The Paycheck Protection Program

The COVID-19 pandemic has profoundly affected life as we knew it in the U.S. Small businesses may have been particularly vulnerable: the typical small business pre-pandemic had cash reserves to cover 15 days of outflows in the event of a total disruption in revenues. After the national emergency was declared on March 13, 2020, small businesses saw substantial revenue declines. Expenses also declined commensurately, reflecting lower revenues as well as efforts to preserve liquidity (Farrell et al., 2020).

The CARES Act created several relief programs, including Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) advances, and Economic Impact Payments (EIP). The signature program for small businesses was the PPP, which authorized $659 billion towards job retention. One of its objectives is stated plainly by its name: it was intended to provide funds so that small businesses would continue to pay their employees instead of resorting to furloughs or layoffs. The maximum loan amount available to applicants was based on average monthly payroll, and the loan could be forgiven if 60 percent was used for payroll and other eligible expenses within 24 weeks.¹ Another objective was to get cash to small businesses quickly, requiring minimal documentation and leveraging infrastructure at financial institutions to distribute the loans.

Ultimately, 5.2 million loans were approved before the PPP closed on August 8, 2020, comprising a total of over $525 billion (Small Business Administration, 2020). Given the magnitude of the program, policymakers will be interested in its effects, especially as longer term small business outcomes emerge. JPMC Institute data can provide initial insight into loan amounts relative to all operating expenses as well as small business cash flows in the weeks before and after the PPP loans were disbursed. Our research was completed before the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, which reopens the program, was signed into law on December 27, 2020.

We used a sample of small businesses with Chase Business Banking deposit accounts and PPP loans from any lender² and focus on two cohorts. Approximately 20 percent of the firms in the sample received funds from a lender other than Chase. Our main sample is comprised of over 160,000 firms receiving PPP loans in May, when the majority of PPP loans were disbursed. The typical PPP loan in May was $25,000, and we can observe up to 25 weeks of cash flow data after loan funds were received,³ through the end of October 2020.

To analyze the cash flows of firms receiving PPP loans later in the pandemic, we used a cohort of over 11,000 firms that received PPP loans in July. The typical loan in July was $11,000, notably smaller than in May. We observe up to 16 weeks of cash flow data after the loan funds posted to their accounts.