The Paycheck Protection Program, or PPP, was a federal program designed to provide low-interest loans to businesses impacted by the coronavirus pandemic.
The PPP was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), on March 27, 2020. It included $953B to help businesses, sole proprietors, self-employed individuals, tribal businesses, and some nonprofit organizations cover payroll and certain other costs. The Small Business Administration (SBA) was responsible for reviewing, approving, and disbursing the PPP loans. However, the actual loan was provided directly to the applicant by an eligible private lender, like a federally insured bank or credit union, Farm Credit System institution, or an SBA-approved lender. This means that financial institutions across the country were involved in extending credit and servicing these PPP loans.
Despite being a broad relief program, the PPP outlined specific and detailed guidelines about eligibility, loan amount, terms, use of proceeds, loan forgiveness, and the ability to apply for a second loan. In general, the loan amount was 2.5x the applicant’s average monthly payroll costs.
The Paycheck Protection Program was significantly different from previous SBA loans, due to its sheer volume, involvement of the private sector, and emergence of new fintech players. In December 2020, the SBA published a wide range of PPP loan data, including loan recipients, amounts, and lenders—valuable intel about the financial health of loan applicants and portfolios. When Enigma combined the SBA data with merchant transaction data about loan recipients, the analysis showed:
– Only 35% of PPP recipients saw card revenue grow in 2020.
– The worst performing lenders tended to grant more PPP loans: a median of 16,219 for the worst performing lenders versus 4,376 for the top 10 performers.
– Four of the top 10 performing PPP portfolios were from regional banks with under $30B AUM.
Explore more insights from Enigma’s analysis of PPP performance.