On January 13, 2021, the Small Business Administration (SBA) began accepting applications for loans in the second round of the Paycheck Protection Program, which previously distributed $525 billion in forgivable loans over the course of April to August 2020. As of February 7, the SBA has approved $100.9 billion in second-round loans, less than half of the $284 billion allotment. Gusto surveyed 1,093 small businesses on their experiences with the first and second round of PPP loans to better understand their experiences with these first and second round of loans and shed light on the dynamics behind these top-line numbers.

Key Findings

  • Uncertainty around forgiveness has hampered takeup from struggling small businesses. More than half of small businesses have yet to receive loan forgiveness for PPP 1.0, and 13.4% of the businesses that specifically cited a need for PPP 2.0 and meet the eligibility requirements, have chosen not to apply because they fear their PPP 1.0  loan won’t be forgiven. 
  • Approximately 1/3 of SMBs that are eligible and in need of PPP 2.0 have applied for it, but have not heard back if they are approved, creating additional uncertainty and setbacks.
  • There are wide variations in rates of forgiveness and PPP round 2 approval by race and ethnicity. For instance, 59% of white applicants have been approved for round 2 loans, while those rates lower to 51%, 48%, and 25% for Asian or Pacific Islanders, Hispanic or Latino, and Black or African American business owners, respectively. 
  • The revenue-reduction criteria missed the mark – leaving deserving businesses out: The 25% revenue reduction requirement proved to be a big blocker for many small businesses that need aid. 44% of small businesses that did not apply said it was because they have not experienced the required gross revenue reduction, and 42% of businesses in hard-hit industries were left out because of this requirement. Many of these businesses are still struggling — dealing with significant increases in operating costs that have cut net income but not affected gross revenue — but they have been left out of PPP 2.0.
  • 75% of SMBs pursuing PPP 2.0 don’t think the aid will be enough to help them make it to July, when most public health experts expect vaccine distribution to reach a significant part of the US population.
  • Newly created businesses in 2020 may be more likely to fail or struggle because they aren’t currently eligible for PPP lifelines that are available to other businesses–80% of these businesses stated that they needed or would have applied for a PPP loan if they were eligible. 

PPP 1.0

Overall, 68% of businesses surveyed received an initial PPP loan. This number matches closely to another survey from the National Federation of Independent Businesses, which found that PPP funds reached 72% of small businesses. The main sources of these initial loans were either local/community banks (29%) or large national banks (26%). Large regional banks and online lenders were responsible for smaller portions. 

56% of businesses who took an initial PPP loan have not had it forgiven yet – driven by a large portion that have not yet applied for forgiveness (61% of those who have not had their loan forgiven have not applied for forgiveness) or have not heard back from lenders after submitting the forgiveness applications (26% of those who have not had their loan forgiven). Only 1% stated the lender has rejected their forgiveness application. Of those who have received forgiveness, the large plurality (38%) received their loan from a community bank.

There are significant differences in forgiveness experiences by race/ethnicity. While overall, 56% of white non-Hispanic business owners have not had their PPP loan forgiven yet, which mirrors the overall number, 75% of Black or African American business owners have not received forgiveness, and 63% of Asian or Pacific Islander borrowers have not. This difference may be driven by the fact that, in our sample, large national banks are the largest source of PPP first round funds, while local and community banks (which have processed forgiveness faster) are the largest source of funds for white business owners. A majority (54%) of Hispanic or Latino borrowers have received forgiveness.

Table 1: Reasons Small Businesses Have Not Received Forgiveness For PPP Round 1

PPP 2.0 

Thus far, this second iteration of PPP has reached far fewer small businesses than the initial round. 43% of respondents indicated they have applied for a loan from the new PPP allotment. Of those who have applied, just over half (54%) have been approved, and 33% have not heard back after submitting their application. Again, most of the remaining applicants are dealing with providing additional documentation, while few (2% of applicants) have been outright rejected.

Again, approval rates vary widely by race. In this second round of PPP, 59% of white applicants have been approved, while 51% of Asian or Pacific Islanders, 25% of Black or African American and 48% of Hispanic or Latino applicants have been approved. The reasons for not being approved are similar across races, with high portions of all groups waiting to hear back from lenders.

Table 2: Reasons Small Businesses Have Not Applied to PPP Round 2

Of those who have applied for this second round, 88% are initial PPP recipients applying for second-draw loans. The plurality of applicants applied through local community banks (30%) or large national banks (23%). While community banks are responsible for 30% of applications, they make up 41% of processed second-round loans. This larger portion of approved loans (relative to applications) coming from community banks suggests that these institutions are likely doing a better job processing the new loans.

Small businesses did not apply in this second round of PPP funding for three main reasons: they perceive themselves ineligible due to new requirements, they do not need new PPP loans, or they need loans but are hampered by the paperwork requirements or forgiveness concerns. 22% of respondents who did not apply said they do not need new financing, 44% did not apply because they have not experienced the required revenue reduction, and 37% said either the paperwork is too complicated or they were too concerned about first- or second-round forgiveness. These documentation and forgiveness concerns can help explain why take-up of PPP 2.0 has remained low through the first month: over one-third of small businesses who have not applied for second-round loans need support, but have been prevented through the way this aid program has been set up. 

Furthermore, there is also evidence that the new requirement of a 25% decline in gross receipts is excessively restricting takeup. Even among small businesses in hard-hit industries, 42% said they did not apply because they have not experienced the required revenue reduction. This requirement was intended to direct funds to those most affected by the pandemic, but the fact that it has excluded almost half of small businesses in these industries from taking loans signals the requirement is flawed. One administrative fix to expand eligibility to more struggling businesses would be for the SBA to include changes in operating costs in the definition of gross receipts. This change would add businesses that have not experienced declines in gross receipts, but are struggling due to increased costs from pandemic-related supply chain disruptions.

Finally, applicants for second round loans were evenly distributed as to how long they expected the next round of PPP loans to last. Roughly equal portions (25%) expected the loans to last 8 weeks, 8-12 weeks, 12-16 weeks, or 17+ weeks. That means 75% of applicants do not expect these loans to last to July, when public health experts expect vaccinations to reach a large enough part of the population to resume normal economic activity. 

New Businesses Struggling in the COVID Economy

One potential warning sign also appeared in this survey: 6% of businesses surveyed did not qualify for PPP because they were established after February 15, 2020. Of those, 80% indicated they needed or would have used a PPP loan. 

New businesses have been created at a historically high rate in 2020, and these young, small businesses are the engine of employment and productivity growth in the United States. This data suggests, however, that a large portion are struggling to survive as the pandemic drags on and the recovery stalls out. Ensuring these new businesses have support not only to survive but to grow and expand will prevent 2021 from being the year of record business closures.

Taking Stock of PPP

PPP was an unprecedented form of small business support, designed and implemented during an economic crisis. Despite its flaws, 87% of all survey respondents believed that “overall, PPP is an effective form of aid for small businesses.” The main concern among the 13% of respondents who disagreed: 42% of those said PPP was ineffective because “it left too many small businesses out.” Indeed, this point could well sum up the main findings of this survey. While PPP has reached over 5 million small businesses and disbursed over $600 billion in aid across two rounds, there are still many struggling small businesses that have been left out from receiving support because of the way PPP has been designed. Policymakers can learn from these pain points to create a more efficient, equitable, and inclusive aid program for small businesses going forward.

Luke Pardue is an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He received his Ph.D. from the University of Maryland, where he studied the effects of government programs on disadvantaged populations' housing and labor market outcomes. Luke currently lives in Washington, D.C.
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