SBA Paycheck Protection Program funds could run out by Thursday

The Small Business Administration’s (SBA) $349 billion Paycheck Protection Program (PPP) relief fund is expected to be exhausted by early Thursday.

Since the application process for the fully forgivable loans opened on April 3, Virginia banks have been flooded with nearly 30,000 applications totaling $6.6 billion worth of requests from small businesses hurt by the coronavirus crisis, according to the Virginia Bankers Association. During a time when many businesses are furloughing employees and struggling to keep operating, small businesses that receive the forgivable loans are allowed to use the funds to meet payroll costs and pay mortgage interest, rent and/or utilities payments. 

Nationally, the SBA said it had approved 1.4 million loans totaling $315 billion by Wednesday evening. Congress was still negotiating to replenish the fund Wednesday and Treasury Secretary Steven Mnuchin has recommended making another $250 billion available.

Before the PPP application process opened in early April, there were only 1,700 SBA-approved lenders in the United States. In 12 days, that’s nearly tripled to 4,700, VBA President and CEO Bruce Whitehurst said.

“This is the most extraordinary thing I’ve seen in my 32-year career,” said John Asbury, CEO of Richmond-based Atlantic Union Bank.

Atlantic Union Bank, an SBA-approved lender, started accepting applications on April 3 and has since accepted more than 8,889 applications for $1.8 billion in funding, said Asbury. The bank has captured guaranteed SBA funding for 6,113 businesses for $1.4 billion. More than 90% of that will go to Virginia businesses that on average requested $202,000.

There haven’t been any discrepancies in what small businesses have requested versus what they’ve been loaned from Atlantic Union Bank, Asbury said, but the banking industry has had discussions about what are eligible payroll expenses.

Small businesses can ask to borrow up to the equivalent of two-and-a-half months of payroll expenses, based on their average monthly payroll for 2019, said Whitehurst. “Given that it’s very formulaic, ” he added, “small businesses have been able to calculate exactly how much they can borrow.” 

Small businesses have to prove those payroll expenses, which the banks approves, Asbury said. What small business provides and the bank approves is what the small business will receive. The money that small businesses are anticipating is what ultimately shows up in their accounts, Asbury said.

“The foot race is SBA approval,” Asbury said. “If we find out as we approach 10 p.m. tonight that there’s still any money left, we’re going to keep going.”

The SBA hasn’t told banks how they’ll be notified if and when PPP funding runs out, he added.

The only way to obtain this funding is through banks, putting bankers on the front line of economic defense because the money isn’t coming from the government — it’s coming from banks. The SBA guarantees the loans, Asbury explained, but it’s the bank’s money to loan. “It’s first-come, first-served funding across the United States, and so we mobilized,” Asbury said.

But how are banks handling the tsunami of applications flooding their systems? It depends. 

“This looks different for every bank,” Whitehurst said. “It could be a challenge for a small bank, but it could also be a challenge for a large bank and everybody in between.”

But one thing is true for banks of all sizes, he added: “This is nothing short of a gargantuan task to accomplish all of this.”

However, Virginia’s largest bank, McLean-based Capital One Financial Corp., has yet to even open its PPP loan application process, a Capital One spokesperson confirmed Wednesday night. “We are currently testing the effectiveness of our submission process with a small number of existing business banking customers. We anticipate being able to accept applications online shortly,” the spokesperson said. He declined to answer how Capital One, which has reportedly lost business accounts due to its inaction, plans to offer PPP loans if the federally allocated funds run out tonight as expected.

“The biggest worry right now is how fast the SBA and banking infrastructure can process loan applications and get funds into the hands of small-to-medium-sized enterprises,” says Zach Bethune, an assistant professor of economics at the University of Virginia. “The demand on the SBA [for loans] increased exponentially [due to the coronavirus crisis] and it takes time to build up the infrastructure and employment to handle it.”

With such a large influx of applications going through, banks fear not being able to fulfill the needs of all businesses. 

Despite the possibility that PPP funds could run out as soon as tonight, small businesses have other outlets for funding, including the U.S. Chamber of Commerce’s Save Small Business fund, which provides up to $5,000 in grants to small businesses in economically vulnerable communities, and the SBA’s Economic Injury Disaster Loan Emergency Advance, which provides low-interest loans of up to $2 million.