The U.S. government clearly underestimated the toll of the coronavirus on America's small businesses.

That's an easy conclusion to draw now--several weeks into a crisis that's seen an estimated 26 million people file for unemployment and businesses everywhere shuttered. Even as companies reopen, the lasting effects of the coronavirus will likely mean many more months of hardship. For some, it could be years.

While the U.S. Small Business Administration on Monday began deploying $320 billion in forgivable loans through the Paycheck Protection Program--on top of $349 billion authorized on March 27--those funds are expected to go quickly. Some estimates say funds could be gone by Wednesday or Thursday this week. That's causing many business owners to once again contemplate what happens if they fail to receive funding.

Jim Angelus, the co-owner of Kezar Bar & Restaurant in San Francisco's Cole Valley  neighborhood, isn't optimistic. California's shelter-in-place order, which led him to furlough 18 staff members, only exacerbated industry-wide problems. He says growth in delivery apps and the trend toward lower alcohol consumption have been more intense in the city given the ever-rising cost of living. "All of those things contribute to an already low-margin business," says Angelus. "If you look at the San Francisco restaurant scene, you're seeing a ton of closures. Kezar has been living on the edge--now we're dangling off a cliff.

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While his $104,000 PPP loan request with Bank of America could still come through in Round 2, he is increasingly distressed by what the lack of relief funding is doing to his community more generally. "I am hopeful that I will know other restaurants that get the second round because I don't know one independent restaurant in San Francisco that got it," Angelus says.

Why Round 3 Is Looking Likely

Lawmakers could replenish PPP funds through yet another stimulus deal. The first tranche of the program--which supported more than 1.6 million loans--kicked off on April 3 and lasted a chaotic 14 days. The second tranche, which was staring down a backlog of an estimated 1.7 million applications as of last Friday, could be accounted for any day now.

While a third tranche might seem like a distant possibility, it'll become far more likely as deserving business owners like Angelus continue to come to the fore.

"Basically, [lawmakers] want businesses to be able to get this," says Dean Baker, a senior economist at the nonpartisan Center for Economic and Policy Research in Washington, D.C. "If for whatever reason, some businesses are last in line you'd be pretty hard pressed to say, 'Oh you're out of luck.' There would be immense pressure to come up with what's needed to have that be fully funded."

What fully funded means remains a moving target, says Elise Gould, a senior economist at the Economic Policy Institute, a nonpartisan think tank in Washington. Currently, lawmakers have planned PPP funding to last roughly eight weeks after a company's loan is received. If, as Gould estimates, businesses with fewer than 500 employees spend about $236 billion a month on payroll, a prolonged interruption could cause that tally to escalate to around $1 trillion in a matter of months. And that's without accounting for bigger companies' use of the program

How Round 3 Might Be Different

Regardless of the amount, if a third tranche is coming, it wouldn't be until early to mid-May, after Congress reconvenes on May 4, says Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. There's still a Phase 4 coronavirus response bill that Congress is expected to debate and that could include additional PPP funding, he says.

Nothing has been worked out right now, says Bradley. However, if a third tranche happens, he says he anticipates additional changes to the program, which could include new parameters to both expand and constrain eligibility.

Congress could, for instance, look to open PPP up to additional nonprofits; currently just 501(c)3s may apply. It might also try to constrain which companies get funding, says Bradley. Whereas companies at the outset of PPP needed to show forecasts of financial distress, going forward they may need to show actual distress. "They could tie it to some type of quantifiable loss," says Bradley. By way of example, he noted the Employee Retention Tax Credit. To access the fully refundable credit, which is equal to 50 percent of an individual employee's qualified wages up to $5,000, he says, business owners need to show a loss of gross receipts of 25 percent.

Congress could further tweak rules regarding the maintenance of headcount or the value of loans, says Bradley. Currently, companies need to maintain the same number of full time workers as prior to the crisis and the value of loans is 2.5 times a company's average monthly payroll for 2019, up to $10 million. It could change the timing of when businesses would need to rehire employees to get forgiveness. Currently, employers need to rehire staff by June 30 to be eligible for loan forgiveness. It may even change the requirement that 75 percent of a loan's proceeds be spent on payroll costs like paying salaries and providing benefits.

While Bradley doubts that Congress would ever mess with the forgivable aspect of PPP loans, he says it is possible for lawmakers to authorize a new program that offers loans that aren't forgivable.

"I don't think they would make the forgiveness aspect go away." But adds Bradley, "you could envision the third tranche just being loans and no forgiveness."