Small Business Administration Runs Out of Funds — Why Markets Are Calm

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The Small Business Administration said it has run out of available funds for its small business lending program, approved by Congress under the CARES Act, an emergency federal stimulus act aimed at getting cash into the hands of businesses and households as the Coronavirus has wiped the economy out. 

Stocks continued trading in the same range they had traded in pre announcement. 

Stocks were flickering in and out of the green Thursday, as investors weigh bleak economic data against the prospect of opening the economy soon as the infection spread decelerates. The Dow Jones Industrial Average lost 0.3%, while the S&P 500 gained 0.2%. Investors seemed nervous, continuing to run into the 10 year treasury bond, sending the yield down to 0.61% from 0.76% earlier this week. 

The Small Business Administration hit its limit of $349 billion in potentially forgivable loans Thursday. Congress had appropriated $376 billion, but when the agency hit its limit for money that was available, it issued the following statement on its website:

"SBA is unable to accept new applications at this time for the Economic Injury Disaster Loan related assistance program (including EIDL Advances) based on available appropriations funding.” 

One of the main questions economists and macro strategists had been worried about was the speed with which the loans would get into the hands of businesses. Many had said that most small businesses would be likely to run out of cash to cover liabilities and obligations by the end of April without adequate funding.

The conditions in the loans say that if a business retains employees, loans are forgivable, which can potentially serve as an enabler to employment and consume spending, possibly providing a padding to the depth of the recession.  

The speed of the program may have been sufficient, but businesses need a steady stream of cash in order to stay liquid. 

But one of the pillars of the recent stimulus efforts that has supported stocks in the past few weeks has been that investors are completely certain that the government will spend as much money as needed, even printing money, in order to save the economy from depression. 

Congress has raised a conversation about a second stimulus bill worth trillions of dollars again and would likely provide hundreds of billions in relief to small businesses. 

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