The Small Business Administration is having a tough time handing out the forgivable loans Congress earmarked in stimulus for small businesses.

PORTLAND, Ore. — Editor's note: In the April 2 video above, SBA administrator Jovita Carranza explains the Paycheck Protection Program.

Donna Gustafson opened the Bella Donna Bistro & Patisserie in Forest Grove last November. All new restaurants struggle. The business is brutal in the best of times. But the bistro and its nine employees were beginning to get their legs.

Then came coronavirus.

The bistro closed its doors, along with every other restaurant in the state as Oregon scrambled to contain the outbreak. Scrambling to keep her business afloat, Gustafson joined thousands of other Oregon businesses and countless others across the country desperately seeking a lifeline from a $350 billion federal loan program Congress approved last month.

“I’m still open, working on shoestring staff, doing takeout orders, but I’m bleeding money left and right,” she said. “If I don’t receive this loan, I won’t be able to pay my staff.”

As Gustafson and thousands of other small business owners are discovering, though, the Small Business Administration is having a tough time handing out the forgivable loans Congress earmarked in stimulus for small businesses. The pitfalls she encountered are typical.

Her journey started early last week at Banner Bank, where she filled out a “inquiry form” for a paycheck protection loan. That’s Congress’ answer to the economic carnage small businesses are experiencing due to COVID-19. She heard nothing beyond the initial automated response and when she checked with the Hillsboro branch, she was told the bank was overwhelmed. They didn’t have a way for her to track the inquiry form, which was a step removed from filing an actual application.

In the meantime, Gustafson went to her other bank, Wells Fargo.

“Given the exceptionally high volume of requests we have already received, we will not be able to accept any additional requests for a loan through the Paycheck Protection Program,” read the message on the bank’s website. Another roadblock.

The Paycheck Protection Program, or PPP, has seen considerable chaos in its first week. The Small Business Administration and U.S. Treasury were still designing the program and its rules as it launched. Banks were inundated with loan requests. The application process has been deeply frustrating, and virtually impossible to track, for small businesses desperately seeking a life raft in the economic storm.

A study by the economic consulting firm ECONorthwest suggests that 65% of all employees in Oregon work in sectors at high risk of disruption from COVID-19.

Already, 1 in 8 workers in the state have lost their jobs and economists forecast unemployment could rise to an astounding 25%. Some 450,000 employees are at risk of layoff, which could mean $8 billion in lost business revenue and $1.6 billion in personal income lost – every month.

That’s the economic apocalypse the PPP is designed to avert by giving businesses with fewer than 500 employees eight weeks’ worth of payroll support in the form of a loan.

A business that maintains pre-COVID levels of employment eight weeks after receiving the loan doesn’t have to pay it back. Businesses that can’t achieve that employment level will have two years to pay off the loan at an interest rate of 1%.

It’s a potential lifesaver for small businesses of all kinds – if they can get it.

Banner sent Gustafson an email Wednesday noting that her inquiry form was “in the queue and is moving forward in the review process.” An application, it said, would be sent via secure email. Gustafson has been scouring her inbox and spam folder. Nothing yet.

Lacking other options, Gustafson is maxing out her lines of credit, trying to keep her rent and utilities current, and paying the chef. She filled out an application for a $10,000 Economic Injury Disaster Loan, another new federal program designed to give small businesses a short-term infusion while they wait for a PPP loan. But she has no idea what the status of that application is, either.

“After all this is over, if I don’t have access to those forgivable loans, I’ll have these hanging over me like everyone else,” she said. “Wow, kick me in the head while I’m on the floor.”

Black Friday

When the application window opened for the federal paycheck protection program, Michelle Sarchiapone, owner of People’s Yoga in Portland, was ready to go.

The business has had its checking account at Bank of America since 2008, so that’s where she applied. Almost immediately the bank told her she was ineligible because her business didn’t have a loan with the institution.

The next day, her branch banker called and told her the bank changed its criteria. Apparently she could reapply. But there was a caveat. She had a business credit card through Chase Bank. That apparently disqualified her again.

Bank of America did not return a call for comment.

“They let you go through all the motions and submit the application,” she said. “My fear is that a lot of these businesses think they’re good, ‘I filled out the application’ – but that it was voided and they haven’t applied anywhere else.”

“It felt like I showed up to Walmart on Black Friday,” she said. “It was just a run on them. Very intense.”

Ultimately Sarchiapone was able to submit an application for the program through Umpqua Bank, where she has her personal bank account. She also submitted one through Washington Federal, where her landlord banks.

People’s Yoga has 53 employees, most of them instructors. Sarchiapone laid off three, including herself, but has managed to keep revenue coming through the door by offering classes online.

“We’ve been closed three weeks right now,” she said. “It’s $70 a month for unlimited yoga. We’ve been asking customers not to cancel, but we can only ask them for so long.”

Bankers overwhelmed

Linda Navarro, president of the Oregon Bankers Association, says she understands and shares customers’ frustration in trying to get through the PPP application process. But in her view bankers have been doing heroic work to get money out the door, even if it’s been a bumpy ride.

“It’s a classic example of building a plane while flying it,” she said.

