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Small Biz Loan Program Saved Jobs, Businesses, New Study Finds

smallKey Points: 

  • PPP was “the most ambitious” fiscal policy response to the COVID-19 crisis, a new study finds.
  • Smaller businesses got the most utility out of PPP loans.
  • PPP loans increased employment and financial wellbeing – especially for Main Street businesses.
  • Over 4.9 million PPP loans were processed, supporting over 51 million jobs.
  • Democrats currently are blocking Republican efforts to allow more businesses to tap unused PPP funds.

The Details: 

The bipartisan Paycheck Protection Program led to increased employment and financial wellbeing and stopped the foreclosure of Main Street businesses across the country, according to a new study.

Created as part of the CARES Act, PPP “was the most ambitious and creative fiscal policy response” to the COVID-19 crisis, scholars at the American Enterprise Institute said.

PPP loans were a first-of-their-kind tool to help small businesses receive federally backed cash-flow assistance. If the business used the money to maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.

While the scholars suggest that their study is preliminary, and that they “avoid making strong statement about the success or failure of PPP because the program is so young,” their findings do suggest that PPP’s effects were substantial enough to warrant possible extensions as the U.S. economy continues to reopen.

PPP’s effect on small businesses grew over time, according to the study. The program had a larger impact in June than in April and May and it had the largest effect on smaller businesses.

“PPP encouraged businesses that had already laid off workers due to the pandemic to rehire them quickly without penalty,” the AEI scholars wrote. “It was able to get an astonishing amount of money to millions of small businesses very quickly.”

The scholars found that nearly 87 percent of all PPP loans were for less than $150,000, meaning it was largely smaller businesses that were utilizing this program. And in evaluating the program’s effect on employment, the scholars found that PPP actually increased employment for small businesses.

Businesses’ financial health also increased as a result of PPP.

The report states that firms with less than 1,000 employees saw their average monthly Paydex – a measure of how well a firm pays their bills on time – fall during the first half of the year.

After PPP went into effect, Paydex increased in June, “suggesting that the effects of PPP on financial health may be increasing over time,” according to the report.

In all, the Small Business Administration reported that over 4.9 million PPP loans were processed. 51 million jobs were supported through the program, the federal government reported.

Additionally, the recall-unemployment rate – the amount of temporary laid off employees as a percent of the labor force – peaked in April at 11.5%; it currently sits at 2.9%. The average recall unemployment rate from 2018-2019 was .51%.

By comparison, the unemployment rate for reasons other than temporary layoff – the amount of all unemployed persons not considered under a temporary layoff as a percent of the labor force – is currently just shy of 5.0%, which is more than nearly two percentage points than its 2018-2019 average.

PPP was one of the tools that Congress used to ensure that many of the workers affected by the recession would be able to get back into work quickly instead of becoming permanently laid off.

The recovery from the temporary economic recession caused by the pandemic is one of the quickest on records. The September jobs report was the fifth consecutive month of employment gains, with 661,000 jobs being added and unemployment falling to 7.9%.

That single month of jobs growth was greater than any month of recovery during the Obama-Biden administration.

Recent reports find that wages and employment were growing better than economists projected prior to the pandemic. Low- and middle-class families saw the largest gains in wealth growth in 2018 and 2019. Median household incomes increased 7.1% for Hispanics, 7.9% for Blacks, 10.6% for Asian Americans, and 8.5% for foreign-born workers.

Under President Trump, and compared to Obama-Biden’s second term, wage growth, as a measure of median usual weekly earnings, grew 24% faster for Hispanics, 79% faster for Blacks, and 95% faster for Asian Americans, and grew 60% faster for women.

Billions of dollars allocated for PPP loans have gone unspent. House Republicans filed a discharge petition to allow these funds to be available for small businesses that are still recovering.

House Democrats blocked that petition.

“Congress should agree that keeping businesses open is more important than playing political games,” Rep. Kevin Brady, the top Republican on the House Ways and Means Committee tweeted. “Speaker Pelosi is blocking BILLIONS in unused #PPP funds – unacceptable.”

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