The nation’s hottest business relief program turned into a dud this week.

After snapping up more than $500 billion in emergency loans in just three weeks, small-business owners have suddenly lost interest in the federal Paycheck Protection Program.

Bankers say new applications have slowed to a trickle, a stunning turnaround from the early days of the program, when panicked business owners contacted multiple financial institutions in a desperate attempt to find anyone willing to handle their application.

In the past seven days, the U.S. Small Business Administration approved just $10 billion in new loans, indicating it could take more than a month to burn through the remaining $125 billion. Bankers originally expected the entire fund to be exhausted sometime last week.

“People are starting to realize this may not be a forgivable loan,” said Keith Rachey, senior vice president of Community Reinvestment Fund USA, a nonprofit in Minneapolis that has steered more than $500 million in PPP funds to small-business owners. “And that is going to create cash-flow problems for some of these businesses.”

Although federal officials have promised to forgive any loans as long as companies spend at least 75% of the proceeds on payroll within eight weeks of getting the money, millions of small businesses have yet to reopen, including popular restaurants and retailers. And many business owners are reluctant to hand out paychecks to people who aren’t working.

“I am too scared to spend it,” said Tony Zaccardi, who received a $69,000 PPP loan to rehire the 18 people who work at Palmer’s Bar in Minneapolis.

Palmer’s, like other bars and restaurants in Minnesota, closed in mid-March when Gov. Tim Walz issued his first stay-at-home order involving the COVID-19 virus. Though the current order expires in about a week, the governor has not indicated when he will let bars and restaurants reopen. Zaccardi is afraid he won’t see any customers until July.

“I really can’t bring my employees back to do nothing,” said Zaccardi, who plans to give the money back if he can’t get the debt forgiven. “The payments on my loan would be $3,000 a month. I can’t take on that kind of debt.”

Bankers say the eight-week deadline for spending the money is the main complaint they hear from small-business owners. But bankers said there is also concern about the U.S. Treasury Department’s recent decision to require audits of any company that receives more than $2 million from the program and warnings that any company that obtained the funds without suffering a virus-related downturn will face “severe consequences.”

“Businesses that took the money are now giving it back because they are nervous about the changing rules,” said Paul Merski, vice president of congressional relations at Independent Community Bankers of America, a trade group that represents more than 5,000 small and midsize financial institutions. “It makes a big difference to a small owner if they take out $300,000 and that is a loan versus a grant.”

Congress created the PPP in March, primarily as a way of keeping millions of small business workers off unemployment. But political leaders have repeatedly billed the program as a bailout for small business owners, leading to a stampede for the money. The first $349 billion round of funding was gone in 13 days, prompting Congress to approve another $310 billion for the program in late April.

For a few days, a huge backlog of applications overwhelmed the government’s ability to process the second batch of applications. But since then, the flow of money has moved smoothly, according to lenders, who borrowed employees from all parts of their operations to speed the pace of relief.

The program has also done a better job of getting money to companies that need help the most, according to lenders who focus on helping small minority- and women-owned businesses.

“I think the government learned their lesson from the first round,” said Patrick Pariseau, director of financing solutions at the Metropolitan Economic Development Association, which helped dozens of minority business owners obtain PPP loans in the second round.

Not only did Congress set aside $30 billion for nonprofits like MEDA, the SBA also reserved blocks of time in which big banks were locked out of the process to make sure community-based lenders were able to get their loans approved. So far, businesses have borrowed an average of $74,000, down from $206,000 in the first round.

But many company owners are now preparing to hand back a big chunk of the money they received, saying they won’t have enough time to spend it on payroll as required. Bankers said such reluctance to use the money as intended could sharply reduce the overall impact of the PPP program.

“It’s a frivolous exercise to go through all of this rigmarole if all these companies do is return their loans,” said David Reiling, CEO of Sunrise Banks in St. Paul.

Alan Korpi, who owns three Green Mill restaurants in Minnesota, expects to return two-thirds of the $600,000 or so he is due to receive from the program this month.

Though he is accepting takeout orders, his sales are down about 65%, forcing him to lay off more than 100 of his employees.

“We need months to get back on our feet, not weeks,” Korpi said. “Do you want to get served by somebody with a face mask and rubber gloves on?”

Though his PPP loan carries an interest rate of just 1%, Korpi said his company would probably have to file for bankruptcy if he had to repay the money.

“We don’t need another loan,” Korpi said. “We can’t pay it back.”

Pete L’Allier, who operates clinics in Hopkins and Woodbury that provide chiropractic and physical therapy services, qualified for a $500,000 PPP loan. But L’Allier borrowed just $426,000 because he knew he couldn’t use all of the money in eight weeks. Now, he thinks he was too optimistic. He expects to return at least $50,000.

Although he was never forced to close, L’Allier said he has brought back just half of his 42 employees. He voluntarily reduced his bookings by half to make sure his clients can maintain social distancing. He said it could take another three months for his business to fully recover.

“The PPP has been a lifesaving thing for a lot of businesses,” said L’Allier, who received his funds on April 21. “But I think it has to be adapted a bit. They should let employers use those funds over the course of the rest of the year.”

Rob Scott, a regional SBA administrator who oversees Minnesota and five other states, said many businesses have expressed concerns about the eight-week deadline. But he said employers are expected to rehire furloughed employees immediately. “Opening up the doors is immaterial,” Scott said.

On Friday, U.S. Sen. Tina Smith, D-Minn., asked the SBA and the U.S. Treasury Department to clarify the steps business owners need to take to get their loans forgiven. She also asked the agencies to do more to communicate that information to business owners.

In an interview, Smith said she favors giving business owners more than eight weeks to rehire their employees.

“Those deadlines were created in March, when nobody thought businesses wouldn’t be reopening within a few weeks,” Smith said. “Many states hadn’t even imposed stay-at-home orders yet. The world has changed rapidly. We have to be able to respond to that.”