A customer taste tests a beer before ordering a growler to go at Harlem Public in northern Manhattan. April 24, 2020 Spencer Kimball | CNBC

Just when Kal Narvilas thought his loan applications were about to get approved, his bank delivered the bad news — there was no more money left.



The $349 billion Paycheck Protection Program, ostensibly set up to help small businesses and their employees through the economic fallout of the coronavirus pandemic, was depleted in a matter of days. Narvilas is now left waiting for assistance as the bills pile up while the doors of his restaurants remain shuttered amid a lockdown in New York City.



Narvilas had spent hours sifting through months of paperwork to complete PPP applications for his independent restaurants — Uptown Garrison and Saggio in northern Manhattan, and Cent'Anni and Midwood Flats in Brooklyn. Though the process was tedious, he managed to file shortly after the program's launch, and his correspondence with TD Bank suggested his applications were heading toward approval, he said.



"I was at the precipice of getting approved and getting this money and the door was shut in my face, so that was a little demoralizing for me," Narvilas said. He hopes his applications are at the top of TD Bank's stack when the next round of federal funding comes through and the program is back up and running.



Congress approved another $310 billion for PPP loans and $60 billion for disaster loans this week, but there's doubt about whether that's enough to cover the demand in the coming days. Only 20% of submitted applications have been fully processed with money sent to borrowers, according to the National Federation of Independent Businesses. The program is set to resume Monday at 10:30 am ET, according to the Small Business Administration. "We're sitting around in an imaginary line hoping there's money to fund all of us," said David Helbraun, founding partner at Helbraun Levey, a law firm that represents more than 1,000 clients in New York City's hospitality industry. The loans are a critical lifeline for restaurants and bars, which are at the center of the economic fallout from the coronavirus pandemic. The industry lost 417,000 jobs after establishments shuttered their doors to comply with social-distancing rules and stay-at-home orders. That's about 60% of the 701,000 jobs lost nationwide in March.



"They're some of the toughest people you'll ever meet, and I've never seen my clients so much on the edge of their seat and nervous," Helbraun said. One of the biggest issues for restaurant and bar owners since the lockdown begam has been the confusion and uncertainty surrounding the approval process for the PPP loans, he said.

'Funds could run out quickly'

Lauren Lynch, one of Helbraun's clients, filed loan applications for her three restaurants and bars in Harlem through Chase Bank after the first round of funding had already run out. Lynch received an email from Chase last weekend notifying her there were 100,000 applications ahead of hers. Despite the massive backlog, she's optimistic the loans will come through for her businesses — Harlem Public, The Honeywell and At The Wallace. "I think that the pot has been filled enough," Lynch said. "There's been enough scrutiny that the small businesses are going to receive more of this money than what happened last time — I think the big banks are more prepared this time around."



During the first round, several publicly traded chain restaurants received PPP loans, which many independent restaurant owners believe violates the spirit if not the letter of the law. Ruth's Chris Steakhouse said it would return a $20 million loan and Shake Shack said it would return a $10 million loan after public controversy. Other public companies are The Small Business Administration issued new guidance Thursday aimed at discouraging publicly traded companies from receiving money this time.

James Lee, the owner of three restaurants in northern Manhattan, is not as optimistic as Lynch. He filed with Fountainhead the day the loan program launched, and the lender acknowledged his three applications had been received. About a week later, Lee received a bulk email from Fountainhead notifying him there was a surge of applications. It asked him for notification if he decided to remove himself from the queue and apply at another bank.



Lee saw the writing on the wall at Fountainhead and applied with Chase on April 16, the day federal funding ran out. On Wednesday, Chase sent a bulk email to Lee and other applicants saying the second round of PPP "funds could run out again quickly." The bank told Lee there was "an extremely large volume" of applications ahead of his, and it was providing him with this information in case he wanted to try applying with another lender.



"Applying for these loans is like trying to win concert tickets," said Lee, the owner of 181 Cabrini, Buddha Beer Bar and Buddha Taco Bar.

'Unprecedented situation'

The Consumer Bankers Association, which represents the nation's big retail banks, estimates it will take $1 trillion to meet the demand from small businesses. Richard Hunt, the association's CEO, expects the second round of funding to run out in about four days, and that's if the system doesn't break down due to the huge demand. He expects 1.3 million loans will go to the SBA for approval, on top of the 1.6 million that were approved before funding ran out last time. "This is an unprecedented situation — the demand for this product is off the charts," Hunt said.

Small business owners that did not apply during the first round are not as likely to get funding this time due to the backlog of applications, Hunt said. He understands the frustration among small business owners, but said the banks are working as quickly as they can to process all the applications. "We have moved heaven and earth over the last three weeks working in round-the-clock shifts 24/7 to get the process up so people are helped during this crisis," Hunt said.

'There's a ton of confusion'