With New Cash Injection, Small Business Administration Faces Fresh Slate of Challenges

President Trump on Friday signed a bill to pour another $310 billion into a program to assist small businesses devastated by the novel coronavirus pandemic, creating a new set of challenges for the already beleaguered agency tasked with distributing the funds. 

The Small Business Administration was widely criticized for poorly communicating the parameters of the Payroll Protection Program after Congress created it last month, and the agency had trouble allocating the initial $349 billion in a prompt and fair manner. The initiative proved popular, however, and SBA quickly depleted the fund after issuing nearly 1.7 million loans. With the fund now replenished, SBA must once again navigate a political minefield as it faces immense pressure to rapidly get the money out the door—but only to companies meeting the program’s intended audience. 

In addition to a chaotic rollout to the program, which saw last-minute changes that sowed confusion and significant delays, SBA has faced pushback for allowing large companies to benefit from the program aimed at small businesses. Sens. Ben Cardin, D-Md., and Sherrod Brown, D-Ohio, the top Democrats on the Senate Small Business Committee and the ranking, Housing, and Urban Affairs Committee, respectively, as well as Senate Minority Leader Chuck Schumer, D-N.Y., called on SBA's inspector general to immediately investigate whether lenders through the SBA program prioritized applications of "larger and wealthier clients to the detriment of small businesses.” They criticized SBA’s implementation of the program for the difficulty it created for businesses without a prior relationship with a lender to receive funds and asked the IG to review how SBA is ensuring aid reaches "the small businesses that need it most."

Steve Preston, who served as SBA administrator during the George W. Bush administration, expressed sympathy for the SBA workforce, noting the unprecedented nature of getting out the door more money in the first 14 days after PPP launched than in the 14 years before that. He said the reopening of Economic Injury Disaster Loan program, which, unlike PPP, enables small businesses to receive financial assistance directly from the agency, will serve as an important marker of how overwhelmed SBA has become. 

“People get frustrated. They want everything to be perfect out of the box,” he said, adding that such expectations were unrealistic. “This is like a building falls on you and you have a few days to climb out of the rubble.” 

Preston explained that when he took over SBA shortly after Hurricane Katrina, SBA saw a huge surge in requests for aid. This scale of this situation, he said, is many multiples larger. He expected that SBA would have to grow its workforce “exponentially” to meet demand, and said it has already surged external service providers to boost capacity. 

SBA is looking to hire many new employees to bolster its coronavirus response efforts. It has posted openings for IT engineers, data scientists and IT specialists, as well as contracting officers. Both postings noted they were “not an official vacancy announcement under the Merit Promotion System.” The Office of Personnel Management has given agencies expanded authority to use Schedule A hiring to bypass many of the normal restrictions. SBA said the positions would fill an “urgent need” to meet “current mission needs related to COVID-19 emergency.” An SBA spokesperson declined to comment on the number of positions the agency has already filled or how many total workers it expects to hire.  

SBA has also encountered challenges with the Economic Injury Disaster Loan program. The program normally provides assistance after disasters such as fires and hurricanes, but now it is providing financing up to $10,000 for coronavirus-impacted businesses. It was quickly overwhelmed and ran out of money after the initial CARES Act. Congress authorized another $10 billion for the program.

EIDL ran into further issues this week after a data breach exposed information from 8,000 small businesses. Sen. Marco Rubio, R-Fla., who heads the Senate Small Business Committee, coauthored a letter with Cardin and his counterpart in the House, Rep. Nydia Velazquez, D-N.Y., seeking more information on the breach, including who was impacted and how the agency will prevent it from happening again. 

“We do not need to emphasize how vulnerable the nation’s small businesses are right now,” they wrote. “More than ever, they are counting on SBA to deliver vital assistance in a responsible and competent manner.”

John Arensmeyer, president of the Small Business Majority, an advocacy group with a network of more than 60,000 small businesses, praised Congress for approving “desperately needed” additional funds for PPP and other programs, but expressed concern the money would not go to those who need it most. He noted that publicly traded and other large companies may still be able to receive loans, while small businesses with small payrolls but large operating costs will be left behind. 

“While providing more funds to these assistance programs is necessary, we’ve already seen that they do not provide the quick relief that would help small businesses now and in the future,” Arensmeyer said. “Small business owners from across the country are frustrated that their needs are not being met.” 

Liz Hempowicz, director of public policy at the Project on Government Oversight, said Congress missed an opportunity to fix what has ailed PPP and other programs when it appropriated more funding. Congress’ “loose” rules for how PPP should be implemented has allowed companies other than those most in need to access funding, she said, and lawmakers should have provided stricter conditions on who qualified for the loans. Additionally, Congress should have used the funding boost to “plug holes” in oversight. 

“The lack of funding was only part of the problem,” she said. “There is so much money going out the door and every fraudster is lining up trying to get their piece of pie.” 

Arensmeyer, too, expressed sympathy for the magnitude of the task SBA has undertaken, but implored the agency to improve its communications with lenders and small businesses. Existing guidance, he said, has created a lot of unanswered questions, especially as it relates to how the PPP loans will be forgiven. 

“They need to do a better job, whether that's because they are overwhelmed or it's too confusing I don't know,” Arensmeyer said. “We understand it’s a short timeframe and there’s a lot of issues, but they need to do a better job.” 

Preston, now CEO of Goodwill Industries International, said the confusion has similarly plagued the nonprofit community. The services of those organizations have never been more in demand, he said, and many are fighting for their survival. He called on Congress to make a new line of funding available specifically for nonprofit groups. 

Preston said he was hopeful most organizations and businesses will have an easier time accessing the new tranche of money, noting they should have their paperwork ready and banks should have an easier time deploying resources. Additionally, he said, SBA has worked tirelessly to automate much of their processes, noting it has come a long way since his tenure when many businesses were mailing in documents to apply for relief after Katrina. 

SBA has already achieved “an astounding accomplishment,” he said, “even though those who dealt with it felt some bumps.” 

Now, he is hopeful SBA has laid the groundwork for a smoother operation. 

“The proof will be in the pudding,” he said. “They’ve worked very hard to get all the right things in place and we’ll have to see if it works.”