Congress passed the stimulus legislation March 27. It didn’t provide banks with guidance on many aspects of the program until late in the day on April 2. And the application window opened the next morning.

Some banks didn’t have access to SBA’s system for processing applications, legacy technology that was not designed for the tremendous volume of coronavirus relief applications.

There were security clearance issues. The system crashed. There was no word on what kind of promissory notes banks should be using. Guidance was changing daily.

Navarro said banks only have so much bandwidth and, faced with thousands of applications, it’s not surprising that they’re focusing on current customers. They can process those applications faster because they can more easily satisfy regulators’ preexisting “know your customer” requirements.

“I hope banks that had to focus first on their own loan and deposit customers will be welcoming applications from other businesses,” she said. “There’s a lot of money yet to be allocated. There is still capacity.”

Yet banks do have limited lending capacity, governed by federal capital and liquidity requirements.

If the program works as designed most of the loans are likely to be forgiven, which will take them off banks books fairly quickly. But there were early questions around lending capacity, and specifically Well Fargo, until the Federal Reserve announced it would be buying the loans from banks, freeing up their balance sheets to make more loans. Congress is also considering bolstering the program with another $250 billion.

Navarro says she can attest that bankers are working around the clock to help keep their customers and the economy going.

“We share the frustration,” she said. “It’s not as smooth as silk. But I think there will plenty of opportunity to get in line and participate.”

Eve Callahan, a spokeswoman for Umpqua Bank, says it’s hard to say whether the PPP rollout has been bumpy and really slow, or bumpy and incredibly fast, given the volume involved.

Umpqua was the first bank on the West Coast to get its application process up and running, according to Callahan. In the first 24 hours it took in 6,500 applications, which she described as “extraordinary, so many multiples of what we usually see.”

Demand was so intense that she said the bank was forced to press pause and suspend new applications while a SWAT team of redeployed employees worked around the clock to process those they already had. She said the bank was prioritizing existing customers, but had also accepted some applications from non-customers.

“We have a couple thousand completed now,” she said. “As the SBA process gets faster, so will ours, and we’re hoping to be able to open the process back up within a few days.”

There are no figures available yet on the volume of loans approved or a breakdown by state. But Callahan and Navarro insist money is getting out the door, or will be, with thousands of approved loans in the pipeline.

Take Kidsports, a Eugene-based non-profit that provides youth sports programs for pre-K through 12th graders in the Eugene/Springfield area. Those programs came to an immediate halt when the governor closed schools in mid-March.

A week later, the organization furloughed 11 of its 15 full-time staff, maintaining a core administrative team to chart a recovery plan, whenever that’s possible. The board of directors urged the executive director to explore a PPP loan, so Bev Smith got in touch with Summit Bank and the Nonprofit Association of Oregon, trying to determine the eligibility requirements and necessary documentation.

“I was getting emails back from Summit at 11:50 at night,” said Smith. “They were really being advocates for their clients.”

Smith said she sent the application to Summit the day before the program launched and they processed it with the SBA when the window opened the next day. This week, she was told the bank had received a loan number from the SBA, and Kidsports will receive the money when the SBA funds it.

When the money is in place – eight weeks’ worth of payroll -- the plan is to hire back the 11 employees who will work on redesigning programs so they can get kids physically active again this summer, or whenever restrictions are lifted.

“It will allow us to stay afloat,” said Smith. Her advice to others looking to get through the PPP process: “It is difficult to wade through, but try not to get discouraged.”

Buying time

Migration Brewing shut down all three of its pub locations and laid off 40 employees on March 16th, shortly before the governor issued her stay home order. All that’s left now are the four co-owners and the head brewer.

“It was the hardest thing we’ve ever had to do professionally, but we felt like it was the only thing we could do in good conscience,” said McKean Banzer-Lausberg, one of the owners. “Right now it’s all hands on deck, survival mode, doing everything we can to get to the other side.”

Migration’s production facility in Gresham remains open, propped up by a $10,000 grant from that city. Its beer is still going into stores and it plans to start selling beer to-go out of its location at NE 28th Avenue and Glisan this week.

But it’s a trickle of money. With restaurants closed there’s no one to buy thousands of dollars’ worth of kegs that are sitting in its distributor’s warehouse. Insurance won’t cover spoilage.

Migration has a strong relationship with Columbia Bank but it still had to apply three separate times for a PPP loan before the application was accepted by the SBA. The $300,000 would be a solid lifeline, but grabbing it is still a dilemma.

“If we go that route and bars are allowed to reopen, it’s awesome. It would be a no-brainer,” said Banzer-Lausberg. “But if you take the money and you can’t use it, it becomes a loan that has to be paid off over two years at 1%, and the payment will be a pretty good chunk of change.”

There’s no assurance that bars will reopen in time. But 1% interest is still cheap money and he expects to take it anyway.

“Everyone is so cash strapped that they’ll take the money and figure it out later,” Banzer-Lausberg said. “Maybe there’s more aid coming. Maybe the rules will change again. The name of the game for most small businesses is buying time.”

This article was originally published by The Oregonian/OregonLive, one of more than a dozen news organizations throughout the state sharing their coverage of the novel coronavirus outbreak to help inform Oregonians about this evolving health issue.