Washington and Wall Street squabble over extra small business funding – Business Insider
  • On Tuesday, the Senate approved another $380 billion for small-business relief loans through the Paycheck Protection Program and Emergency Injury Disaster Loans.
  • Democrats fought to include provisions that would funnel PPP loans to smaller banks and rural and minority-owned businesses.
  • But with a burn rate of $50 billion per day in the last round of funding, and nearly 1 million small-business applications waiting to be approved, banks say this money could dry up within days.
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Small-business owners likely have another government cash infusion coming their way, but key players from Washington to Main Street are skeptical that it will reach their pockets before the program runs out of funds once again. 

On Sunday night, Republican and Democratic leaders discussed a deal that would send $320 billion to the Paycheck Protection Program (PPP) and set aside $60 million of that for rural and minority-owned businesses. The deal would also add $60 million for the Economic Injury Disaster Loan program.

Business Insider obtained a draft of the bill, which the Senate passed on Tuesday and the House is expected to approve on Thursday.

The last stimulus package allocated $349 billion for PPP loans, which dried up within two weeks. Nearly 1 million small-business owners are waiting for their applications to be processed, and thousands more have yet to apply. 

But lenders say that additional funding may not reach small-business customers. Banking representatives told Politico that the program had a burn rate of $50 billion per day and would need about $1 trillion to meet nationwide demand. 

Here’s everything we know about the additional emergency funding, what legislators say are the key issues, and what banks say they need to help America’s small businesses.

Democrats want changes to help rural and minority-owned businesses 

Republicans pushed the bill as a quick standalone cash infusion for small businesses, but House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer wanted an additional $250 million for hospitals and local governments before agreeing to the terms.

Democrats also pushed for more of the PPP money to go to rural and minority-owned businesses, as well as local firms and startups without long-standing connections to banks. The “unbanked,” Schumer told CNN’s “State of the Union” in an interview Sunday, tend to be smaller businesses without much credit history.

Class-action lawsuits in California allege that firms had a harder time getting loans in the last round of PPP funding because banks prioritized richer clients. The Trump administration agreed to set aside $60 billion for these businesses.

Some said businesses owned by people of color were cut out of the last $349 billion stimulus because they are less likely to have existing relationships with banks or Small Business Administration lenders.

A study by the Center for Responsible Lending said 95% of black-owned businesses and 91% of Latino-owned businesses had a lower chance of receiving a PPP loan through a mainstream bank or credit union. The study also said that banks were lending to businesses with larger payrolls than most minority-owned businesses.

Mitch McConnell wants to keep the small-business-lending program ‘clean’ 

Last week, Senate Majority Leader Mitch McConnell said he would favor providing more money for hospitals and healthcare providers later on but wanted to keep funding for small businesses “clean.”

Adding funding for hospitals could draw out the approval process, as senators would push benefits for their own states.

McConnell told GOP lawmakers in a phone call on Sunday that the Democrats’ request for $150 billion for state and local governments would not make it into this bill, according to CNN.

“I am encouraged that Democratic leaders have finally agreed to reopen the Paycheck Protection Program and abandon a number of their unrelated demands,” McConnell said in a statement before the vote on Tuesday.

House Majority Leader Steny Hoyer (D-Md.) disagreed with McConnell’s assessment on a press call reported by Politico.

“When you look at the package that’s going to be passed, it’s almost exactly like the one we asked for two weeks ago,” Hoyer said. “We’re ending up with a bill we could’ve passed 12 days ago.”

Marco Rubio is worried this launch will be just as chaotic as the one on April 3 

For nearly two weeks, Sen. Marco Rubio, the Senate Small Business Committee chairman, has been steadily beating the drum for additional funding for PPP and lashing out at Democrats.

“Senate Democratic leaders decided to take the program hostage as leverage for unrelated items,” he said in an April 9 video on Twitter. “This is a hole we need to plug right now because this program is going to run out of money.”

A week later, he called Democrats’ concerns about funding for hospitals, testing, and underserved businesses “ridiculous and lame excuses for blocking something they supported just three weeks ago.”

