The government’s $788 billion relief effort for small businesses ravaged by the coronavirus pandemic, the Paycheck Protection Program, is ending as it began, with the initiative’s final days mired in chaos and confusion.
Millions of applicants are seeking money from the scant handful of lenders still making the government-backed loans. Hundreds of thousands of people are stuck in limbo, waiting to find out if their approved loans — some of which have been stalled for months because of errors or glitches — will be funded. Lenders are overwhelmed, and borrowers are panicking.
The relief program had been scheduled to keep taking applications until May 31. But two weeks ago, its manager, the Small Business Administration, announced that the program’s $292 billion in financing for forgivable loans this year had nearly run out and that it would immediately stop processing most new applications.
Lenders suspected funds were running low, but — in a break from its practice last year — the S.B.A. had not given them running updates on how much money remained. As a result, lenders had no warning that the end was imminent.
Then the government threw another curveball: The Small Business Administration decided that the remaining money, around $9 billion, would be available only through community financial institutions, a small group of specially designated institutions that focus on underserved communities.
Those organizations specialize in reaching businesses owned by women and minorities, a priority for the Biden administration. But they are not intended to operate on a large scale — and suddenly thousands of desperate borrowers were beating down their door.
In something akin to a game of musical chairs, banks and other lenders are now frantically trying to find community financial institutions to take over their backlog of applications. Even though most focus on underserved borrowers, they can process loans for any qualified applicant — but very few have the capacity to do that in large numbers.
The Paycheck Protection Program has had a rocky road since its inception. Its early days, in April 2020, were plagued by technology problems and confusing rules. Big banks rebuffed many borrowers, and some prioritized bigger and wealthier businesses.
Fraud has been a constant challenge, too, and the Justice Department has charged hundreds of people with taking loans illegally. Many of the tiniest businesses were entirely shut out; a late move by the Biden administration to get more money to solo business owners wreaked havoc for lenders and contributed to the recent deluge of applications.
Now, an additional bottleneck is causing turmoil: Banks and other mainstream lenders are racing to finalize hundreds of thousands of applications that were still in progress when the Small Business Administration closed the program to new applications. Those loans could still be funded, the agency told them, but they would need to move fast.
That set off a panic, with anguished applicants besieging overwhelmed lenders — especially so-called fintechs, a group of online lenders that cranked out P.P.P. loans at a blistering pace. Many took on more customers than they could handle and are now struggling to manage irate borrowers clamoring for help and information.