Illustration: Sarah Grillo/Axios

The Federal Reserve is pouring trillions of dollars into programs making it easy for big companies to access liquidity on capital markets, and the Fed's new Main Street Lending Program is designed to target medium-sized businesses that need between $1 million and $150 million in marginal new debt. But the state of affairs for small businesses is still bad.

Driving the news: The government has pledged $350 billion, and probably will commit another $250 billion on top of that, for small businesses to keep their employees on payroll. But the program got off to a very rocky start, and it's still extremely rare to find businesses that have actually received any funds.

Why it matters: Small businesses are the most fragile part of the economy — and the hardest to rebuild. They don't have the wherewithal to be able to service extra debt, so they need loans like these that are designed to be forgiven. The scheme to help them keep their employees on payroll is however proving to be extremely complex, with a lot of moving parts that are prone to breaking.

  • How it works: Small businesses need to apply to banks (as non-bank lenders generally cannot participate). Banks, in turn, are overwhelmed and barely capable of serving their existing small business clients. They generally have no bandwidth to go through the laborious process of onboarding new clients. So businesses first need to be lucky in terms of which bank they have a relationship with.
  • The banks will then ask the businesses for a huge amount of documentation, which may not be easily available to owners who are stuck at home. The banks' websites for uploading that documentation have been crashing a lot, since the banks had almost no time to build and debug them.
  • The documentation then needs to be uploaded by the banks to the Small Business Administration, through an outdated system called E-Tran that is also creaking under the strain.
  • Then the SBA needs to approve the loan. No one really knows how long that's likely to take, on average, since the SBA has never dealt with anything like this magnitude of applications.
  • Once the loan is approved, the bank will contact the borrower to finalize the paperwork, which again takes time.

Context: In New Zealand, a similar scheme is getting money into applicants' accounts within a day or two, and with almost no hassle. In Switzerland, small businesses can find themselves funded in as little as 30 minutes.

  • Private-sector actors like Appian have built products that automate much of the process for banks, and Appian CEO Matt Calkins tells Axios that at least one major international bank is using his product to do exactly that. But that doesn't solve problems at the SBA end.

The bottom line: The Paycheck Protection Plan application process is "like an Easter Egg hunt with the most sinister possible Bunny who hid the eggs," tweeted venture capitalist Alex Rampell. Nearly all American small businesses are theoretically eligible for this scheme. But it seems probable that many of them will end up empty-handed, through no fault of their own.

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