The voices of Tax Policy Center's researchers and staff
The Paycheck Protection Program (PPP) was considered essential to last year’s bipartisan COVID-19 relief packages, and many policymakers initially hailed the CARES Act version as a major success that kept millions of businesses and their employees afloat.
Economists have had more mixed reactions. Some questioned whether enough money went to firms that were hurt the most by the pandemic. Others questioned whether structural barriers, such as past discrimination in small business lending practices and insufficient financial and legal resources, limited access.
A 2021 round of PPP is currently underway, with an additional $284 billion for firms that adhere to an updated set of qualifications. New data from January 2021 help illuminate which firms benefitted most from the 2020 round of PPP and provide key lessons for the current round. Here are some takeaways:
- Between March and August 2020, the Small Business Administration approved $525 billion in loans to over five million businesses. Eligible businesses and non-profits with up to 500 employees could borrow up to 2.5 times their average payroll costs (capped at $10 million) from approved lenders. Loans would be forgiven for borrowers that spent most of the funds on payroll and followed certain other rules.
- The average loan amount was just over $100,000, while the median amount was $23,000. Nearly 90 percent of the loans were under $150,000, and just over 600 borrowers, or about 0.01 percent, received the maximum amount of $10 million. Loans exceeding $1 million were two percent of the total number of loans, but over a third of the amount disbursed.
- About 60 percent of borrowers were corporations or limited liability companies (LLCs), while fewer than four percent were non-profit organizations. About 16 percent of recipients were sole proprietorships, which make up most U.S. businesses, but they collected under four percent of the total amount disbursed.
- Businesses in construction, health care and social assistance (including nursing homes and physician offices), and professional, scientific, and technical services (including law and accounting firms) received the most money. Those in accommodation, food services, arts, entertainment, and recreation, many of which faced the most devastating job losses, collectively received less than 10 percent of the funds. However, some accommodation and food services businesses, especially chain restaurants, comprised nearly a fifth of firms that received the $10 million maximum.
- Borrowers reported an average of 12 jobs, with over half reporting fewer than five, and 0.1 percent reporting the maximum of 500. Those that received over $1 million employed about a quarter of PPP borrowers' workers, but received over a third of the program's funds. Of those firms that received $10 million, about three-quarters employed the maximum of 500 jobs.
- Only a quarter of funds went to businesses located in economically-distressed communities designated under the SBA's HUBZone program. And 85 percent went to businesses located in urban areas.
- Only about 10 percent of business owners reported their race or ethnicity. Among those that did, over 80 percent of funds went to White business owners. Few business owners reported their gender or veteran status; but among those who did, most funds went to those who identified as men and non-veteran, respectively.
- 5,460 lenders disbursed PPP loans, with 45 percent coming from lenders with under $10 billion in assets. JPMorgan Chase Bank was the top lender, with over 280,000 loans amounting to 4.4 percent of the total amount disbursed. Bank of America, PNC Bank, Truist Bank, and Wells Fargo Bank were the next largest lenders.
- 96 percent of funds were used for payroll. The rest was spent on rent, utilities, health care, and mortgage interest.
These data are consistent with previous findings on PPP's mixed performance. For example, researchers found that small businesses in majority-White neighborhoods received PPP loans more quickly than similar firms in majority-Black and majority-Hispanic or Latino neighborhoods.
An October report by the House Select Subcommittee on the Coronavirus Crisis noted that over 20,000 loans, amounting to $4 billion, were potentially subject to fraud, waste, or abuse. The Department of Justice is currently investigating and charging those who engaged in PPP fraud. These cases comprise a small share of the total number of loans made, but they do raise questions about the tradeoffs of moving fast without sufficient due diligence, and whether a more targeted program in the first round would have been more equitable.
As of February 7th, the new PPP round has seen an additional 1.3 million loans totaling over $100 billion. This includes some firms receiving their second PPP loans, though Congress updated eligibility rules for those so as to primarily serve smaller businesses that show proof of revenue declines in 2020. For first-time borrowers in this round, eligible business categories and eligible spending were expanded. And early results do show smaller loans on average and a larger share of funds towards accommodation and food services businesses.
After the March 31st application deadline passes, we'll have a fuller picture about whether updated rules and more scrutiny yielded equitable results and if PPP better supported the worst-hit businesses.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Matt York/AP Photo