Just as newly laid-off workers have swamped the system seeking unemployment relief, business owners have inundated a government system designed to administer the $350 billion set aside to help companies forced to temporarily shut down under stay-at home orders to combat the coronavirus pandemic.

Jack Heath, president and chief operating officer of Spokane-based Washington Trust Bank, said business owners seeking that financial assistance should keep trying to get through a system that was never designed to handle the volume of inquiries currently clogging phone and computer lines.

Those business owners are seeking loan approval from the U.S. Small Business Administration’s Payment Protection Program, which has strings attached. But if owners spend the money properly and can document it, the loans turn into a grants that will not have to be repaid.

“The demand for the (Payment Protection Program) has been overwhelming to the system,” Heath said. “There is a concern, and I share that concern, that the demand may outstrip the funding for this part of the act to fund small businesses. We anticipate that program to be exhausted this week.”

Those loans through SBA and preferred lenders began Friday, but the process got off to a rocky start.

“We are funding loans as we speak,” said Heath, whose financial institution has received requests from Washington, Oregon and Idaho. “The program opened Friday, but it hit its stride today.”

Banks began lending so much money through the program that they began bumping into banking rules that require them to hold enough cash in reserve in case of default. As a result, the Federal Reserve on Monday announced it would purchase those loans made to small businesses to encourage the banks to keep lending.

The Independent Community Bankers of America, in a letter Saturday, urged Treasury Secretary Steven Mnuchin to work with the Fed to set up a purchase program for the small business loans. By taking loans off bank balance sheets, they said it would make it easier for smaller banks to participate.

“This program should not be limited by the balance sheet capacity of participating lenders,” Rebecca Romero Rainey, CEO of the ICBA, said in the letter quoted by the Associated Press.

Locally, the problem has not been so much the amount of cash on hand, it’s just the flood of businesses seeking to tap into the relief, Heath said.

He urged any business owners who may benefit from the program to do two things: Keep trying and consult your accountant to figure out the best option available from the government programs.

“I think people have been diligent in getting their applications into the banks,” Heath said. “We have to input them into the SBA system. It’s a cumbersome process. It wasn’t built for a high-volume situation.”

While Washington Trust and other banks already were set up to work with the SBA, the federal agency is also trying to get more lenders approved to handle the loans at the same time it’s behind on loan applications.

The Payment Protection Program, or PPP, was designed to provide money to business owners to cover employee salaries. A smaller share, 25 percent of the loan, can be used for things like utility payments, rent and interest on mortgages. The idea is that owners would use the loan to pay employees to be ready to resume work as soon as the stay-at-home order is lifted.

But like everything related to government programs or loans, conditions must be met. As long as the employer uses 75 percent of the loan for payroll costs over an eight-week period, it can be converted to a grant rather than a loan, said Burke Jackowich, general counsel for Washington Trust.

“That’s what has people interested in this program,” Jackowich said. “The loan becomes a grant if you follow the rules and have all the proper paperwork.”

Even if the business owner misses a benchmark, the loan option isn’t that bad. It has deferred payments for six months, and while it must be paid back in two years, it only carries a 1 percent interest on the original amount, Heath said.

“There is a rush to this program because there is a perception for free money,” Heath said. “But it has to be deployed under the rules of the program.”

While banks work diligently to file the proper paperwork and business owners frantically try to qualify, the funds will disappear quickly, Heath said.

“I think demand is far outstripping what was expected,” Heath said. “That’s good that we are getting money to those businesses that need it. But I think we are going to have to go back to Congress. My hope would be that our delegation would work hard to replenish the funding for these key stimulus programs, particularly for the PPP.”