Finally — but perhaps too late? It took the second shortage of cash in this crisis for Treasury to finally put limits on its small-business lending program. The second tranche of the Paycheck Protection Program got capped at $2 million per loan after a series of larger publicly held corporations drained the fund in the first tranche, but it wasn’t the only emergency loan program Treasury operates. The Small Business Administration finally put a $150,000 cap on its bridge-loan program, but not before it got overwhelmed by applications:
The Economic Injury Disaster Loan program is a long-standing Small Business Administration program that’s separate from the new Paycheck Protection Program, which has challenges of its own.
Congress gave the disaster loan program more than $50 billion in new funding in recent relief bills to offer quick-turnaround loans to businesses slammed by the coronavirus pandemic. But by many accounts, it is failing spectacularly. After initially telling businesses that individual disaster loans could be as high as $2 million, SBA has now imposed a $150,000 limit without publicly announcing the change, said people familiar with the situation who were not authorized to speak publicly.
Additionally, the agency has faced a backlog of millions of applications for the disaster loan program for the past several weeks, several SBA officials have said.
The SBA has been so overwhelmed by demand that it is now allowing only agricultural interests to submit applications as it works through an enormous backlog. Key Republican senators had been pushing hard for farmers and agriculture companies to be able to tap the program, and they are now being prioritized over other prospective borrowers.
We’ll get back to EIDL in a moment, but let’s capture the context for the new caps first. The Paycheck Protection Program had much higher caps at first, up to $10 million, but few if any restrictions on qualifying as a necessity. The intent from Congress was to protect small businesses with few or no cash reserves. A large part of the first tranche instead went to publicly traded companies with more than sufficient cash reserves, in effect starving other businesses from the critical capital infusion to keep their doors open: