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The federal Paycheck Protection Program is out of money: Now what?

The federal government's major lifeline to small businesses is out of money – after less than two weeks – and local banks and companies are worried about what that means.

Many local businesses applied for help under the Paycheck Protection Program, desperately seeking funding to survive for the next two months. Not all have received approval, and far fewer still have actually received their money yet, as the banks had 10 days from approval to fund the loans.

But it's the approvals that are the main concern, because that's what the U.S. Small Business Administration – which administers the program – has been measuring. Banks have been scurrying to get as many businesses as possible through that process, but they're out of time.

"Businesses across our community are really struggling to keep their doors open and pay their employees," said Rene Jones, CEO of Buffalo-based M&T Bank Corp., the largest bank in the region, and one of the nation's 20 biggest. "It's times like these that they need us more than ever."

As of Thursday morning, the agency – which normally provides partial government guarantees of traditional small business loans – said it had "processed more than 14 years' worth of loans in less than 14 days," and used up all the funds that were allocated. Attempts to provide up to $250 billion in additional funding for the program have stalled in Congress.

"The Paycheck Protection Program is saving millions of jobs and helping America’s small businesses make it through this challenging time," Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said in a statement.

"We urge Congress to appropriate additional funds for the Paycheck Protection Program—a critical and overwhelmingly bipartisan program—at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks,” they added.

The Paycheck Protection Program was designed to support shuttered and struggling small businesses and their employees nationwide by extending emergency loans to help the businesses weather the coronavirus pandemic and the ensuing shutdown of almost all activities.

The goal was to provide money to businesses with fewer than 500 employees that they would use primarily to pay their workers and keep them employed, with some additional funds available for paying mortgage, rent, insurance, tax or utility bills.

If the companies complied with the rules – they had to use at least 75% of the funds for payroll purposes – the loan would be forgiven, with the federal government repaying the banks.

When Congress created the PPP as part of the federal CARES Act, it allocated $349 billion to the fund. The program launched on April 3. As of Thursday, the SBA said more than 1.64 million applications had been approved, from more than 4,900 banks.

But there's no more money forthcoming, unless lawmakers in Congress can overcome their differences over a proposed $250 billion extension.

“New York State businesses, particularly small businesses, need every lifeline they can get right now and to have the federal government relief dry up so soon is not encouraging," said Heather Briccetti, president of the Business Council of New York State. "We hope Congress acts with urgency to provide critical additional resources necessary to ensure businesses stay afloat during this crisis.”

Jones noted that there are other loan programs as well, including the Economic Impact Disaster Loans available directly from the SBA, as well as the new Main Street Lending Program from the Federal Reserve. But the latter is for larger companies, and the details are still being finalized, so it's not yet available. That's what made the PPP ideal.

"There are businesses that didn’t get in in time to take advantage," said Joseph Serbun, executive vice president and chief banking officer at Community Bank System. "It has run the gamut. By and large, our customers understand, but there are some who are angry, upset or disappointed. It runs the gamut, and unfortunately, there was just this huge demand and a finite number of dollars to go around. And once they’re up, they’re up."

M&T – which is already the sixth-largest SBA lender in the country in regular times – approved PPP loans for 27,711 businesses, totaling $6.4 billion in funding, Jones said. Those companies employ more than 621,000 workers.

The average loan size was $234,000, but more than 45% of the approved loans were for less than $50,000, Jones said.

That was 96% of the qualified applications that the bank had received from its entire multi-state footprint from New York to Virginia.

But it's still not enough, Jones noted.

"While it will have a significant impact, and this is a great milestone, this is going to be a long and difficult journey," he said. "We need to make sure no one gets left behind."

Cleveland-based KeyCorp, the region's No. 2 bank, processed about 35,000 applications seeking $8.5 billion in funds as of April 15, said spokesman Matthew Pitts.

“KeyBank remains committed to working with our clients to support them during this critical time," Pitts said. "While the Paycheck Protection Program is on hold because the initial funds have been exhausted, we are hopeful for the expansion of the program’s support and encourage Congress to act quickly."

Jones said he was particularly proud of how M&T had responded to the crisis. The program was formally launched on Friday, April 3, but M&T – like many banks – didn't start taking applications until the following Monday.

So the bank's loan officers worked with clients in advance over that weekend to make sure they were prepared with their paperwork. M&T also worked with a technology provider to build its streamlined online application system.

M&T normally handles just under 1,500 SBA loans in an entire year. To handle the volume and pace needed for PPP, the bank's SBA processing unit of 25 ballooned to nearly 2,000 employees.

"It was really inspiring to see how our team rallied through the PPP process," Jones said. "This program helped a lot of small businesses."

He said the applications were heavily front-loaded, with 83% of them coming on the first day M&T took applications on April 6, and then tapering off after that.

"The application process showed the size of the demand," he said. "We'll continue to lobby on their behalf."

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