SBA Runs Out of Funds After Being Eyed by Shake Shack, Denny’s, and Chili’s

The SBA’s PPP program, meant to help small businesses survive the pandemic, has officially run out of money — just six days after it was opened up to independent contractors and sole proprietors.

While it’s not known who exactly was allowed to tap the PPP program, Wall Street Journal previously reported that it was being looked at by large restaurants such as Shake Shack, Denny’s, and Chili’s. And, with a cap at 500 employees, the program was already targeted more at mid-sized businesses than mom-and-pop shops. But a special loophole meant that hotels and restaurant chains could apply for the funding regardless of the amount of employees they had.

Now, business owners whose applications were still processing or hadn’t yet been touched have been left adrift — while companies that were never shut down are being offered essentially free payroll.

The Largest of “Small Businesses” Get a Break

Market Watch reported:

…SBA data suggest that much of the approved funds have been earmarked for the largest small businesses. The average loan size approved was $239,152, according to data it released Tuesday.

In many respects, this makes sense. Both the EIDL and PPP ultimately have a singular goal: reducing the amount of unemployment in America. Therefore, the businesses that employed the most people were prioritized.

Unfortunately, this is bad news for smaller businesses, who are likely in far more dire straits. Increasingly, the economic outlook for the small business and for the individual proprietor look bleak: The more money one has, the more money one can receive.

Which is not to say that some small businesses didn’t make the cut. But in order to qualify with most major banks, businesses needed to have pre-existing relationships with lenders, something most businesses simply did not. Other businesses were left waiting after putting their information in with Kabbage , Lendio, and other third-party solutions. Business owners online have taken to calling these platforms “black holes.” For most, nothing ever emerged.

Late in the game, PayPal emerged as a dark horse, and began to process PPP funds with startling speed. This was only two days before the funds were exhausted, however — and many missed the boat.

Borrowers Continue to be Inundated With Mixed Messages

Many borrowers are frustrated not only by the limited funding, but also the channels through which information is being distributed. Borrowers who filled out a long-form EIDL claim, for instance, were not told directly that they needed to fill out a streamlined short-form EIDL claim to be considered — they had to log into the portal to find that out. The aforementioned PayPal PPP loans were not known to many borrowers until after funding was depleted. Thus, desperate business owners are trapped in a cycle of finding out information too late to be of use to them.

As of this writing, I have an email from SBA.com (which is not affiliated with SBA.gov, but no stone left unturned) at 2:18 PM saying that the SBA has ceased all processing of applications, and that if you have not received a loan approval by now, you will not get a loan. I also have an email from 4:14 PM from Ready Capital saying that I have an application number and that I will be contacted by an underwriter in a few days.

This is not conflicting information, but rather information that serves as both a particle and a wave. Once this wave form collapses, I will know whether my business has survived. Until that point, it remains in a fully indeterminate state.

Lendio CEO Starts Petition to Increase SBA Funds

Brock Blake, Lendio CEO, has started a petition to increase funds released to the SBA immediately. Helpful, but not altruism — many small bank lenders approved for PPP have been pushing as many loans through as possible, as they do get a substantial fee for doing so. In fact, these lenders may be indirectly responsible for the loans being depleted so quickly: They have likely been pushing through the most profitable loans as fast as they can.

Blake writes:

Unfortunately, in 12 short days, the entire $349B has been exhausted. Only 2,000,000 of the reported 30,000,000 SMBs in the U.S. — only ~6.7% — have been approved! In other words, 93.3% of SMBs have not had the chance to get the capital that they desperately need to keep the lights on.

Of course, not every business in the United States needs a loan. But as of yet, there’s no way of knowing where the money went. There’s no accountability or transparency in this situation, and therefore, it’s impossible to know how much of these funds are being sent to large businesses masquerading as small businesses.

Blocked by Bi-Partisan Fury

The government has been discussing adding more to the fund. However, Republicans and Democrats are reportedly at a stalemate. While the Democrats have been blamed for holding up the package, Speaker Pelosi claims that this is because there are other priorities at hand. Per WSJ:

Republicans have argued that the need for small businesses is more immediate, but Pelosi disputed that. “It’s very, in our view, self-evident that that need for state and local and hospitals is urgent now,” she said. Pelosi said negotiations were ongoing, and also said Democrats wanted to see more data on how the small business program has functioned so far.

In many respects, this is true — but it’s also not mutually exclusive. That being said, more oversight for the small business program is likely to be better for truly small businesses long-term. An increase in funding now, when so much of the funding is going towards larger businesses, would likely not help local economies as much as is hoped.

At least for now, small businesses are left in a lurch. Many of them have been pinning their hopes on EIDL or PPP. Independent contractors and gig workers hoping to get PPP to compensate for their lost wages are likely out — they only had a few days to apply before the funds completely dried up.

As we await information from Washington, let’s reflect on the immortal words of the Wu-Tang Clan:

Cash Rules Everything Around ME

CREAM, get the money.

Dolla dolla bill, y’all.

Truly words for a great nation to live by.