PPP loans covered less than a month of small biz expenses

As a fresh round of federal relief loans is getting distributed to U.S. small firms hit by a pandemic crisis that will soon stretch to a year, new research shows that last year’s tranches of the Paycheck Protection Program covered less than a month of business expenses.

PPP loans provided in the March 2020 CARES Act on average covered 3.8 weeks of expenses, according to a report by JPMorgan Chase Institute that examined cash flows of small businesses that received funds in May and July. For retail firms, among the hardest hit by lockdowns and other activity restrictions, PPP loans covered 2.1 weeks of expenses, the lowest of all industries.

The main target of the PPP forgivable loans was to help businesses retain their employees, with borrowers now able to have their loans forgiven when they spend 60 percent of the funds on payrolls.

For firms that have no staff or have large rent and inventory costs — such as restaurants — the program only provided a fraction of what some owners needed to stay afloat through a national emergency. Black- and Latino- owned small businesses are less likely to have employees, which limited the relief available to them, according to the report.

Angus Mordant/Bloomberg

Still, the PPP program, which restarted this month with $284 billion in additional funds, was a lifeline for many of the 5.2 million firms that got a loan.

The program increased the average small-business cash balance by 136 percent in the JPMorgan Chase Institute research, providing necessary support as pandemic restrictions curbed consumer spending.

Businesses that were granted loans in July saw increased balances in the weeks before their loans’ disbursement, signaling that other pandemic relief programs may have helped, according to the report. These programs included cash advances from the Economic Injury Disaster Loan program and stimulus payments.

“Prior to the COVID-19 pandemic, small businesses were particularly vulnerable with the typical small business holding roughly two weeks of cash reserves to cover outflows,” Chris Wheat, co-president of the JPMorgan Chase Institute, said in a statement. “PPP loans provided much-needed financial relief to many small businesses as they navigated the pandemic, helping bolster cash balances and support expenses while revenues were down.”

— With assistance from Olivia Rockeman