SBA Exhausts Funding for Paycheck Protection Loans, Urges Congress for More

• SBA: “processed more than 14 years worth of loans in less than 14 days”
• 76% of loans have been processed by small/regional banks
• 49,000 loans totaling $8 billion have gone to real estate subsector
• Guidelines still murky for independent contractors, who had only four days to apply before funds ran out
• Talks are underway for another round of funding

As the first stimulus checks landed in millions of Americans’ bank accounts this week, the U.S. Small Business Administration cinched its purse strings today, announcing it wasn’t accepting new applications for two coronavirus relief programs “based on available appropriations funding.”

“The SBA has processed more than 14 years’ worth of loans in less than 14 days,” U.S. Treasury Secretary Steven T. Mnuchin and U.S. Small Business Administration Administrator Jovita Carranza said in a joint statement.

They urged Congress to appropriate additional funds “to protect millions more paychecks,” calling Paycheck Protection Program and Economic Injury Disaster Loans “critical” programs.

The federal government Paycheck Protection Program provides loan forgiveness when small business owners retain employees. Approximately 1 million loans totaling $247 billion had been earmarked as of April 13, according to SBA data. On April 16, SBA announced its entire $349 billion budget for PPP loans had been spoken for, part of the larger $2.3 trillion CARES Act. 

The EIDL received $10 billion in funds to distribute in the form of up to $10,000 advance grants for businesses to address their working capital needs. The SBA said EIDL advance funds would be made available within days of a successful application, and this loan advance would not have to be repaid. 

Approximately 4,700 lending institutions are participating, though widespread media reports say very little funding has been received as banks wait for further clarification from the federal government.

Several local real estate professionals we spoke to were still unsure exactly who qualifies for SBA coronavirus relief and therefore hadn’t applied. By SBA guidelines, real estate agents and companies that file taxes with W2 forms, as well as independent contractors who use 1099s, are eligible for Paycheck Protection loans. However, 1099 workers could not apply until April 10, while W2 workers could apply beginning April 3. The SBA’s allotted funds ran out April 16.

COVIDLoanTracker.com, which aggregates data from small business survey respondents who have applied for PPP loans, says only 4 percent of small businesses have actually received funds.

Without those funds, approximately 157,000 employees are at-risk of being laid off if small business owners can’t make their payrolls, according to COVIDLoanTracker data, which is a fraction of the total number of employees at-risk.

The average wait time to receive funds is 5 days from the time the application is approved, though many banks are reporting large backlogs of applications to process. Banks are required to pay the loan to recipients within 10 days of loan approval.

Survey respondents reported a difficult time navigating the loan process, citing tech failures and confusion by banks themselves about qualifications for 1099 independent contractors.

On April 14, SBA issued clarification for 1099 workers, saying self-employed individuals who filed Schedule C with their federal income taxes and were operating on Feb. 15, 2020, are eligible for PPP loans, except for partners in a partnership.

Self-employed loan recipients may use the loan for “owner compensation replacement,” calculated based on eight weeks net profits, though it’s not clear whether the full amount of loans for 1099 workers are forgivable. Any portion of a PPP loan that isn’t forgiven must be repaid over two years – after a six-month deferral period – at an interest rate of 1%. (Want to make your head spin? Read this Forbes.com article explaining in-depth how to calculate your maximum loan proceeds.)

The average PPP loan size is $239,152, SBA reports.

COVIDLoanTracker.com reports that 76 percent of PPP loans have been processed by small and regional banks. JP Morgan Chase has processed 10 percent, and Bank of America and Wells Fargo have only processed 1 percent of PPP loans.

On the other hand, EIDL funds go through the SBA directly, which may be used to pay fixed debts, payroll, accounts payable and other operating expenses that can’t be paid because of the disaster’s impact. 

Many SBA-preferred lending institutions did not have their online application portals ready by the April 3 start of SBA lending.

Locally, 88,434 Texans have been approved for Paycheck Protection Program loans totaling $21 billion dollars, SBA data shows. COVIDLoanTracker data shows Texas as the most successful rate for loans, with 54 percent of loan applications from Texas approved.

COVIDLoanTracker.com was created by Miami small business owners Duncan and Rita MacDonald-Korth who created the data tracker as a “checks and balances contribution to the democracy.”

Those are critical funds for small business owners and self-employed individuals such as real estate professionals who’ve seen a significant loss of income as a result of COVID-19 restrictions.

About 114,000 PPP loans have been earmarked for the construction subsector totaling $33 billion. In real estate, 48,940 loans have been approved for the real estate, rental, and leasing subsector, totaling nearly $8 billion.

On Monday, National Association of Realtors (NAR) President Vince Malta called on Congress to provide more funding for small business loans after a change to the EIDL loan limit and funding formula could “leave Realtors out in the cold,” he says.

“This sharp departure from CARES Act language is meant to expand access to the program, but it completely alters the nature of the loan and the advance grant, dramatically reducing effectiveness for businesses in need,” Malta wrote in a letter to congressional leaders. “Especially impacted by this change are independent contractors who have no employees and whose EDIL grants are essentially rendered unforgivable.”

SBA Express Bridge Loans and SBA Debt Relief programs are still available.

The Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These loans can help overcome the temporary loss of revenue they are experiencing and can be used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.

As part of SBA’s debt relief efforts, the SBA will automatically pay the principal, interest, and fees of specific microloans for six months or new microloans issued prior to September 27, 2020.

What happens now?

The SBA as well as lending institutions have urged Congress to allocate more funds. By late Thursday, President Trump said negotiations are underway for another round of funds. While banks and the SBA are not accepting new applications for PPP and EIDL loans respectively, many banks we checked with say they’re continuing to process applications that were previously submitted.