Congress set aside $30 billion of funds for community banking clients in need of an emergency small-business loan. The money lasted less than 36 hours.

Community bankers reported another rough start to the Paycheck Protection Program, which provides forgivable loans to small businesses affected by the COVID-19 pandemic. The chaotic launch to the second round of funding and the quick exhaustion of funds reserved for community banks is raising questions of whether all small businesses in need can access the program.

The first round of $349 billion in funding lasted less than two weeks and was marred by public relations issues as large, publicly traded companies secured funds and small businesses filed lawsuits against big banks. The second round of funding, which totaled $310 billion, opened for applications on April 27, and several community bankers reported severe technological issues that prevented application processing.

"The opening of the second round has been a complete — I hate using the word disaster — but really a disaster," said Bruce Lee, president and CEO of Heartland Financial USA Inc.

Between the funding rounds, banks piled up applications as Congress worked to pass legislation authorizing additional funding. The SBA allowed batch processing if banks had 15,000 applications, a threshold the agency later lowered to 5,000 applications. Several community bankers said the decision to allow batch processing slowed the manual submission process to a crawl, preventing them from processing their backlog of applications.

Heartland Financial had 1,000 applications ready to go when the system opened but had processed only 25 loans by the afternoon of the first day. OceanFirst Financial Corp. President and CEO Christopher Maher said his bank could only process about 100 applications a day due to system instability. Atlantic Union Bankshares Corp. had 3,000 applications at the ready and processed approximately half over two days.

"We assumed [the system] would be overwhelmed, overburdened and slow. And it did not disappoint," said John Asbury, president and CEO of Atlantic Union. "It did exactly what we expected it to do, which has been frustrating."

One larger bank reported success in the second round of funding. Detroit-based TCF Financial Corp., with $48.6 billion in assets, reported on April 28 as part of its earnings call that it successfully processed its entire pipeline of nearly $1 billion in PPP loans.

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After public relations issues cropped up in the first round of funding, community banks argued they were perfectly suited to serve the program's intended recipients of small to medium-sized businesses across the country. Industry groups successfully lobbied Congress to set aside $30 billion for banks with less than $10 billion in assets in the second round of funding, which totaled $310 billion. But those set-aside funds were gone by 1 p.m. ET on April 28, according to data from the Small Business Administration.

"There's somewhat unlimited demand for this and finite supply," said Alex Cohen, CEO of Liberty SBF Holdings LLC, a nonbank SBA lender.

The rapid take-up of funds and banks' inability to submit loans in a timely fashion has raised concerns the money could run out before community banks meet the needs of their customers. In total, the SBA had processed more than $52 billion for the second round of funding as of 1 p.m. ET on April 28.

"It's definitely going to run out of money — there is plenty of demand," said Heartland's Lee.

Some bankers tabbed the ability of large banks to batch and process thousands of applications at once as the likely cause of SBA's systems issues. But Atlantic Union's Asbury said there was a downside to batch processing. The bank had 3,000 applications at the ready, a good chunk below the 5,000 threshold. While Asbury said the bank would have done batch-processing if available, he said there was a risk in losing control of the applications by submitting them in batches, which relies on robotic automation.

Instead, Atlantic Union has the control to manually submit and document each loan application — as long as the SBA's systems cooperate for long enough before the money runs out.

"We just don't want to let our customers down," said Maria Tedesco, president of Atlantic Union Bank. "We've taken all these apps, and it's just a matter of getting them in the system. It would be very disappointing to us because these customers are really depending on us."