Business Administration said on its website that the agency “is unable to accept new applications … based on available appropriations funding.”
Republicans and Democrats say more action is needed to build on the massive $2 trillion economic rescue law passed just three weeks ago, but they can't agree on what to do. The economy continues to weaken but lawmakers are scattered all over the country advancing conflicting proposals and bickering.
The impasse has become so heated that President Donald Trump lashed out at House Speaker Nancy Pelosi, D-Calif., on Thursday morning, just one day after he threatened to adjourn Congress because he complained nothing was getting done.
The $350 billion Paycheck Protection Program was a central piece of the coronavirus rescue law. Overwhelmed by demand from the moment it launched April 3, the program has now essentially run dry as small businesses around the nation beg for relief. The program is aimed at helping businesses with under 500 workers and keeping people employed by extending loans that are forgivable if businesses keep workers on payroll.
The Small Business Administration reported Thursday morning that more than 1,637,000 loan applications valued at "over $339 billion" had been approved.
The government has not released data showing how much of that cash has been actually disbursed and given to the small businesses, however. Anecdotal reports from lenders and small-business owners suggest only a small portion of it has been released so far, with many banks overwhelmed with applications. And it’s also unclear how many firms have secured new loans, though it appears to be just a fraction of the 30 million small businesses in the United States.
Last week, Treasury Secretary Steven Mnuchin asked Congress to agree to $250 billion more for the program, but a GOP attempt to approve that increase failed in the Senate as Democrats demanded more money for hospitals, cities and states, and food stamp recipients.
There has been scant progress since. Talks finally started Wednesday with aides to Mnuchin, Pelosi and Senate Minority Leader Chuck Schumer, D-N.Y., but they seemed unlikely to yield results in time for action at a Senate "pro forma" session scheduled for Thursday afternoon. Any deal would have to advance by voice vote or "unanimous consent" that any individual lawmaker could block.
The need is only deepening on all sides, as new figures out Thursday showed unemployment claims once again surged over the past week, with 5.2 million people filing for unemployment insurance. More than 22 million Americans have now filed for unemployment aid since Trump declared a national emergency four weeks ago.
Sen. Marco Rubio, R-Fla., principle author of the Paycheck Protection Program, lashed out at Democrats in an appearance Thursday morning on Fox Business, accusing them of standing in the way of increasing its funding.
"In just 12 days this program has approved over $300 billion in aid and now it's frozen, it stops, and it's ridiculous," Rubio said. "It's being held hostage for things unrelated to it."
Trump attacked Pelosi viciously over Twitter, apparently responding to a scathing letter she released earlier this week accusing him of weakness and lies:
"Crazy "Nancy Pelosi, you are a weak person. You are a poor leader. You are the reason America hates career politicians, like yourself." @seanhannity She is totally incompetent & controlled by the Radical Left, a weak and pathetic puppet. Come back to Washington and do your job!"
Democrats have blamed Republicans for the impasse, accusing them of refusing to negotiate over their demands for targeted assistance, such as more relief for state budgets that have been hammered by a drop in revenue. Governors of both parties have been begging Congress to approve $500 billion more in stabilization funds to help them weather the economic catastrophe.
On Wednesday, the Democratic governors of Michigan, Wisconsin and Pennsylvania wrote to Trump calling on him to work with Congress and telling him, "Without this leadership, the damage to our state economies will be exacerbated by the cuts we know we will be forced to make."
The Paycheck Protection Program is a major component of the Trump administration's efforts to blunt the economic effects of the coronavirus, which has been especially devastating for small businesses.
It is meant to offer loans for small businesses totaling up to $10 million at very low rates. Borrowers get an interest rate of just one percent and can have the loan entirely repaid if they keep paying their employees.
Under PPP private banks handle the work of accepting applications, evaluating borrowers' needs, setting the precise terms of the loan, and transferring the cash. The SBA and Treasury Department are responsible for approving lenders and establishing the rules.
» FAQ: Your coronavirus questions, answered
The program got off to a rocky start with big U.S. banks, including Citigroup, taking several days to launch and many only accepting applications to their existing customers. But within days, bank officials began to warn that the $349 billion would not last long.
Earlier this week, JPMorgan Chase said that it has funded $9.3 billion of the loans so far and was still processing 300,000 applications seeking $36 billion. Bank of America says it has received applications seeking more than $40 billion in loans.
The Federal Reserve eased restrictions it had put on Wells Fargo's growth after the San Francisco-based bank said it had received applications worth more than $10 billion in loans in just a few days.
The banking industry is calling on Congress to increase the program's funding. "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," said Richard Hunt, president of the Consumer Bankers Association. In the next round of funding, 25% of the $250 billion should be set aside for small community banks to make these loans, according to the Independent Community Bankers Association.
The PPP program is reaching its funding limit while a separate program, called Economic Injury Disaster Loans, is also running short on funds. The funding shortfall has already caused that program to slash the size of loans it gives to small businesses, SBA officials say.
In a statement Wednesday evening, Mnuchin and SBA Administrator Jovita Carranza warned that a lapse in appropriations threatens to further disrupt the loan programs.
"By law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations," Mnuchin and Carranza wrote. "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."
In the statement Mnuchin and Carranza defended the two loan programs amid criticism from members of Congress and industry groups. They said they SBA has processed more than 14 years’ worth of loans in less that two weeks, and said the program is already “saving millions of jobs and helping America’s small businesses make it through this challenging time.”