PPP Loans

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

Where Have PPP Funds Been Going?

Since the introduction of the Paycheck Protection Program (PPP) through the CARES Act passed by Congress and signed by the Trump administration, one of the biggest concerns has been over what businesses are actually receiving the allocated funds.

When the United States federal government first introduced the program, the Treasury Department and United States Small Business Administration (SBA) emphasized that the program is designed to support small businesses across the country as the nation faces the coronavirus pandemic. By providing funds to small businesses designed to enable them to pay their payroll costs, the goal of the program was to not only provide a lifeline to small businesses but also help financially sustain the livelihoods of millions of Americans who rely on salaries and hourly wages from these small businesses.

However, despite the good intentions of the program, many Americans, particularly small business owners, have been worried that the small business loan recipients are not the small businesses that one would expect.

Many groups and individuals have been concerned about fraud and abuse of the program by larger companies that don’t truly need the money but which have the ability to act quickly on such opportunities as opposed to smaller businesses which typically only have a few employees and for whom applying for a loan, even if the process is easier under the PPP program, is difficult, confusing, and time consuming.

Indeed, these concerns have been found to be quite legitimate. Since the introduction of the Paycheck Protection Program loans, many large and notable companies, including restaurant chains, have gotten substantial loans.

Shake Shack, for example, received a $10 million loan as part of the program, though they ultimately returned it after public scrutiny. Ruth’s Hospitality Group, owner of the large restaurant chain Ruth’s Chris Steakhouse and a public company, received a $20 million loan, though, like Shake Shack, they returned it after being lambasted by the public. Potbelly, a popular sandwich chain, also received a $10 million relief loan, though, again, they returned the loan on account of mounting public pressure.

These are just a few examples of the controversial disbursement of PPP loans. However, while these two large companies returned their funds, there are thousands of large companies that have not returned their loans, either because they need financial stimulus or because they are not as well known by the public.

Yet, though these cases have been high-profile and given Americans cause for concern, the data released by the SBA tends to paint a different picture, and reveals a program that has been effective in providing stimulus and aid to America’s small businesses and the millions of American workers that rely upon them.

In this post, we will dive into the SBA data on the allocation and disbursement of PPP money, examining average loan sizes and looking at where the money from the relief program has been most concentrated.

SBA Data on PPP Loans Released

On July 6, 2020, the U.S. Small Business Administration (SBA) and Treasury Department released the complete set of data on all of the PPP loans approved for and disbursed to businesses up to that point in time. This data included information on over 4.9 million loans.

Particularly interesting was the SBA’s decision to release the names, addresses, NAICS codes, demographic information, and more for businesses that received PPP loan amounts of $150,000 or more.

In a press release addressing the release of the data, Treasury Secretary Steven Mnuchin gave his analysis of the data:

“The PPP is providing much-needed relief to millions of American small businesses, supporting more than 51 million jobs and over 80 percent of all small business employees, who are the drivers of economic growth in our country. We are particularly pleased that 27% of the program’s reach is in low and moderate income communities which is in proportion to percentage of population in these areas. The average loan size is approximately $100,000, demonstrating that the program is serving the smallest of businesses. Today’s release of loan data strikes the appropriate balance of providing the American people with transparency, while protecting sensitive payroll and personal income information of small businesses, sole proprietors, and independent contractors.”

Key Takeaways from the Data

There are a number interesting aspects of the data that was released, however, we have combed through it to find some key takeaways worth mentioning.

75% of the Loan Money Went to Loans of Over $150K

As noted in the aforementioned press release, 75% of the money given out in the program was in loans of $150,000 or greater. While this means that the data released provides information on most of the money given out, and therefore greater transparency surrounding the operation of the program.

Less 15% of the Loans Were Greater Than $150K

Naturally, the larger loans have taken up the vast majority of the money. But that doesn’t mean that smaller businesses across the country have been left out. In fact, they have received the vast majority of the loans, even if they have not received the vast majority of the money, which is to be expected. This is an important number and statistic, and should help assuage the concerns of many business owners and Americans who were concerned that larger businesses were the ones mainly taking advantage of the PPP program.

The data released indicated that less than 15% of the loans given out exceeded $150,000. So, while the date released provides information on most of the money given out, it does not provide information on most of the businesses that received loans, since smaller loans given to smaller businesses represents the vast majority of the PPP loans given out.

The PPP Loan Program has Largely Been a Success

Economists have largely credited that program with preventing a complete and total job market meltdown. Though we have seen large numbers of unemployment claims since the onset of the coronavirus pandemic, the Paycheck Protection Program has been incredibly important and impactful in keeping Americans employed.

While the economy still has roughly 15 million fewer jobs than prior to the pandemic, the United States saw a gain of 7.5 million jobs in May and June. This was largely unexpected, and was most likely the result of the success of the PPP program so far.

This makes the PPP loan program one of the most successful of the initiatives passed by Congress and signed by President Trump so far.

Additionally, regardless of whether or not larger loans are forgiven, the program still served an important role of getting money into the hands of businesses in need, and any loans that are not fully forgiven by the government will be covered into low-interest loans with an interest rate of only 1%.

Demographic Data is Voluntarily Submitted

As part of the release of the data, the SBA made clear that the submission of demographic data by businesses receiving over $150,000 of PPP money was voluntary. Since PPP lenders across the nation submitted the data that they received from borrowers, and since not all borrowers provided demographic data, it is impossible to know how the money is impacting and supporting different communities across the United States.

The SBA has noted that it plans to make increased efforts to determine how the money is playing a role in the different communities across the United States being impacted by the virus and the nationwide shutdowns.

