The PPP or Paycheck Protection Program has had many issues which have made it more frustrating than useful for small business owners.
According to the Small Business Administration’s report, in the first five days of the second round of funding, just over $175 billion of loans were approved. The first round of funding loaned $349 billion to businesses within 13 days.
However, a lot of small businesses missed out during the first round of PPP loans. There are concerns whether this second round will reach those businesses who need it the most. These are some of the top concerns with the second round of PPP loans.
“We are facing an uncertain future. We do not know how long it will take to eradicate coronavirus and return to normal. People and businesses who lost their income during the pandemic need help to survive. Now more than ever, politicians must work together to create a corona aid relief bill to ease the financial suffering of their people,” according to Brad Nakase, who is one of the best car accident lawyer in California and awarded the prestigious “American Institute of Trial Lawyer’s 2020 Litigator of the Year.”
Average loan size has reduced
During the first round of funding, PPP loans were $206,000 on average. Currently, in the second round of PPP loans, the average loan is only $79,000.
Lawmakers have ensured smaller lenders have the opportunity to give loans as well as bigger lenders. The Small Business Association created an eight hour period where only small lenders were able to access the system. Additionally, $30 billion of the small business loans will come from small lenders with less than $10 billion in assets.
The problem with this is that on average, smaller lenders give out smaller loans. The Small Business Association’s report showed that the average loan for larger lenders (with more than $50 billion of assets) was $90,000. In comparison, smaller lenders (with $1 billion in assets or less) gave out loans that average $58,000.
Large loans have taken a big chunk out of the loan pool
During the first round of PPP loans, 25% of the pool of money went towards loans of $2 million or more. These loans took a large chunk of the money but only accounted for 1.5% of total loans.
So far in the second round of PPP loans, 16% of loans are $2 million or more, and they make up 0.35% of all loans.
All loan applications of $2 million or more will be audited in the second round. As there were over 25,000 loans of that size in the first round, there is a hope that it will reduce the number of applications.
Currently, the maximum loan amount is $10 million. However, small businesses have been lobbying to have this amount reduced to $1 million to free up the money for more businesses. This will save $150 billion for the PPP fund and allow the loans to assist more small businesses.
However, Matthew Zeitlin has suggested that the problem is inadequate funding of the program. The large loans tend to go to businesses with a lot of employees they are trying to keep. The program was designed to protect employment, so in that sense, it is doing its job by letting larger companies retain their employees.
This round is not adequately funded to meet demand
The loans are being snapped up quickly in this round of funding. The first round had $349 billion of loans approved in 13 days, but the second round has already had $176 billion approved in five days.
Even after this round has finished, most small businesses will need additional funds to stay afloat. The National Federation of Independent Businesses published a report showing that while 75% of surveyed small businesses had applied for the loans, only 20% had received the money.
The money has not gone to those who need it most.
Economists from MIT and the University of Chicago have studied if the PPP loans boost the local economy. After the first round of funding, they saw that only 15% of loans went to businesses in regions severely affected by business shutdowns and hour reductions. More data is needed about the program as it progresses and whether the businesses that take the loans survive. However, the data shows that money is not going to the right places.
We still need more data
The data is limited leading into the second round of PPP funding. At the moment, the data isn’t broken down in ways that show if the aid is being equally distributed.
The Small Business Association’s data is not broken down by the race or gender of the business owners, so it is unclear if women and people of color are receiving equal opportunity in the program. As the data wasn’t provided from the first round or the second round, there is no way to compare if there were oversights and if they were improved upon.
Data about the breakdown of the industries receiving the loans has not been released yet in the second round. The first round of PPP loans showed that hardest-hit businesses such as restaurants and hotels only received 9% of the pool of money. We do not yet have the data from the second round to see if this is improving.