The application window for Paycheck Protection Program loans closes Tuesday.
Photo: SMG/Zuma PressWASHINGTON—When the Trump administration first launched its $670 billion pandemic relief program for small businesses, a mad dash to secure forgivable loans had many business owners worried there wouldn’t be enough money to go around.
Three months later the application window for Paycheck Protection Program loans closes Tuesday with about $134 billion in funds available as of Monday evening. That surplus has triggered a new debate over what to do with the remaining funds, as fears mount that the economic fallout from the Covid-19 crisis is far from over.
“We need to be focused on keeping as many businesses viable as possible so as the economy reopens—we can see that’s already going to happen in fits and starts—that they are able to start to regrow and repurpose themselves,” said John Arensmeyer, chief executive of Small Business Majority, an advocacy group.
Congressional aides said there is bipartisan support for allowing the leftover funds to be used for small business relief, although there isn’t yet consensus on how to do so.
Senate Democrats have proposed legislation that would allow small businesses to take out a second PPP loan if they have 100 or fewer employees. Previously the program was generally open to companies with 500 or fewer workers.
To qualify, businesses must demonstrate a revenue loss of 50% or more because of the pandemic and have already spent an initial PPP loan or be on pace to do so.
“Many small businesses will continue to struggle in the weeks and months to come,” said Ben Cardin (D., Md.), the top Democrat on the Senate Small Business Committee, in a statement. “Every business we prevent from failing now is a business that will be in a position to create jobs during the recovery.”
There is a companion bill in the House proposed by Rep. Angie Craig (D., Minn.).
Aides for Sen. Marco Rubio (R., Fla.), chairman of the small-business committee, said a bipartisan task force is currently working toward consensus on a final agreement to implement the next step to support small businesses.
In a separate development, Sens. Kevin Cramer (R., N.D.) and Kyrsten Sinema (D., Ariz.) plan on Tuesday to introduce legislation that would forgive all loans under $150,000. The amount was selected because it would encompass 85% of all PPP loans but only about 26% of the program’s total dollars.
Treasury Secretary Steven Mnuchin said at a Senate panel on June 10 that he believed another round of bipartisan legislation was needed to pump more money into the economy but that such efforts should be carefully targeted.
Economists, business owners and bankers point out that the PPP left behind the most vulnerable companies that were shut down and unable to rehire workers. However, policy makers and others say the program has also helped small businesses keep their workers employed and weather the effects of closures and demand declines caused by the pandemic.
As of Monday, the Small Business Administration had approved 4.8 million loans worth $519.65 billion. The program makes up the largest part of the government’s $2.6 trillion Covid-19 response spending.
After the initial funding of $350 billion was depleted in less than two weeks, Congress allocated another $310 billion in late April. But the underlying demand has turned out to be less significant, and in general, businesses that were interested in the PPP have already received funds, experts say.
A June 16 survey of business owners by the National Federation of Independent Business showed 81% of respondents applied for PPP loans—and nearly all of them had received funds in their bank accounts. A great majority of PPP borrowers, or 86%, said they don’t anticipate laying off any employees after receiving the funds, while 14% said they’d still have to lay off workers, according to the NFIB survey.
To spur borrower interest, Congress and the administration made some significant changes to the program. They include extending the duration of the loan period from eight weeks to 24 weeks and allowing more flexibility on how funds are spent. An earlier requirement to spend at least 75% of funds on payrolls to receive full loan forgiveness was eased to 60%, and a new simplified forgiveness form was introduced to help borrowers of smaller loans.
Such steps didn’t result in a significant increase in loan demand but may have encouraged some borrowers. While many banks had stopped taking PPP applications weeks earlier, lenders working with smaller businesses say they have seen last-minute spikes in loan applications in recent days.
“A lot of people waited till the end,” said Kathyrn Petralia, co-founder of Kabbage, an online lender targeting small-business borrowers.
Kabbage had processed nearly 200,000 loans worth $5.6 billion by Monday, including over 40,000 loans processed in the past week. But Ms. Petralia said many businesses were hesitant to apply, concerned that the loans may not be forgiven.
“People are finally realizing that it’s now or never,” Ms. Petralia said.
While the total amount of loans approved by the SBA increased by about $4 billion last week, much of the increase reflected last-minute applications for small-size loans. A total of 3.18 million loans of $50,000 or less, valued at $57.6 billion, were approved by June 27, up from 3.06 million loans worth $56 billion a week earlier.
The latest NFIB survey showed that 47% of businesses that took PPP loans and/or funds from the SBA’s separate disaster loan program anticipated needing additional financial support over the next 12 months.
“Now that we are seeing some states rein back on their phase three and phase four reopening, with even some scaling back, that’s certainly going to impact those industries,” said Holly Wade, director of research and policy analysis for NFIB.
—Natalie Andrews contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
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