Personal Finance

Their loan money was supposed to arrive in days. They've waited weeks

Key Points
  • Small business loans through the Economic Injury Disaster Loan program have been plagued by long delays and inadequate capital. 
  • Grants of up to $10,000 were supposed to arrive within three days, but many business owners have been waiting weeks. 
  • The average loan requested has been $200,000. However, the Small Business Administration capped loans at $15,000 due to high demand and low federal funding.
David Lee, owner of Blue Moon Construction, LLC, in Tampa, Florida.
Bibi Sipra

A loan program meant to pump fast cash into small businesses has failed on almost all accounts, according to business owners.

The Economic Injury Disaster Loan program is among the core financial-relief measures the federal government has pushed to entrepreneurs hobbled by the coronavirus pandemic. The program, overseen by the Small Business Administration, offers low-interest loans to cover operating expenses after a declared disaster.

But money that was supposed to arrive within days has, weeks later, not yet shown up, and entrepreneurs are getting substantially less capital than originally envisioned.

"We feel shortchanged," said David Lee, the owner of Blue Moon Construction, LLC, a two-employee shop based in Tampa, Florida. "This was our only access to the stimulus."

"Now they're pulling the rug out from under us," said Lee, 40. "It feels like the government is overlooking America's smallest companies."

'It's a nightmare'

The program is the lesser-known cousin of the Paycheck Protection Program, a $349 billion forgivable loan program created by the $2 trillion coronavirus relief package signed March 27.

The relief law beefed up the disaster loans, overseen by the SBA, by giving emergency grants of up to $10,000 to businesses within three days of the agency receiving their application.

The enhancement was meant as a quick infusion of capital for businesses with 500 or fewer employees. The grants don't have to be repaid even if a disaster-loan application is ultimately denied.

But that three-day window turned out to be a pipe dream.

This hotel owner explains how he was approved for $2.4 million in PPP loans
This hotel owner explains how he was approved for $2.4 million in PPP loans

Lee applied for a loan on March 29. Two weeks have passed, and he hasn't received any funds or a communication about his application status.

Meanwhile, his revenues are down 90%. Lee aimed to use the loan and grant to fund operations through the summer.

Robert Miller, who owns three restaurants in the Pittsburgh area, has waited even longer. He first applied for a disaster loan on March 19.

His restaurants — Sidelines Bar and Grill, Sidelines Beer House and The Fire Side Public House — are losing $50,000 a week and revenues are down 80%.

"It's a nightmare," Miller said of the  program. "If they don't fix it, a lot of businesses will have trouble reopening or surviving."

Many business owners are trying to leverage both disaster loans and the Paycheck Protection Program.

Funds from the latter are meant primarily for payroll costs to keep workers employed. That leaves many, especially those with few employees and low payroll costs, in the lurch and in need of capital to fund other business operations.

But disaster loans are much more meager than originally anticipated due to high demand and insufficient federal funding.

While the SBA website says business owners can get a disaster loan for up to $2 million, the agency is capping its loans at $15,000. 

Yet business owners are requesting an average $200,000, Sen. Ben Cardin, D-Md., said in a speech April 9. 

The coronavirus relief law, known as the CARES Act, said applicants get an emergency grant in the sum requested by applicants, up to $10,000. However, the SBA isn't allowing business owners to choose the size of their grant — they are instead limited to $1,000 per employee, up to $10,000.

All together, disaster-loan funding is about 99% less than originally advertised.

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Around 3.8 million business owners have requested disaster loans, for a total $372 billion — but Congress only authorized $7.3 billion for the program, Cardin said.

Just 4% of those who applied for a disaster loan have been approved and 1% haven't, according to a National Federation of Independent Business survey of 884 small-business owners conducted from April 6-7.

The SBA didn't respond to a request for comment.

'It's not going to save you'

For Toby Rice, a sole proprietor based in Macedonia, Ohio, the new contours of the loan program are a huge blow.

His recruitment marketing firm, Total Online Recruitment Advisors, has lost more than 90% of revenue. Rice, a sole proprietor, expected to qualify for a $100,000 disaster loan and planned to use the $10,000 grant to cover three months of fixed business costs.

Now, he qualifies for a $15,000 loan and $1,000 grant.

"$1,000 isn't enough to make a difference for anything," Rice, 33, said. "If you're in a boat that's sinking and you have 10 holes, you can plug one but you still have nine leaking.

"It's not going to save you."

Rice applied for a loan March 31. He hasn't received any money or word on when it will be available.

Miller, the restaurant owner, originally expected to get between $150,000 and $200,000 per restaurant from the program. He also applied for a $200,000 Paycheck Protection loan, which, if approved, would allow him to rehire laid-off employees and fund two months of payroll for his 60 workers.

Given the current restrictions, though, Miller will likely have to lay off half his staff in two months' time if nothing changes, he said.