Karen G. Mills, who led the Small Business Administration during President Barack Obama’s first term, has a message for top Capitol Hill Democrats: Refill the so-called Paycheck Protection Program’s coffers now and ask questions later.
The SBA program, established as part of the $2.3 trillion COVID-19 aid package to help battered small businesses, ran out of cash to make new loans on Thursday morning, barely two weeks after it began taking applications.
“Congress has to act as soon as possible,” Mills told CQ Roll Call in an interview Thursday, adding that she’s spoken recently with Democratic senators and Speaker Nancy Pelosi’s office. “What I’m saying is: Number one, get the money replenished.”
Senate Democrats blocked an attempt by Senate Majority Leader Mitch McConnell last week to add $251 billion to the PPP by unanimous consent, demanding the measure include $150 billion for states and $100 billion for hospitals.
Democrats also want to set aside $60 billion of the funds for lenders like community development financial institutions, or CDFIs, to ensure that underserved small businesses that might not have an existing relationship with a traditional lender can access the program.
Randell Leach, CEO of Beneficial State Bank in Portland, Oregon, said he supports some kind of set-aside for CDFIs like his and other lenders that already work with underserved communities.
“We always knew there was a large swath of our communities that were left behind from the classic banking system: the underserved and underbanked,” he said. “So, how could the system that failed it, fix it?”
‘Don’t have time to delay’
But Senate Small Business and Entrepreneurship Chairman Marco Rubio, R-Fla., has said that earmarking some of the funds for specific types of lenders would take too much time for the SBA to administer.
Mills echoed those concerns.
“Complexity is not our friend here,” she said. “Things that have to be implemented quickly can’t have a lot of bells and whistles, or else there will be too many unintended consequences — one of which is delay. And we don’t have time to delay.”
Mills said there’s an easier way to ensure that the smallest small businesses get help: Congress should put a lending cap on $100 billion of the guarantee funds, limiting those to loans under a certain maximum, like $45,000. According to SBA data released Tuesday, the average PPP loan has been $239,000.
Beneficial State Bank’s Leach said there are other tweaks he’d like to see as well, such as raising the loan cap from 10 weeks of payroll to six months or a year. How much can be forgiven should also be increased from eight weeks to cover however long the stay-at-home orders are in effect, Leach said.
And the loan terms should also be increased from two years to the statutory limit of 10 years or longer, he said, so that if companies do have to pay them back, they aren’t saddled with paying back a big debt in just two years while the economy struggles to recover.
But the tweaks are not as important as getting more money out now, Leach said. Already, small businesses are starting to declare bankruptcy as quarantine measures have kept upward of one-third of the economy closed.
On Thursday, the Federal Reserve released a paper estimating that 18 million Americans have lost their jobs through April 4. Small businesses employed 47.5 percent of Americans before the crisis, and according to a 2019 study by the JP Morgan Institute, about half of small businesses couldn’t survive more than two weeks without revenues.
Small businesses and lenders are collectively some of the more powerful lobbies in Washington, spending hundreds of millions annually on political donations and meeting regularly with members. And they’ve now implored Congress to pass additional funds, fast.
“We’ve been hearing from our members, every day, worried the $349 billion lending program would run dry before help gets to them. Today, their worries became a reality,” National Federation of Independent Business President Brad Close said in a statement Thursday.
The Independent Community Bankers Association of America also asked Congress to move quickly but supported earmarking funds for smaller banks.
The White House has asked lawmakers for an additional $251 billion, but Mills said that was too low — they should up that to at least $350 billion. Leach agreed that topping up the program to $600 billion wouldn’t be enough. “We’re not even halfway through,” he said.
Leach shifted staff around so they could work on as many applications for the SBA’s PPP as possible. In the two weeks since the program started, Beneficial received around 2,000 inquires.
After the bank upgraded technology platforms to process applications more quickly over the weekend, Beneficial managed to get more than 300 loans approved through the SBA’s E-Tran system — about 15 percent of those who called the bank.
As the SBA announced that the program had run out of cash Thursday morning, Beneficial employees were still tallying their lending figures, but Leach said the community bank had processed more than $100 million in loans — about a tenth of their total assets.
“That’s more application volume than we had seen in the prior two years, and it’s close to a year of loan funding we’d normally do,” he said.
“Our team is catching our breath after a really hard push,” Leach said. “We’re ready to get back at it as soon as Congress allocates more funding, which we strongly encourage them to do.”
Mills, now a senior fellow at Harvard Business School, praised the SBA for stepping up during the crisis.
“I used to say small agency, big mission,” she said. “Thirty billion dollars in a year was a record,” Mills said. “Now, they’re doing $349 billion in two weeks. So, is this amazing? Yes.”