MANHATTAN (CN) — After two days of losses, Wall Street was lifted up by a boon to Main Street, as additional funding for small business loans propped up markets.
Investors rallied Wednesday following news the day before that the Senate had unanimously passed the $484 billion relief plan, funding the Small Business Administration’s Paycheck Protection Program with an additional $310 billion.
The program’s original $349 billion in funding ran dry earlier this month after just two weeks of working with small businesses, sole proprietorships and self-employed business owners who had rushed their banks to get a cut of the cash.
Markets had suffered a two-day selloff due to plunging oil prices. Oil contracts for May in the West Texas Intermediate fell deep into negative territory, but contracts for June climbed out of the grave to settle at $14 a barrel, still a precariously low level.
The inkling of good news in crude prices, as well as the SBA’s fresh funding, helped the Dow Jones Industrial Average recoup some of its losses from the last two days. The Dow closed at 23,469 points, nearly a 2% increase, while the S&P 500 and Nasdaq had slightly greater percentage increases
The House is expected to vote on the SBA bill on Thursday, after which President Trump will likely sign it immediately.
The SBA has been immensely popular among small businesses, with nearly 1.2 million of the 1.6 million approved applications going to businesses with an average monthly payroll of $60,000 or less.
Community banks have done yeoman’s work in processing the applications, while many larger banks were also beset by a glut of applications. Bank of America, for example, has reported receiving nearly 400,000 applications worth $50 billion in loans. The bank has more than 8,000 employees working on processing the applications, a spokesman said.
Despite its popularity, however, the SBA’s lending program has been rife with both technical and systemic problems.
One issue is the waiting game for some businesses already approved. A survey earlier this week by the National Federation of Independent Business found that 80% of small businesses that submitted successful applications had not yet received their funds, with many unsure where they are in the application process.
In a video tweet Wednesday, Senator Marco Rubio said applicants who were approved but haven’t yet received funds should look to their bank for answers. “I want you to understand, you’re not waiting on the government,” the Florida Republican said, noting the funding comes not from the Treasury but from bank deposits. “You’re waiting on them, you’re waiting on the bank to disperse those funds.”
A potentially bigger problem is an expectation that the new tranche of funding will run out in a matter of days. In comments to Politico, CBA President Richard Hunt said he expects banks can stretch the funding for perhaps an additional three days. “But the odds are more like 48 hours,” he told Politico.
“It’s going to run out very quickly,” said Paul Merski, the lead lobbyist for the Independent Community Bankers of America. “The first round of $350 billion ran out in 14 days, and that was with all the fits and starts. Now you have tens of thousands of applications already in the queue at banks.”
The bill sets aside $60 billion specifically for small- and mid-sized community banks in an effort to prevent smaller businesses from being edged out by the restaurant chains and franchises.
Merski said the Federal Reserve’s Main Street Lending program — which is designed to prop up mid-sized businesses with more than 500 employees — may offset the stampede for the PPP by luring away some of franchises and publicly traded companies.
“They may be a better fit for that program,” he said.
Treasury Secretary Steven Mnuchin derided restaurant chains and other big companies that tapped the PPP during Tuesday’s daily press briefing. “We’re going to put up very clear guidance so that people understand what the certification is, what it means if you’re a big company,” he said. That guidance is expected later today.
Already one large chain, Shake Shack, has returned $10 million in PPP funds.
“We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance,” Union Square Hospitality Group CEO Danny Meyer wrote in a blog post.
If the program runs out of funding, Congress may not move swiftly to add a third tranche of money. Senate Majority Leader Mitch McConnell has said he wants lawmakers to proceed “cautiously” on further relief and consider the national debt.
Even without more funding, additional help may be on the way for small businesses.
In comments on CNBC Wednesday morning, White House economic adviser Larry Kudlow said the administration may try to shield companies from a multitude of liability lawsuits. “You can’t throw big lawsuits at them, and I think liability reforms and safeguards are going to be a very important part of it,” he said.
Insurers warned about a potential onslaught of employment and tort litigation last month, and the U.S. Chamber of Commerce has previously said businesses are exposed to various types of liability, from workplace safety to product-liability claims.
Some states already have taken steps to shield certain companies and workers from liability. New York state Governor Andrew Cuomo earlier this month signed an executive order protecting nurses and other health care workers from medical liability suits during the pandemic.
Former SBA Administrator Maria Contreras-Sweet said employers will face difficult questions for employees returning to the workforce.
“When we’re ready to on-board them back to the workplace, what information should be available?” she said. “Can we have a color-coding system for employees who have been exposed [to coronavirus]? Those will be very interesting questions as we move forward.”