Much of the $350 billion in the Small Business Administration's emergency coronavirus relief fund was effectively spoken for within the first minutes of launch, according to senior banking executives.
"We didn't even get through the first five minutes of applications," a JPMorgan Chase senior banking executive said.
The bank received over 60,000 applicants for the Paycheck Protection Program within those first five minutes, a senior executive at Chase said. When funds ran dry after less than two weeks, only 27,000 loans had ultimately been approved, Chase said.
After reports revealed details about which companies had been successful in securing emergency funding, small-business owners across America were angry about having never made their way to the front of the line.
But according to some large lenders, there was no time for a line. The CEO of an independent bank said it was like “a stampede through the eye of a needle.”
A senior Bank of America executive said that, on the first day alone, the bank received over 10,000 applications per hour. The bank had just "thousands" of those approved by the SBA, CEO Brian Moynihan said during an earnings call last week.
Separately, Wells Fargo said the SBA had approved a total of 1,051 applications for $120 million. Over 170,000 "expressions of interest" were filed with the bank within just the first two days.
The bank said the high demand outstripped penalty restrictions on its ability to lend that were imposed by federal regulators two years ago following a fake account scandal. Wells Fargo's participation in the SBA coronavirus loans program was initially capped at $10 billion, but on April 8, the Federal Reserve allowed a temporary relief from those limits.
Overall, since the emergency fund was “first come, first served,” only small-business owners who got their applications in at the earliest possible moment were likely to get funded.
Other banks were also hit by a stampede of demand for the loosely defined program, intended to provide a general relief fund for America’s estimated 30 million small businesses with the assurance from Treasury Secretary Steven Mnuchin that money would be in their bank account within 24 hours.
“You get the money, you’ll get it the same day, you use this to pay your workers. Please bring your workers back to work if you’ve let them go,” Mnuchin said in a news conference the afternoon before the program's start, even as lenders were awaiting final guidance from the Treasury Department.
For the past two weeks, small-business owners have been checking their emails and calling their bankers and the SBA to check on the status of their application, not knowing that the first phase of the program was over before it barely began.
“It was Hunger Games,” said one senior banking executive.
Shawn O’Day, a disabled retired veteran, owns The O Bar in North Conway, New Hampshire. He believes he was one of the first to apply, and ultimately submitted requests through four separate banks.
“Every several days after not hearing anything, I'd go online and apply through another bank. After a week of this — as we all know, word came back recently all the money dried up,” he said.
“All I was trying to do was support my nine unemployed workers, but have been unsuccessful," he said. He also received a "friendly reminder on April 10 from my landlord that the rent was due April 1, which is still outstanding,” O’Day said.
From the very beginning, the fund appeared insufficient to meet the demand. If each one of America's small businesses had applied, they would each have received about $12,000.
Yet according to new data by Fivestars, a small-business marketing and loyalty platform service, 75 percent of the small- and medium-sized businesses with current mandatory shutdowns that the firm serves need a $55,000 infusion by May 1 in order to successfully restart when guidelines are lifted.
“Most small businesses on Main Street have very little runway. From our merchants we know that 75 percent have less than four weeks” of liquidity, said Chris Luo, head of marketing for Fivestars.
An estimated $1.8 trillion may ultimately be required to meet the needs of small business owners, Howard Mason, head of financial research at Renaissance Macro Research, said in a note to clients last week.
After Wells Fargo stopped taking applications, Matt Fhuere, the owner of a 14-person classic car restoration shop in Salt Lake City, Utah, opened up a new bank account. He waited on hold with the SBA for over three hours multiple times as he applied for several relief programs.
“I paid my accountant $500 to prepare, only to have to fill out their forms, finally get approval, on the same day money ran out,” he said.
“I built this company one dollar at a time,” he said. “Now I’m going to lose everything. The state and government have damaged me more than any virus did.”
CORRECTION (April 19, 2020, 9:33 a.m. ET): A previous version of this article misstated the amount of relief that small business owners need, according to one estimate. The amount is $1.8 trillion, not $18 trillion.