The Paycheck Protection Program, Round Two

U.S. small businesses have been waiting on pins and needles for Capitol Hill to determine the future of the Paycheck Protection Program (PPP), and now they’ve gotten their answer. The Senate has voted by unanimous consent to allocate another $484 billion in an interim relief fund, $310 billion of which will top off the depleted PPP fund directly, with an additional $60 billion specifically for smaller lending institutions. The House is expected to pass the measure on Thursday (April 23), with President Donald Trump signing it into law by week’s end.

The $60 billion for smaller lenders will be split evenly between institutions with less than $10 billion in assets and those with between $10 billion and $50 billion. That’s aimed at community banks and credit unions, a move meant to rectify a flaw in the first appropriation, where mom-and-pop businesses found themselves crowded out of PPP funds by larger “small” businesses that worked with big banks.

The initial $350 billion in PPP funds allocated as part of the massive $2.2 trillion CARES Act stimulus were quickly exhausted. In less than two weeks, all of the money had been allocated to firms that had successfully submitted applications via their banking institutions – about 1.6 million SMBs so far, according to Small Business Administration (SBA) data. How many are still left in the pipeline, given that the U.S. has an estimated 30 million SMBs, is the $310 billion question – the answer to which will be determined in the next few days, as applications open up and the next wave hits financial institutions (FIs).

On the upside, there are reasons to hope that the distribution of funds will go a bit more smoothly in the second round than in the first. Lack of clarity around federal underwriting rules for FIs, combined with technological issues with the SBA’s processing platform E-Tran, as well as a holdup in approving non-SBA lenders (like FinTechs), slowed the initial rollout of the program – particularly for very small SMBs that didn’t have extensive banking relationships prior to the COVID-19 crisis.

“Ironically, the very small businesses who are the ones … most at risk from this economic crisis and least resilient … are going to be the last ones in line to get money because they’re not existing bank customers, and their lenders who they trust and rely on are not able to access the program,” John Pitts, head of policy for the FinTech Plaid, recently told Fortune.

And while those smaller mom-and-pop shops have struggled to get to the table, larger and more established firms like the parent companies of Shake Shack, Potbelly Sandwich Shop and Ruth’s Chris Steak House managed – with their more extensive banking relationships and well-financed internal machines – to more easily navigate the application process and snap up controversially sizable loans in the first round.

Facing public outcry over its $10 million PPP loan, Shake Shack parent Union Square Hospitality Group (USHG) announced that it will return its funds, as it has access to other capital to help it stay afloat and pay more employees during the pandemic.

USHG noted that it’s burning through money and facing operating losses of over $1.5 million each week, but wrote in an open letter on LinkedIn that “we now know that the first phase of the PPP was underfunded, and many who need it most haven’t gotten any assistance. We’ve decided to immediately return the entire $10 million PPP loan we received last week to the SBA so that those restaurants who need it most can get it now.”

But will those firms be able to get those funds now that they arguably need even more than they did two weeks ago? That is the question still lacking an answer.

The technical issues with E-Tran seem to have been solved, and banks of all sizes now report being ready to process the next round of loans much more efficiently than the last round. But there will be a lot of loans to be processed.

“I know one bank that got roughly 5,000 applications and was able to get 2,000 approved, so it already has 3,000 PPP applications in hand and ready to go when and if there’s additional funding,” Paul Merski, group executive vice president of congressional relations and strategy at the Independent Community Bankers of America, told Inc.

And, Merski noted, as fast as the first round was depleted, the second round could go even faster, given that the need has gotten much more acute among entrepreneurs nationwide.

“In the last couple days of the first tranche, you could have a burn rate of $40 to $50 billion a day,” Merski said, noting that he fully expects to see that met and exceeded once the second-round tranche of funds opens. And when banks run out of money this time, they might really be out.

True, U.S. Treasury Secretary Steven Mnuchin told CNBC when the program first rolled out that SMBs would get their money no matter what. “I want to assure all small businesses out there that we will not run out of money,” he said. “If you don’t get a loan this week, you’ll get a loan next week or the following week. The money will be there.”

But that bold proclamation was made roughly $3 trillion in federal stimulus spending ago. And in the interim, legislators in some segments are losing their enthusiasm and beginning to balk at the bills the federal government is creating for itself.

In a phone interview with Politico, Senate Majority Leader Mitch McConnell (R-Kentucky) started signaling that in future appropriations rounds, Congress will have to exert some level of economic “caution.”

“You’ve seen the talk from both sides about acting, but my goal from the beginning of this, given the extraordinary numbers that we’re racking up to the national debt, is that we need to be as cautious as we can be,” McConnell said. “We need to see how things are working, see what needs to be corrected, and I do think that the next time we pass a coronavirus rescue bill, we need to have everyone here and everyone engaged.”

That means what comes next in PPP funding might be all that comes – at least in the near future. Businesses that make it in this time might buy themselves a few more months. Those that don’t might not make it long enough to hold out for the next appropriation, as PYMNTS’ latest survey results show.