The first lesson from this extraordinary experience is that, gargantuan as it was, the PPP, as it has come to be known, was and is probably too small. The second is that, generous as it was — the “loans” are easily forgiven and tantamount to grants — the PPP was probably too restrictive. It imposed due diligence requirements for banks, causing lenders to favor existing customers over new applicants. PPP’s expectation to spend at least 75 percent of funds received on payroll, and the rest on rent and utilities, represented an arbitrary barrier for some otherwise-worthy companies. While 74 percent of PPP loans through April 16 were $150,000 or less (a total of $58.3 billion), a mere 4,412 loans of $5 million-plus accounted for $31 billion of disbursements. As Aaron Klein of the Brookings Institution has noted, this top-heavy distribution reflected incentives in the program’s administrative compensation for banks.
Congress addressed some of these issues in the new funding measure, most notably through a Democrat-backed provision requiring about 20 percent of the funds to move through smaller financial institutions. Also, the Treasury Department took steps to discourage large public companies from accessing funds through a loophole for franchise and chain businesses, several of which caused controversy by obtaining millions of dollars each. The owner of Ruth’s Chris Steak House, for example, got $20 million — which it returned after coming under criticism.
On the whole, though, we are as impressed with the pluses of the PPP as the minuses. Even money for relatively large companies is not necessarily a misuse of the funds if it’s being used to keep hourly workers on payroll. Haphazardly administered though it inevitably has been, especially in its hectic ramp-up phase, the PPP has helped achieve the overriding goal of mitigating economic destruction from the pandemic and associated “lockdown” public health measures.
If PPP has a fundamental flaw, it might be the premise that the worst economic damage will be over by the end of the second quarter — June 30, the program’s expiration date — and that companies thus would need only about eight weeks’ worth of cash to survive. Though these were widespread assumptions at the time of PPP’s enactment in late March, subsequent realities cast them into doubt. It is probably already too late to make policy adjustments to PPP before its second slug of cash runs out. It is definitely not too soon, however, for Congress and the administration to plan for the all-too-likely event that the distress stretches into the longer term.