![]() ![]() The SBA waived its typical upfront loan guarantee fee, annual servicing fee and the no-credit-available-elsewhere requirement.The maximum term was initially 10 years (later reduced to two years), and the maximum interest rate was initially 4% (later reduced to 1%).Loans were forgiven if borrowers certified that the funds were used within a specified period for payroll, utilities, rent or mortgage payments and that certain employment targets were maintained. Small Business Administration (SBA) guarantee. Loans were uncollateralized, were nonrecourse (i.e., no other assets of the borrower were at risk), did not require a personal guarantee by the borrower and came with a 100% U.S.The CARES Act included the following key specifications regarding the program, as summarized by the Congressional Research Service: Appendix of Congressional Research Service, “COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options,” Oct. Small Business Administration, “ Forgiveness Platform Lender Submission Metrics (PDF),” with data as of June 20, 2022. More than 90% of the nearly $800 billion of PPP loans were forgiven by June 20, 2022, making the program largely temporary as well. This was a remarkably timely response to the crisis. Background and Key PPP Loan SpecificationsĮstablished as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act-which was signed by President Donald Trump on March 27, 2020-the PPP began to distribute forgivable loans to small businesses on April 3, just three weeks after a national emergency was declared in the United States. Other crisis programs, including unemployment insurance and economic impact payments, were targeted much more successfully to wage earners. " Did the Paycheck Protection Program Help Small Businesses? Evidence from Commercial Mortgage-backed Securities."The Paycheck Protection Program (PPP) directed hundreds of billions of dollars to small businesses and other organizations adversely affected by the COVID-19 crisis, providing resources to maintain payrolls, to hire back employees who may have been laid off and to cover important overhead.īut was this money well spent? A recent study offers evidence that the cost of each job saved was very high and that most of the program’s benefits flowed to small-business owners, their creditors and their suppliers rather than to workers. " The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?". " Estimates of Job Creations from the American Recovery and Reinvestment Act of 2009.". " The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Abstract.Įxecutive Office of the President's Council of Economic Advisors. This resulted in a marginal propensity to consume (MPC) for the majority of PPP recipients that was about the same as that for recipients of stimulus checks (0.5) but much less than recipients of expanded unemployment benefits (1.0). NBER found that about 75% of PPP funds went to the top 20% of households by income. Ultimately some percentage of PPP loan funds that went to businesses reinforced the company's bottom line in the form of windfall profit.Most of the negative outcome is blamed on the untargeted nature of the program due to the lack of administrative capacity in the U.S.Another plus was the percentage (94%) of eligible small businesses that received assistance.The speed with which PPP ramped up and distributed funds was a bright spot in the analysis.The high cost ($170K to $250K) per job saved was another unfavorable aspect of the program.Marginal propensity to consume (MPC) (spend the money on consumption) for the top 75% of PPP recipients was 0.5, about half that of workers which was 1.0.NBER analysis of PPP found that 75% of PPP funds went to business owners, shareholders, creditors, and suppliers and roughly 25% to workers who would have otherwise lost their jobs. ![]()
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