New Research Shows How the PPP Loans Have Played Out

As shutdowns began across the country in March, Congress passed the Paycheck Protection Program part of the CARES Act. The initial funding ran out quickly, though changes in June included additional funds, and some franchisors avoided the program or even returned loans without using them.

Now, new data has revealed an early glimpse at how effective those loans actually were for business owners. Employers that applied for more than $150,000 in relief from the PPP generally saw a positive impact in employment, finances and business continuity, according to an analysis published by the National Bureau of Economic Research. 

The PPP, which took effect in April and closed in September, played "a significant role in the health and viability of small businesses," NBER researchers wrote. Still, they stopped short of deeming it a success or a failure, saying it's too early to tell.

Further, NBER researchers noted that while the June changes to the PPP provided additional funds and increased guidelines to protect against large, public companies receiving all the funding, Congress could have gone further. For one, the report notes that the economy overall would benefit from increased PPP loan forgiveness flexibility. PPP loan forgiveness has been a major worry for many franchisees since the first round of federal funding became available because of the program’s strict restrictions. For example, the 25/75 rule that says business owners must use 75% of the funds they receive only for payroll, and 25% for rent, mortgage payments, utilities and other operating expensesr to get loan forgiveness.

In addition, lawmakers and research organizations have criticized the PPP over the past few months, citing evidence that businesses owned by women or nonwhite individuals saw disproportionate losses and closures during the pandemic. The Center for Responsible Lending said that "well-connected, wealthier companies," received preference from banks, which failed "to provide benefits to the vast majority of businesses owned by people of color," in an April 16 statement. 

In July, Restaurant Business reported that only 130 black-owned restaurants received PPP loans of $150,000 or more, though some business owners that applied for loans did not disclose their race. 

Many of the businesses that received PPP loans still declared bankruptcy. About 84% of borrowers surveyed in September by the National Federation of Independent Business said they have used all of the PPP funds they were given. About 44% said they would apply for a second PPP loan if one were allowed.

Now, with a second wave of lockdowns popping up, many hope that COVID-19 relief will be a priority. President-elect Joe Biden’s administration would likely focus on workplace safety and a relief package for businesses. The issues with PPP have driven numerous calls for continued federal support, including the PPP Flexibility Act, a streamlined loan forgiveness program and the Restaurants Act.

"The RESTAURANTS Act is the only bipartisan measure designed specifically to address the unique vulnerabilities of America's 500,000 independent restaurants," the Independent Restaurant Collation said in a statement in July. "It also props up countless other industries and millions of jobs up and down the supply chain."

The National Restaurant Association urged Congress to expand the Employee Retention Tax Credit to help restaurants after the PPP loan has run out and to give tax credits to restaurants.

While lawmakers have sporadically proposed several initiatives to restart the program — including some that would allow some businesses to get a second loan — none have taken hold.