California business owners groan as SBA coronavirus loans run dry. Is more money coming?

For Sacramento beauty salon owner Missy O’Daniel, it looked like a lifeline for a business decimated by the coronavirus shutdown: a forgivable loan from the federal government.

But for her and many other business owners, the “paycheck protection program” has been more of a mirage.

The $349 billion program created by Congress as part of the COVID-19 stimulus package has run out of money, the U.S. Small Business Administration announced Thursday. The agency said it isn’t taking any more applications for the paycheck program, as well as a related “economic injury” loan program, “based on available appropriations funding.”

The announcement came a day after SBA administrator Jovita Carranza and Treasury Secretary Steven Mnuchin pleaded with Congress to put more money into the two programs.

Business owners had already been grumbling that the SBA’s lending programs, particularly the paycheck loans, were a major exercise in frustration. Borrowers had to go through their banks and credit unions to apply for the loans, and many institutions had stopped taking applications several days ago because their employees were overwhelmed with requests.

Banks were also stifled by lending limits. Even though the federal government was the ultimate lender, the banks had to abide by regulatory restrictions on how much money they can loan, said Virginia Varela, chief executive officer at Golden Pacific Bank in Sacramento.

The limits are based in part on the number of deposits and the amount of capital — the dollars put into the institution by investors — they hold. Although the Federal Reserve Board last week loosened those restrictions, lenders weren’t able to do as much business as they would have liked.

“Most banks and credit unions in the area had reached capacity by the middle of last week,” Varela said. Golden Pacific was able to get 80 loans approved, worth a total of $10 million, before it stopped taking applications, she said.

SAFE Credit Union, one of the major credit unions in the Sacramento area, received so many applications that it couldn’t count them all — not even a ballpark figure, said vice president of marketing Erica Dias.

Sacramento’s Merchants Bank of Commerce got hit with 600 loan applications before it put up the red light for new requests, said bank president Randall Eslick. He said the bank’s employees have been working long hours to process the existing applications, including over the Easter holiday weekend.

“We wish we could take care of more, we wish we could take care of everybody,” he said. “That’s more than we do in a year.”

Small-business owners strapped for cash

Potential borrowers such as O’Daniel were worried this would happen. The owner of Allure Salon and Spa, located across the street from the historic Governor’s Mansion in downtown Sacramento, had applied for $75,000 through Bank of America the instant the program window opened April 3.

“It was right at midnight, when we were allowed to apply,” she said. Fearful that the money would be exhausted, “I wanted to be one of the first,” she said.

O’Daniel has had to furlough her seven employees and forgiven the rent she charges to 11 other stylists who lease space at her shop.

“It’s very frustrating. I realize it’s all something new,” O’Daniel, a single mom with two teenage children, said of the loan program. “But you can’t mandate so many people to be out of work, with no resources. .... We have to be able to feed ourselves and our children.”

O’Daniel had already struck out in applying for a share of the $1 million business-loan program set up by the city of Sacramento.

Some big banks announced they will keep taking applications in hopes that Congress will put more money into the program.”

“We will continue to prepare applications in our existing pipeline from small and mid-size businesses and will submit them to the SBA when funds become available,” Wells Fargo & Co. said Thursday.

More money on the way?

The White House and House Democratic leaders continue to discuss ways to provide more money to the PPP funds. Senate Republicans tried last week to add $250 billion but were stopped by Democrats who wanted other provisions in the legislation, notably more aid to hospitals, food assistance programs, and state and local governments.

House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer of New York issued a joint statement earlier this week, saying, “Further changes must also be made to the SBA’s assistance initiative, as many eligible small businesses continue to be excluded from the Paycheck Protection Program by big banks with significant lending capacity.”

On a conference call with reporters Thursday, Pelosi said negotiations with the White House continue. She continued to insist that any additional funding include more help for hospitals, healthcare workers and first responders.

“We are big believers in small business,” she said, but immediate help is needed “for the hospitals...and the state and local governments, whether talking about health care workers, police, fire, EMS-all of that. We really need to recognize the danger that some people are in as they try to help us.”

Congress currently has no plans to meet in a full session, but if lawmakers agree to a plan, legislation can be passed quickly, and President Donald Trump blamed Democrats for not moving faster. In a tweet early Thursday, Trump blasted Pelosi as a “weak person” and a “poor leader.”

It couldn’t come soon enough for Kevin McCann, owner of Midtown Framing in Sacramento. He couldn’t apply through his lender, El Dorado Savings Bank, because the bank doesn’t handle SBA loans. He has a credit card through Citibank, but Citi told him it would take his application only when it was through handling requests from its regular base of small business borrowers.

“I never got to submit an application,” McCann said.

Phil Perry submitted applications for three businesses he owns or co-owns: a Sacramento restaurant called Southpaw Sushi, the Burger Saloon in Woodland and BPcubed Inc., a public relations firm in Sacramento.

So far, nothing. Part of the frustration is a lack of information on whether any of his applications succeeded. “We haven’t heard anything. ... There’s really no way to find out what’s going on.”

Perry did have some luck with the “economic injury” loans before they ran out of money. His burger restaurant was approved for funding and already received a $10,000 down-payment on the loan, he said.

The paycheck protection loans were considered particularly attractive. The loans were forgivable as long as at least 75 percent of the proceeds were used for payroll.

This story was originally published April 16, 2020 at 10:17 AM.