Industry groups say Congress will need to return to Washington to fix problems with the bumpy rollout and coverage gaps in the economic rescue package rushed out the door in the final week of March.

Restaurateurs say the forgivable small business loan program isn’t enough to see them through the economic shutdown gripping the nation. Insurers say the coronavirus has overwhelmed them like a hurricane simultaneously hitting every state and territory. 

The $2.3 trillion law includes $349 billion in forgivable loans to small businesses, trillions to be offered through lending facilities set up by the Federal Reserve, $150 billion in grants to states, increases to unemployment insurance, direct checks to households, food stamps, and tax breaks to help households and companies stay solvent while staying at home.

Treasury Secretary Steven Mnuchin, one of the plan’s lead drafters, has said he would ask Congress to replenish the Small Business Administration’s loan program if funds ran out.

Neil Bradley, chief policy officer for the U.S. Chamber of Commerce, said he was confident Congress would refill the small business funds if needed. Bradley also said the Chamber was working to identify problems in the bill’s implementation as it started to look at a follow-up bill.

“The idea that we’d leave some people behind — that Congress won’t fix that — I don’t think that’s going to happen,” he said on a press call Friday. “Our first priority is looking for any gaps — because of exhaustion of funds or drafting issues or companies that cannot avail themselves of support — that’s out first thought of a Phase IV.”

For small businesses, the speed of the federal response is of the essence. A Businesses for Responsible Tax Reform Survey found that 92 percent of small businesses have been affected by COVID-19, with 73 percent saying their revenue are down by half or more, and 26 percent saying revenue has dried up completely. According to a JPMorgan Chase Institute report released last week, 50 percent of small businesses have less than 15 days of cash to survive the shutdown.

The law’s $349 billion payroll protection program (PPP) began Friday morning, hours after the SBA and the Treasury Department finalized guidance to lenders underwriting the forgivable loans, which will run through the SBA’s existing Section 7(a) loan guaranty program.

Stepping up lending will be a massive challenge for lenders. Over the entirety of 2019, the SBA approved just 51,907 loans under the 7(a) program to 46,111 businesses for a total of $23.2 billion. The program would see roughly 15 times that issued in a manner of weeks.

Despite the massive size of the intervention, the Independent Restaurant Coalition called the funds “insufficient to ensure independent restaurants can stay open and continue to employ over 11 million workers” in a statement Friday.

‘A lot of confusion’

Naomi Pomeroy runs two of those independent restaurants now facing indefinite closure. The James Beard Award winner and owner of Beast and Expatriate in Portland, Ore., said she closed two weeks ago as social distancing orders made it impossible to operate.

Her 30 employees have applied for unemployment insurance, she said, but only one so far has gotten a check. She’s kept covering their healthcare but, without any revenue, knows that can’t last forever. Pomeroy’s business interruption insurance claims were denied — one had an explicit exception for viruses, the other because there hadn’t been any physical damage to the restaurant.

When asked how she’s faring in applying for government support, she laughed bitterly.

“Poorly at best,” she said. “There’s been a lot of confusion out there.”

Complaints from banks over the program’s setup led the SBA to double interest rates from 0.50 percent to 1 percent in its interim final rule. The rule also said lenders wouldn’t be responsible for failures to fully vet borrowers during the rush to get the money out the door, but banks complain that anti-money laundering paperwork requirements will slow down the loan approval process.

In addition to 1 percent interest, banks and credit unions will be able to charge processing fees based on the size of the loans: 5 percent for loans $350,000 and under 3 percent for $350,000 to $2 million; and 1 percent for loans over $2 million. All of the loans are guaranteed by the SBA, making them essentially risk-free.

Pomeroy is applying for both SBA disaster relief loans and the payroll protection program. But she said she might not even use the PPP if she gets it. Treasury’s guidance shortened the length of loans from 10 years in the law to just two, making her worry about paying it back if her business needs at least a year to return to normal. She said she’d be happier to pay the 4 percent interest included in the statute over a longer period of than the lower 1 percent set by the SBA’s interim rule.  

More distressing, though, were the restrictions: The forgivable amounts are limited to payroll and other fixed costs, like rent and utilities.

Pomeroy said she’s worried her workers won’t want to be rehired, which could put the debt forgiveness in jeopardy and saddle her already low-margin business with more debt. The guidance says companies need to spend 75 percent of the loans on staff and maintain payrolls at 90 percent of their pre-crisis level.

