A small business owner in Chinatown, San Francisco
The Paycheck Protection Program will run out of money for most borrowers before the scheduled end of May 31, the Small Business Administration said.
Moving forward, the program will only accept new applications from Community financial institutions, most of which serve minority borrowers, as around $ 8 billion of funding has been allocated to such companies.
The SBA will continue to fund pending approved PPP applications from other lenders, but will not accept new applicants.
The funding exhaustion, announced Tuesday, comes just weeks after the PPP was extended to the end of May to give borrowers more time to apply for the indulgent loans. While many lenders and borrowers thought the program would likely run out of money before May 31st, the exact timing was unknown.
“We were a little surprised,” said Sam Sidhu, vice chairman and chief operating officer of Customers Bank, a subsidiary of Customers Bancorp in West Reading, Pennsylvania. The bank, which processed about 20,000 PPP loans a week, still has thousands of borrowers now in the pipeline, Sidhu said.
More of Invest in you:
You can still tap free college money – here’s how
How I learned to invest in stocks – and so can you
College students gain work experience as social media brand ambassadors
Other lenders also have backlogs pending approval from the SBA and other applications they could have filed.
Chris Hurn, executive director of Fountainhead Commercial Capital, a non-bank lender, said he had more than 60,000 applications backlog that need validation by the SBA and nearly 35,000 more that could be submitted if the portal didn’t close .
“Everyone will now wait to see what the SBA does, if anything,” said Hurn.
One year of PPP
The PPP was set up in March 2020 as part of the CARES Act in response to the coronavirus pandemic. Since its inception, the program has provided more than $ 7.7 billion in inducible loans to more than 10.7 million borrowers, according to the latest data available.
This year, Congress allocated approximately $ 292 billion for a new round of the program so that some companies can apply for secondary loans. In addition, this year the Biden administration relaxed certain rules for borrowers, changed the credit calculation formula for sole proprietorships, and gave the smallest businesses a priority application window.
The updated rules helped some borrowers who were excluded from forgivable funding obtain credit, but also added confusion and frustration for others who had missed large amounts of credit just days. Additionally, banks and borrowers have urged the SBA and Congress to retrospectively enact some of the rules to help more businesses when the US economy reopens.
Further relief for small businesses
Even if vaccinations continue and the US relaxes restrictions, small businesses will still have problems. Other assistance programs are available through the SBA, including some that also provide grants to businesses.
The SBA’s Restaurant Revitalization Fund accepted applications on Monday. The program was launched in March under the $ 1.9 trillion stimulus package and funded with $ 28.6 billion. For the first 21 days, the SBA will only approve applications from small businesses owned by women, veterans, or socially and economically disadvantaged people.
There are concerns that funding will not be enough to help all businesses that still need assistance. In the first two days of the program, 186,200 restaurants, bars and other eligible businesses applied for funding, according to a White House report released Wednesday.
In April, the SBA also reopened applications for the Shuttered Venue Operators Grant Program, which provides $ 16 billion for theater owners and other live event operators who were forced to close during the pandemic. The SBA approves applications in stages, addressing those with the greatest loss of revenue first.
These programs are especially important for small businesses as the PPP is exhausted for most.
“We need to ensure that existing programs like the Shuttered Venues Operators Grant, Restaurant Revitalization Fund and other federal aid funds are distributed quickly and efficiently to reach the hardest hit small businesses, especially in underserved areas,” said John Arensmeyer, Founder and CEO of Small Business Majority advocacy group in a statement Wednesday.
He also said Congress or the SBA might decide to give out some loans made through other programs, such as catastrophe loans for economic damage to small businesses.
If you’ve applied for a PPP loan but haven’t received approval before the general funding expires and are ready to share your story, email firstname.lastname@example.org.
SIGN IN: Money 101 is an 8-week financial freedom learning course delivered to your inbox weekly.
CHECK OUT: How to make money doing creative side businesses, from people who make over thousands on sites like Etsy and Twitch Grow with acorns + CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.