"Phillips Gathers Experts to Examine Paycheck Protection Program’s Effectiveness"

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A release dated March 16, 2022 reporting that the House Small Business Committee Subcommittee on Oversight, Investigations, and Regulations, under Chairman Dean Phillips (D-MN), examined the Paycheck Protection Program's effectiveness at a hearing that day. It states that since April of 2020 PPP delivered almost $800 billion in emergency loans and that the average loan size reached approximately $44,000 in later rounds, against $199,951 in the first round. It quotes William Shear of the Government Accountability Office that lending to businesses in traditionally underserved counties became proportionate to their representation, in part because of changes by Congress and SBA. It also quotes researchers from the University of California, Santa Cruz, Duke University Fuqua School of Business and Cleveland State University.

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Phillips Gathers Experts to Examine Paycheck Protection Program’s Effectiveness

March 16, 2022

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Oversight, Investigations, and Regulations

Washington, D.C.— Today, the House Small Business Committee Subcommittee on Oversight, Investigations, and Regulations under Chairman Dean Phillips (D-MN) held a hearing examining the landmark Paycheck Protection Program (PPP) and its effectiveness in delivering relief to small businesses. The hearing featured testimony from leading academics and government officials on their research into the forgivable loan program.

“Many researchers have analyzed the effectiveness of PPP in saving jobs and reaching small businesses. We have a few of those experts with us today. I look forward to hearing more about their research and discussing the insights they’ve gained into the overall efficacy of PPP, and the program updates Congress instituted,” said Chairman Phillips. “By looking closely at these findings, we can better prepare ourselves for future crises and help SBA’s non-pandemic loan programs reach more underserved businesses.”

PPP was established early in the pandemic under the CARES Act. The program provided small businesses with forgivable loans when the virus hampered the ability of many firms to keep paying rent and employees. Since it launched in April of 2020, PPP has delivered almost $800 billion in emergency loans. During the pandemic, the Small Business Administration administered more aid than it had for all other disasters combined during its 67-year history.

Despite the successes PPP had in saving many businesses, small and underserved firms struggled to access the program in its early days. Committee members have worked diligently to make PPP more equitable since these issues emerged, helping pass bills to establish set-asides, empower community lenders, and institute changes to make PPP more accessible for the smallest firms. As a result of these reforms, the average loan size reached approximately $44,000 in later rounds of PPP, a substantial improvement over the $199,951 average loan size during the first round. During the hearing, witnesses testified on their research into PPP and the progress Congress’s reforms made in making the program more equitable.

“By the end of Phase 3, PPP lending to businesses in traditionally underserved counties was proportionate to their representation in the overall small business community, in part because of the changes Congress and SBA made to the program,” said William Shear, Director of Financial Markets and Community Investment at the Government Accountability Office. “For example, while loans to businesses in rural counties were high from the start of the program, loans to businesses in high-minority counties and counties with large shares of women-owned businesses reached proportionate levels by the end of Phase 3.”

“Many more banks and financial institutions were involved in the third round, including fintechs and CDFIs, which helped spread funds to small businesses in underserved markets. To conclude, the rebooted program in 2021 appears to have been disbursed to communities of color as intended,” said Dr. Robert W. Fairlie, Professor of Economics at University of California, Santa Cruz. “Although it is too early to tell what the long-term effects are from the third round of funds for small businesses in the country, there is no doubt that access to capital poses one of the most important barriers for small businesses. This is especially true for small business owners of color.”

“All banks in general prioritize large firms, however, the crowding out effect of small firms is fully eliminated and even reversed when firms have relationships with small banks,” said Dr. Manju Puri, J. B. Fuqua Professor of Finance at Duke University Fuqua School of Business. “This suggests that the small firm small bank relationship is special, and it should be leveraged in future and other funding initiatives.”

“In general, businesses that received smaller loan amounts reported more difficulty with the loan application process, filing multiple applications with multiple banks and pursuing more unique funding sources such as Fintech,” said Dr. Iryna Demko, Research Associate at the Center for Economic Development at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University. “Respondents cite the reason for these difficulties stemming from the size of their business. For example, a business owner complained: ‘I could not get anyone’s attention or response because I am a small business’.”

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