On Monday, Rubio expressed some relief that a bill was imminent but worried that the nearly 1 million backlogged applications would create the same sort of havoc that plagued the launch of the program.

“PPP was never designed to be the ‘Hunger Games,'” Rubio said on Tuesday, just hours before the Senate was expected to call a vote on the new funding.

“We always knew the program would need more funds,” he added, reiterating his frustration with Democratic leaders over the weeklong delay in the program. “That needs to end today.”

Donald Trump calls support for hospitals and local governments ‘extraneous’  

During a coronavirus task force briefing on Saturday, President Donald Trump said PPP loans have been a “game changer” for some small businesses and that a reauthorization vote should be unanimous. He also blamed Democrats for delays.

“Lawmakers must stop blocking these funds and replenish the program without delay. The Democrats have to come on board,” he said.

Trump also called Democrats’ request for expanded testing capacity, support for state and local governments, and increased food aid “unacceptable.”

“This is about COVID,” he said. “This isn’t about extraneous things that they’ve been trying to get for years and that our country doesn’t want them to have.”

But a day later, Trump acknowledged the need to assist state and local governments, suggesting that Republicans were holding back that aid for their own future political leverage.

“Some states and local governments need it. I’m the first one to admit that,” he said. “We’re going to be saving that for another little bit of a later date.”

After discussions on Sunday, Trump said he expected to approve the increase this week.

Lenders say an extra $300 billion will last only a few days

During the first phase of the lending program, loans were given at rates of more than $3 billion per hour — and since then, even more lenders and applicants have joined the fray.

Over 5,000 lenders are now approved to participate in the program, and banking-industry representatives said the program would use up $50 billion per day, according to Politico. At that pace, the funding authorized this week would be used up by next week, if not sooner. 

“This is going to go within, at most, 72 hours,” Richard Hunt, the president of the Consumer Bankers Association, told Politico. “But the odds are more like 48 hours.”

Large banks have disclosed numbers that reflect extraordinary demand. A Chase executive told NBC that all 27,000 loan applications the bank approved had been received within five minutes of the opening of its portal; 33,000 additional applications from that time window were left waiting.

Four large banks — Wells Fargo, Bank of America, JPMorgan Chase, and Bancorp — are now facing class-action lawsuits from plaintiffs in California who allege that the lenders prioritized applications to maximize gains from the program’s fee schedule.

“Thousands of small businesses that were entitled to loans under the PPP were left with nothing because Chase chose to maximize its loan-origination fees,” the complaint against Chase alleged.

To address concerns that “underbanked” business — especially rural and minority entrepreneurs — were being left out, Congress agreed to allocate $60 billion for banks with assets of $50 billion or less.

Small businesses still need $1 trillion to survive

Less than 3% of the expected 60 million PPP applicants were approved before the first round of funds were exhausted, and banking-industry experts said the program needed about $1 trillion more in funding to meet the demand, Politico reported. Anything less could dry up within a couple days, leaving most small businesses back at square one. 

Some applicants say banks have used the program as a way to shore up their relationships with big companies while ignoring the clients who need the funding most. An Associated Press investigation found at least 75 publicly traded companies received a combined $300 million in PPP loans. 

At least six restaurant chains received more than $80 million in coronavirus stimulus loans. After the backlash, the burger chain Shake Shack returned its $10 million PPP loan, while two subsidiaries of Ruth’s Hospitality Group, the owner of Ruth’s Chris Steak House, held on to $20 million.

In addition, the program’s 1% interest rate attracted borrowers who acknowledged their businesses didn’t need them. Intellicheck, a $73 million identity-theft- and fraud-detection company, announced it had received a PPP loan of $796,100, despite its “solid footing at this time.”

The billionaire Mark Cuban told Forbes that it made sense the PPP loans were driven by lenders’ connections.

“These are the customers the banks know the best and can approve the fastest, and most likely are among the biggest of their small business customers because that’s who they would spend the most time with,” he said. “Combine that with the fact that banks were understaffed and it was as much a race by banks to get access to a finite pot of stimulus as it was by small businesses and we get the mess we got.”

Read the full text of the draft of the bill:

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