The PPP Loan Process is a Delegated Process and the Data is Not Indicative of Loan Forgiveness and/or Compliance

The SBA also made clear that a key takeaway about the data is that the PPP loan process is a delegated process, which is important for businesses and Americans looking at the data to understand. In short, this means that the SBA and the Treasury Department are not making the loans directly. Instead, various certified financial institutions across the United States are making the loans based on the information provided to them in good faith by potential borrowers.

The self-certification via “good faith” by the borrowers (i.e. businesses applying for the money) was done in order to speed up the PPP process and make sure that lenders could get money into the hands of the businesses in need as quickly as possible. According to the SBA’s website, businesses applying for PPP loans were required to self-certify that the money they would receive was “necessary to support the ongoing operations,” while at the same time taking into account whether or not they were able “to access other sources of liquidity” at the time they applied. This undoubtedly left room for fraud and other issues.

The SBA will be conducting audits on any loans over $2 million, as well as audits on various other loans beneath this threshold.

It is important to recognize that the data released at this point includes all the money given out, regardless of whether the loans will be forgiven or not. Indeed, many businesses will not qualify for total loan forgiveness, so the current data is not fully indicative of the value of the PPP money that will be forgiven by the Treasury Department and federal government.

Wall Street and Private Equity Benefitted

Though the financial services industry was not hit as hard as many other industries on account of the fact that they were deemed an essential service, many Wall Street and private equity (PE) companies still received PPP money.

After looking at the data, The Washington Post determined that “nearly 600 asset management companies and private equity firms were approved for money from the PPP, according to government data.”

The 583 total companies in Wall Street and private equity that received loans of over $150,000 reported supporting approximately 14,800 jobs with the PPP money they received.

Individuals on Wall Street and in private equity tend to be some of the highest paid professionals in the world, with large swaths of the reeling in six figures of more a year. However, the PPP program specifically put in regulations and rules that prohibits PPP money from being used to pay for salaries exceeding $100,000, or else it would be ineligible for forgiveness. In light of this, business owners and Americans can rest assured that their tax payer dollars won’t be going toward sustaining the $500,000+ salary of a Wall Street Managing Director.

Large Restaurant Chains Were Some of the Biggest Borrowers

Unsurprisingly, large restaurant chains, including P.F. Chang’s China Bistro, TGI Fridays, Five Guys, McDonald’s, and more, accounted for a large amount of the borrowed PPP money. This is not shocking considering the restaurant industry, along with the retail industry, was essentially the hardest hit industry by the pandemic.

It is also important to recognize that many of these large brand name restaurants are owned and operated by individual franchise owners, making them very similar to small businesses on an individual level.

Members of Congress and Political Organizations Were Not Exempt from the Program

Businesses owned by or invested in by members of Congress can be found throughout the $150,000-plus loan data. Loans were given to companies associated with members of Congress on both sides of the aisle.

This has led to government watchdogs calling for increased transparency surrounding the program and the potential conflicts of interest that may have arisen on account of the lending practices of the program.

Additionally, two large political organizations received substantial loans. The Americans for Tax Reform Foundation, which is the non-profit arm of the anti-tax lobbying group American for Tax Reform, was authorized for a $350,000 loan. The Center for Law and Social Policy, which for policy supporting low-income Americans, was authorized for a loan of up to $1 million.

In another controversial set of loans, over 40 Planned Parenthood, a politically charged organization and the topic of heated debate on Capitol Hill for decades, received PPP loans. This has led to calls from Republican lawmakers for an investigation.

Another Stimulus Bill for Small Businesses

When the Paycheck Protection Program was designed, it was intended to serve as a short term lifeline for small businesses in need of coronavirus aid. However, since the CARES Act was passed, it has become evident that the COVID-19 pandemic is much more of a mid to long-term problem than a short-term problem. As states, including New York, Florida, California, and New Jersey, begin reversing some of their reopening orders, and the United States braces for the spiking COVID-19 case count, it is becoming clear that COVID-19 will most likely be a problem that extends well into 2021.

Without additional funds, many small businesses will undoubtedly find themselves in the same place financially as they were prior to the PPP program. Indeed, according to a National Federation of Independent Business survey, 14% of the businesses expect to have to begin laying off workers as soon as their PPP money runs out.

As a result of the changing circumstances surrounding the virus and the continued need for financial support of both small businesses and American workers, Congress is currently considering another round of stimulus for the United States economy.

It’s Not Too Late to Get A PPP Loan

Before we wrap up, it is important to note that there is still time to get a PPP loan. The deadline for having an application approved has been moved multiple times, leading to a lot of confusion surrounding the program. At this time, the current deadline for applying for and receiving approval for a PPP loan is August 8, 2020.

If you are a small business owner considering taking out a PPP loan, please note that your application must be approved by August 8, 2020. This means that you cannot submit your loan application on August 8 and expect to receive the funding. Instead, you should plan to submit your application prior to the last week of eligibility, meaning you should aim to submit your loan application by August 1, 2020 or earlier.

Overview

The release of the PPP loan data has been a substantial step toward greater transparency surrounding the program. While the data indicates that there are some loans and different lending practices of the program worth looking into, by and large it would appear that the vast volume of loans (in terms of the number of loans rather than the value of loans) went to the smaller small businesses the program was intended to support, with only 15% of the loans given out being of a value greater than or equal to $150,000.

Ultimately, the PPP program has been a success from an economic stimulus standpoint (though there will certainly be debates regarding the massive amounts of debt the federal government has taken on with these coronavirus aid programs).

Lastly, if your business is looking to take advantage of the program, remember that the deadline is quickly approaching and while it is possible another program will be introduced it is anything but guaranteed. So, if your business needs money, now is the time to apply for it.

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