Senators Seek Coronavirus Relief for Small Businesses That Were Shut Out of Loan Program

WASHINGTON—As Congress stands at an impasse over how to replenish funds for a now-depleted small business loan program, Sens. Steve Daines and Cory Booker are pushing for the next round of coronavirus aid to allocate money that would enable local communities to assist very small firms.

Mr. Daines (R., Mont.) and Mr. Booker (D., N.J.) are working to finalize a measure, outlined broadly in a letter they sent Thursday to Senate leadership, that would give $50 billion to cities, counties and states for creating and expanding coronavirus relief funds.

The local entities would have flexibility to design the funds, which could offer financing options such as grants and loans. Businesses and nonprofits with fewer than 20 employees, or fewer than 50 employees for firms in low-income areas, would generally be eligible to tap the funds.

“We need to take the decision-making power out of the hands of Washington, D.C., and put it in the hands of the folks on the ground who best understand how to protect and grow the small businesses and jobs in their communities,” Mr. Daines said in a statement.

The proposal comes as some small firms have reported being shut out from a small-business loan measure, dubbed the Paycheck Protection Program, created as part of the $2 trillion coronavirus aid package Congress passed last month. The $350 billion initially appropriated for the program was exhausted Thursday, less than two weeks after the program opened, and Republicans and Democrats are at odds over the terms of providing additional funding.

Some of the program’s lenders have prioritized applications from their existing clients in an effort to manage overwhelming demand, while some community-based lenders initially reported difficulty participating. That led to concern among some small business advocates that groups typically served by such lenders—such as minorities, women and businesses in rural areas—would be shut out from the program.

The plan from Messrs. Daines and Booker envisions bolstering funding options for small businesses outside of banks and other traditional lenders, and calls for the Treasury Department to oversee the program. The senators’ measure would be separate from the Paycheck Protection Program, but meant to complement it by providing additional assistance to small businesses, according to a spokesperson for Mr. Daines.

“Through our bipartisan proposal, we can unlock new channels of flexible capital that will help more small businesses, including more minority-owned businesses, get the support they need to weather this crisis,” Mr. Booker said in a statement.

Local relief funds, by using municipal and county governments, charities, community lenders and other entities, have already been aiding small businesses affected by the coronavirus pandemic and have been oversubscribed, according to Messrs. Daines and Booker.

Prosper Portland, the economic development agency for Portland, Ore., launched a relief fund in March for small businesses. The fund, using both private and public money, has awarded $1 million in grants and approved another $1 million in loans, constituting assistance to nearly 250 small firms.

The fund saw strong demand, with nearly 12,000 applications for grants and loans, according to Kimberly Branam, Prosper Portland’s executive director. Businesses that receive the funds will use the money to pay for items such as rent, inventory or employee wages, Ms. Branam said.

“These are mission-critical business priorities that we hope will help a number of the businesses remain solvent and retain employees on the other side of the economic shock,” Ms. Branam said.

Messrs. Daines and Booker join other lawmakers seeking small business provisions should Congress open negotiations on another large-scale coronavirus aid package. Sen. Ron Wyden (D., Ore.), for example, has called for direct cash assistance for some small businesses.

Senate Majority Leader Mitch McConnell (R., Ky.) has suggested lawmakers consider any tweaks to the Paycheck Protection Program during future negotiations on coronavirus stimulus measures.