From the launch of the Paycheck Protection Program (“PPP”) on April 3, 2020, through June 6, 2020, 5,458 lenders have approved loans to over 4.5 million small businesses for over $511 billion dollars. On June 7, 2020, the SBA published an updated Paycheck Protection Program Report with additional details.
To put some scale around the size of the program, for the last five years, the SBA has averaged annual total personal loans approved under its 7(a) small business loan program (the same umbrella under which PPP loans fall) of roughly $17.4 billion. Accordingly, in April and May of 2020, the SBA has processed roughly 29 years worth of SBA loans. While the rate of PPP loans being improved has slowed greatly, as discussed more below, this still highlights the size of the program and the strain under which the SBA has been operating.
Average Loan Size
The overall average size of a PPP loan is now approximately $113 thousand. This is down significantly from the first round of PPP funding, where the average approved PPP loan was $206 thousand. Based on the formula for PPP lending, this means the average borrower likely had monthly payroll costs of approximately $45 thousand.
Of course, the average size of PPP loan is certainly affected by a relatively small number of larger loans. As reflected above, the majority of loans made were for loans of less than $50 thousand (reflecting monthly payroll costs of less than $20 thousand). Over 85% of the total PPP loans made were for less than $150 thousand, and over 93% of the total PPP loans made were for less than $350 thousand. While significant ink (digitally and otherwise) has been spilled on larger PPP borrowers, less than 2% of the PPP loans made were for more than $1 million.
These size thresholds will hopefully support a decision by the Treasury and SBA to offer a simplified forgiveness application for smaller loan sizes. As the amount of work on the forgiveness application (by both the borrower and the lender) are unlikely to significantly change based on the size of the loan, allowing a simpler process for smaller loans could have a significant impact on the organizational cost of completing (and reviewing and approving) loan forgiveness applications. We are currently hearing support for such a simpler process, with the primary question being the correct threshold for the “EZ” application process. Current rumors appear focused on either $150 thousand (over 85% of borrowers and 26% of the dollar amount lent) or $350 thousand (over 93% of borrowers and 42% of the dollars lent). Either would be a blessing for borrowers and lenders.
Available PPP Funds/Rate of Borrowing
In the first round of PPP lending (and the first days of the second round of PPP lending), PPP loan volume was incredibly high. In the first round of PPP loans (representing the initial $350 billion approved under the CARES Act), PPP loans were approved at a rate of roughly $24 billion per day (weekends included). Following the addition of an additional $310 billion under the Paycheck Protection Program and Health Care Enhancement Act, the second round of PPP lending got off to an even hotter start, with roughly $35 billion in PPP loans approved each day for the first five days.
That rate fell to about $2 billion per day in the second week of route two, and has continued to decline. While the numbers are a little difficult to track due to the inclusion of loan cancellations as wells (see the next section), last week (May 31st to June 6th) saw a total of “only” $1.1 billion in net new PPP lending.
The PPP loans last week were even more in favor of small borrowers, as the average loan size was only $20 thousand (reflecting average monthly payroll costs of $8 thousand). Over 89% of the loans were less than $50 thousand, and over $97% of the loans were less than $150 thousand.
For the first time, the weekly SBA PPP Report also included a statement of the amount of funding remaining for future PPP loans. Through approvals granted on June 6, 2020, there remained approximately $130.7 billion in funds remaining for future PPP loans. The PPP Flexibility Act did not extend the deadline for applying for PPP loans. In a joint press release this morning, the Treasury and SBA confirmed that they will “promptly” be issuing regulations to implement the PPP Flexibility Act, and that such regulations will confirm that June 30, 2020 will remain the last date on which a PPP loan application can be approved.
Much has been written about the pressure put on companies to confirm the accuracy of their “need” certification in applying for PPP loans. These pressures have not only led some borrowers to elect to return borrowed PPP funds, but have also undoubtedly decreased interest by potential borrowers. It is impossible to measure the impact on potential borrowers who ultimately chose not to submit a PPP application (although going from $35 billion in approved loans a day to less than $2 billion in one week certainly suggests an impact). However, based on the weekly reports, we can dig a little deeper into the borrowers that elected to return borrowed PPP funds (or elected not to close approved PPP loans).
Starting with the weekly SBA PPP Report for approvals through May 16, 2020, the SBA and Treasury began backing out from the reported totals any “cancellations through the report date.” Cancellations can be for a number of reasons, some of which are completely unrelated to the “need” certification or other negative pressures felt with regard to taking PPP loans. Cancellations include duplicative loans, loans not closed for any reason, and loans that have been paid off.
Duplicative loans occurred when borrowers applied through multiple lenders, likely a side effect of the “first come, first served” nature of the PPP and the rapid depletion of PPP loan funds in the first round (and first days of the second round). While borrowers were prohibited from obtaining multiple PPP loans, there was no prohibition on applying for PPP funds from multiple lenders… and we have heard stories of lenders encouraging borrowers to do so (as lenders frequently will look out for the best interests of their borrowers, even if it could mean lost business for the lender).
Loans not closed for any reason could include duplicative loans, or any of a number of business decisions to not complete the PPP loan process following approval by the SBA. Again, given the first come, first served nature of the PPP, borrowers felt they had to move quickly to get in line, and some may have second guessed that decision following approval.
Lastly, cancellations certainly include loans that have been paid off as borrowers reached a determination that, for whatever reason, they did not want to retain the PPP loan. The statistics provided by the SBA and Treasury support the stories we’ve heard from many borrowers… while the enhanced scrutiny of the Treasury and SBA were unexpected and unpleasant, the vast majority of borrowers appear to remain comfortable with their good faith determination of the need for their PPP loan to support their ongoing operations in light of the economic uncertainty brought about by the coronavirus.
Comparing totals from prior to the netting out of cancellations does reflect a decline in the total amount of SBA approved PPP loans (from roughly $531 billiton to roughly $513 billion), which was certainly partially offset by an increase in over 100,000 borrowers. In particular, the number of larger PPP borrowers has declined. As of May 8, 2020, there were 89,246 PPP borrowers who had borrowed in excess of $1 million, 33,878 who had borrowed in excess of $2 million, and 5,960 who had borrowed in excess of $5 million. (Note: the SBA Report, consistent with the legal standards of the PPP, have always focused on individual borrowers and loans… some of the loans may represent multiple loans to affiliated borrowers, which the Treasury and SBA have indicated would be looked at on an aggregated basis in future reviews of loan and forgiveness applications.)
As of June 6, 2020, the SBA PPP Report shows 82,183 PPP borrowers who had borrowed in excess of $1 million (down 7,063), 29,605 who had borrowed in excess of $2 million (down 4,273) and 4,817 who had borrowed in excess of $5 million (down 1,143). While these returns are certainly not insignificant, and represent over $21 billion in cancellations, the vast majority of larger PPP borrowers appear to have been comfortable with their certifications. 92% of borrowers over $1 million, 87% of borrowers over $2 million, and 80% of borrowers over $5 million elected to retain their PPP funds. (At a more detailed level, $95% of borrowers with loans between $1 and $2 million and 88% of borrowers with loans between $2 and $5 million elected to retain their PPP funds.)
At smaller loan amounts (which may also be more indicative of other reasons for loan cancellations), the loan cancellations as a percentage of outstanding loans were even smaller. For loans from $350 thousand to $1 million, only 2.4% were cancelled, with 97.6% retained.
As cancellations were not tracked separately from new loan originations, it is impossible to say that there were not additional borrowers that decided to return their PPP funds… however, any additional cancellations were offset by new PPP borrowers making the decision that they could appropriately make the PPP loan application certifications.