She said it’s doubtful her businesses will be able to reopen in eight weeks: Any social distancing rules still in place would be a problem in her small restaurants and not even the most optimistic predictions suggest they’ll be lifted before then. She might have to lay everyone off again, and end up worse off than before.

Pomeroy said she’d like Congress to loosen restrictions on the program and expand it. She’d like to let her employees collect unemployment insurance during the shutdown, and rehire them once the shutdown ends using the forgivable loans to do so. She’d also like someone to force insurance companies to pay out, or independent restaurants like hers might disappear.

But insurers also say they’re facing an extinction event. Earlier in the week, insurance groups called for Congress to create a business continuity fund to help weather the COVID-19 crisis.

Cautious banks

As of noon Friday, Mnuchin on Twitter said “over $875,000,000” in the program’s loans had been processed, saying almost all of that figure came from community banks. Mnuchin added that larger banks were taking applications and would submit them to the SBA shortly.

That tweet came even as major lenders, like JPMorgan Chase, said they would hold off on joining the program until receiving more guidance.

Pomeroy complained the lack of clear rules for banks was hurting small businesses like her work with lenders.

“It’s like the Obamacare website crash times 10,000, as far as I can tell,” she said.

Scott Pearson, a partner at Manatt, Phelps & Phillips LLP, said banks were wary of rushing these loans only to have regulators fine them later, adding that regulators made similar claims during the Great Recession. He said they fear holding the risk of adjudicating debt forgiveness applications and will need more guidance, ideally in the form of a standardized loan agreement.

“Banks are conservative institutions and they don’t want to guess what a loan should look like to be eligible for loan forgiveness,” he said.

Pearson pointed to a Federal Deposit Insurance Corporation letter released Thursday that said the bank regulator “will not criticize financial institutions’ good faith efforts to prudently use the SBA and Treasury programs to work with small business borrowers.”

“After the fact, they can say, ‘Well, it wasn’t prudent,’ or, ‘They didn’t act in good faith,’” Pearson said.

Credit Union National Association President Jim Nussle pointed to lingering uncertainty in a statement Friday.

“The guidance was released hours before this program is set to begin and there are still a number of unanswered questions which will very likely complicate quick fulfillment of these critical loans,” he said.

Pearson also said that the low interest rates would deter lenders because it would eat up capital that could be used for more profitable loans even in this economic environment.

Already, lawmakers are publicly shaming banks for how they handle the program. On Twitter, one of the payroll protection program’s designers, Sen. Marco Rubio, R-Fla., called out Bank of America for allegedly denying a loan to a small business because it didn’t have a credit account with the bank.

“@BankofAmerica got bailed out with $45 billion of your tax money,” he wrote. “But now just heard from #smallbusiness with a BOA account & a 400k line of credit they paid off[.] BOA denied #PPP loan because they don’t have a credit account[.] A ridiculous requirement that isn’t anywhere in law.”

A bank spokesman said the effort was to get money approved and out the door as quickly as possible. Small businesses with existing lines of credit, credit cards and other lending relationships could be approved more quickly since their information is already on file. According to the spokesman, other national banks have also imposed restrictions designed to give preference to existing customers.

The government itself prioritized small businesses over individuals like gig economy workers, who aren’t eligible to apply until next week. That will create a new complicating factor since many of them may only have personal lending relationships with financial institutions processing the loans for the SBA.

Venture capital hitch

Some sectors say the small business loan program excludes them — private equity and venture capital-backed companies may run afoul of the SBA’s affiliation rules, meaning a portfolio of companies may be considered a single firm, and thus too big to qualify. House Speaker Nancy Pelosi, along with fellow Bay Area Democratic Rep. Ro Khanna, wrote a letter to the SBA and Treasury asking that venture capital-backed firms be eligible for the program.

Other Democrats worry about the funds being used by private equity to fuel takeovers of weakened companies.

House Financial Services Chairwoman Maxine Waters, D-Calif., issued a letter to the Treasury and SBA saying that the affiliation rules should be relaxed, but urging limits on how private equity-controlled companies use the loans.

“Any company seeking a loan from this program should use taxpayer-funded aid to: fully maintain its workforce levels; maintain workforce pay and benefits at or above pre-crisis levels and work towards implementing a $15 minimum wage; provide its workforce with a minimum of two weeks of paid leave; and implement a corporate governance structure that includes worker representation on their corporate boards,” she wrote.

The American Gaming Association said SBA rules exclude them, and called for support.

Niels Lesniewski, Jennifer Shutt and Lindsey McPherson contributed to this report.