Small Businesses Wait for Cash as Disaster Loan Program Unravels – Re-funding EIDL for companies who got their applications in should be the top priority in the new package.

Owners were supposed to be able to get up to $2 million. Now they’re being told the cap is $15,000 — if they can get any answers at all.

By Stacy Cowley

Flooded by requests for help like never before, a federal disaster loan program that was supposed to deliver emergency relief to small businesses in just three days has run low on funding and nearly frozen up entirely. Now, business owners who applied are desperate for cash and answers about what aid, if any, they are going to receive.

The initiative, known as the Economic Injury Disaster Loan program, is an expansion of an emergency system run by the Small Business Administration that has for years helped companies after natural disasters like hurricanes, floods and tornadoes. To speed billions of dollars in aid along, the government directly funds the loans, sparing applicants the step of finding a lender willing to work with them.

But in the face of the pandemic, the loan program is drowning in requests. Many applicants have waited weeks for approval, with little to no information about where they stand, and others are being told they’ll get a fraction of what they expected.

The program is supposed to offer loans of up to $2 million, but many recent applicants said the S.B.A. help line had told them that loans would be capped at $15,000 per borrower. That was backed up by a message from the agency that one applicant shared with The New York Times.

The CARES Act, the $2 trillion relief bill signed by President Trump last month, also authorized the S.B.A. to hand out the first $10,000 as a grant that didn’t have to be paid back. Those funds were supposed to be available to applicants within three days of their application, even if they weren’t approved for a loan. That hasn’t happened, according to more than 400 applicants who contacted The Times.

S.B.A. officials did not respond to repeated requests for comment.

“I’m afraid I won’t see a penny,” said Virginia Warnken Kelsey, an opera singer in Branford, Conn., who applied on March 29 and had not received a response as of Thursday.

Ms. Kelsey had a busy spring season planned, with a tour scheduled to stop in Belgium and the Netherlands and performances with orchestras in Oregon and North Carolina. Everything has been canceled. The section of her website where she posts her engagements simply reads: “No upcoming events.” For her, the loan would be a lifeline of cash to cover her rent and other bills.

The disaster loan program’s missteps have been overshadowed by the chaotic start of the federal government’s other large small-business aid effort, the Paycheck Protection Program, which started taking applications last week. Applicants to that initiative have faced delays as banks deal with the hasty deployment of a $349 billion program.

Disaster loan applicants — many business owners are seeking relief through both — have also had to wait, even though the program predates the crisis. The S.B.A. began taking applications in mid-March, but its rollout was piecemeal. Each state had to submit its own formal disaster declaration, and business owners could not apply until their state’s declaration was approved. It took around two weeks for all 50 states to become eligible.

And even though Congress allocated billions of dollars to fund the disaster loan program, some applicants said S.B.A. representatives had told them that funding was running out.

Deb Wood-Schade, who runs a chiropractic wellness business in Aliso Viejo, Calif., applied in mid-March and was told by phone on Saturday that she had been approved for a loan of nearly $25,000 — enough to cover six months of her operating expenses. But loan documents she received on Wednesday suggested that amount had been cut to $8,300, covering just two months of her costs.

“Is that all I can get?” asked Ms. Wood-Schade, who emailed that question to her S.B.A. loan officer but had not heard back. “I am concerned if I take it I won’t get the additional funds.”

Senator Ben Cardin, Democrat of Maryland, who pushed for the additional funding through the CARES Act, said the program simply had to have more money.

“The fact that S.B.A. is limiting Economic Injury Disaster Loans to an initial disbursement of $15,000 shows that there is a clear need for more resources for this program,” he said.

The loan program was never designed to handle a disaster of this magnitude — one that has sent unemployment claims soaring and forced businesses to close.

It disbursed loans of $1.7 billion that year, according to the Congressional Research Service. In early March, Congress allocated funds to support around $7 billion in lending in response to the pandemic. It added another $10 billion through the CARES Act to fund the $10,000 cash grants, saying applicants could get that money even if their applications were denied.

But the demand has been extraordinary.

If every applicant received the maximum $10,000 grant, the funding would cover around one million businesses. But more than three million applied for disaster loans last week alone, Joseph Amato, the director of the S.B.A.’s Nevada office, told attendees at a webinar on Monday. His comments were reported earlier by The Washington Post.

In response to the demand, the S.B.A. appears to have also added an additional restriction on the grants: Dozens of business owners said they had been told that the grant, if they got it, would be limited to $1,000 per employee — meaning the smallest businesses could not receive the full amount.

Even early applicants who have been approved for larger loans still have unanswered questions.

Abninder Mundra, who owns a franchise of the UPS Store in Portola Valley, Calif., applied for a loan on March 20 and was approved four days later for $210,000. He finally received and signed his closing documents this week. He was still waiting for the cash to arrive — and for details about how the $10,000 grant would work.

A retail business owner in California, who spoke on the condition of anonymity because he feared jeopardizing the loan he had been promised, was relieved to be getting the money needed to support his employees, but frustrated about the process.

He sought a loan on March 17, right after his state became eligible. In late March, he received a call from an S.B.A. official who requested additional documents, then verbally approved a loan of $500,000. It took more than a week before he got a letter confirming the loan, along with a pile of closing documents to sign.

Business owners who applied later are afraid the funding will run out before their applications are processed.

A loan capped at $15,000 would be nearly useless to Kevin Smith, the founder of Wynexa, a software company in Houston. Mr. Smith, who applied for a loan in late March, is seeking at least $50,000 to keep his company and his three employees afloat.

He has called the S.B.A. for updates three times, waiting on hold each time for up to two hours.

“Each time I’ve called it’s been a different story,” Mr. Smith said. He was initially told he would have a response to his application by April 1. When that date passed and he called again, he was told it would take at least two weeks. Now, the S.B.A. is not offering any estimates at all, he said.