In April, when the federal government offered $349 billion in loans to small businesses reeling from government shutdown orders in the pandemic, the funding ran out in just 13 days, prompting Congress to swiftly approve a second round of $310 billion.
Small businesses have since grown more wary of taking the money.
As of Tuesday, more than $130 billion was left in the fund, known as the Paycheck Protection Program. Even more striking was the fact that on many days last month, more money was being returned than borrowed, according to data from the Small Business Administration, which is overseeing the program — highlighting its messy execution and confusing rules that deterred some small businesses from using the money.
Thousands of companies that received loans have sent the money back, according to lenders. For some owners, the program’s terms were too restrictive; for others, the criteria for loan forgiveness was too murky. Some public companies that received these loans returned them after a public outcry; and in the initial rush, some borrowers accidentally received duplicate loans that they, too, returned.
A total of around $12 billion was returned, Treasury Secretary Steven Mnuchin said at a Senate hearing Wednesday. The amount of loans outstanding under the program dropped to $510.2 billion at the end of May, from $513.3 billion in the middle of the month, according to SBA data.
By Tuesday, the amount of approved loans had inched back up to $511.4 billion — indicating that changes Congress made to the program last week to make it less restrictive could be pushing more money out the door.
But obstacles remain. The program’s chaotic execution has “chilled the willingness of many small businesses to even apply for loans during the second round of PPP funding and has caused many businesses to return disbursed loans out of fear of doing something wrong,” Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, a trade group, said last week at a hearing of the Pandemic Response Accountability Committee, an oversight group.
Congress has since moved to loosen the program’s rules and give businesses more flexibility in spending their aid, and President Donald Trump signed the bill, co-sponsored by U.S. Rep. Dean Phillips, D-Minn., earlier this month. The change, was widely praised by small-businesses advocacy groups and will help many borrowers.
The amended rules could help the remaining $130 billion move faster. “My expectation is that we will definitely see businesses that were on the sidelines now take it,” Mnuchin said.
But having the terms of their loans revised on the fly yet again — which has happened repeatedly since the program began in April — is a nightmare for borrowers as they struggle to salvage their companies.
“I cried the day I sent it back,” said Shelly Ross, owner of Tales of the Kitty, a catsitting company in San Francisco, who recently gave up on using her $75,000 loan and returned the money. “I thought this would save my business, but I was worried about being financially ruined if it wasn’t forgiven, and no one could give me any real answers about that.”
Ross started Tales of the Kitty in 2003 and expanded it into a thriving venture with 14 employees and a packed schedule of 10,000 client visits a year. In March, her sales plummeted because of the pandemic, forcing her to lay people off. The lack of clarity around loan forgiveness cemented Ross’ decision to return her loan. She considered simply paying her workers to stay home for eight weeks, which the program allows, but she worried about having to lay them off again when the money ran out.
Then, the week after she received her loan, the SBA released its forgiveness application. Ross tried to run the calculations for her business, but her staff is mostly part-time employees with variable hours. She consulted her accountant, her bookkeeper, a lawyer and her lender to figure out how much of her loan would qualify for elimination.
None could give her definitive answers. Scared she would be stuck with a big debt, Ross sent the money back.