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Paycheck Protection Program Likely to Run Out of Funds Before May 31

  • Paycheck Protection Program on track to exhaust available funds before its newly extended deadline of May 31
  • Approximately $68 billion of nearly $292 billion appropriated remains available
  • Business groups differ over whether PPP should receive additional funding or whether the program should be allowed to expire

Summary by Dirk Langeveld

The Paycheck Protection Program is on track to run out of funds well before its newly established deadline, potentially setting up a policy debate over whether the program should receive more funds or be allowed to expire.

The program, which was first established at the outset of the COVID-19 pandemic, received $284.5 billion in new funding under the Economic Aid Act in December and an additional $7.25 billion under the American Rescue Plan. The most recent report on PPP loans from the U.S. Small Business Administration indicates that nearly 4 million loans totaling $223.57 billion have been allocating, leaving only about $68 billion left to disburse.

An SBA official remarked at a congressional hearing on March 24 that 190,000 PPP applications were being processed and that the program was on a pace to exhaust its funds by mid-April. SBA reports show that lending has proceeded at an average of $14.65 billion over the past month, which would result in all available funding being depleted within five weeks.

Congress overwhelmingly voted to extend the PPP application deadline from March 31 to May 31. The action was taken in part to allow lenders to adjust to changes made by the Biden administration, including a more advantageous formula for sole proprietors and eased restrictions on borrowers with felony records or those who were delinquent or had defaulted on federal student loans, and in part to ensure that businesses were not shut out from available funding. The SBA’s report for March 28 indicated that nearly $78 billion remained available three days before the original deadline.

Funding for PPP loans has seesawed between inadequate and overly generous since the program was established under the CARES Act in March 2020. An initial appropriation of $349 billion was quickly depleted, but only about 60 percent of a subsequent $320 billion appropriation was used before this second round of funding expired.

The latest round of funding has narrowed eligibility to smaller businesses. Companies with 500 or fewer employees can apply for a first draw loan of up to $10 million if they have not received a PPP loan in the initial funding rounds. Companies that previously received a PPP loan can receive a second draw loan of up to $2 million if they have 300 or fewer employees and can demonstrate a year-over-year revenue loss of at least 25 percent in at least one quarter of 2020.

PPP loans are completely forgivable if the business uses at least 60 percent of the funding to maintain payroll. The remainder can be used for several other eligible costs such as rent or utilities.

The congressional deliberation over the PPP extension raised some proposals for changes to the program, including making the revised sole proprietor calculation retroactive to previous borrowers to allow them to receive larger loans. However, funds could be depleted before such changes are put into place. Since the extension of the PPP deadline, the only congressional action on the program has been a proposal to prevent predatory lenders from receiving loans.

The diminishing amount of funding is also putting pressure on lenders, who must decide on whether to stop taking applications or continue accepting them in anticipation that more funding will become available.

Some business groups, such as the American Business Immigration Coalition, have called for additional PPP funding. Others have suggested that other relief may be more appropriate, such as targeted grant assistance. The SBA opened its $16.25 billion Shuttered Venue Operators Grant program on Thursday to assist arts and cultural organizations impacted by COVID-19, and is preparing to oversee a Restaurant Revitalization Fund to provide $28.6 billion in grants to food and beverage businesses. Other grant programs have included payroll assistance for aviation manufacturers and a proposal to assist gyms and other fitness businesses.

A mid-March survey by the National Federation of Independent Business found waning interest in PPP among small business owners. Two-thirds of respondents who had not received a PPP loan in 2020 were not interested in applying for one, while 20 percent had already submitted an application for a first draw loan. Among those who received a PPP loan in 2020, nearly half were not planning to apply again while 42 percent had already applied for a second draw loan.

Qualifying businesses that have not yet applied for a PPP loan and are interested in doing so can find more information on applying at the SBA website.

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