PPP 2 years later: Analyzing the legacy and impact of the $800B government relief program
PPP 2 years later: Analyzing the legacy and impact of the 0B government relief program

If you ask most bankers to reflect on the early days of the Paycheck Protection Program (PPP), they’ll most likely describe a hectic period of changing guidelines and frustrating technical glitches.

As the pandemic in early 2020 ushered in nationwide uncertainty around its impact on the economy, bankers scrambled to ready themselves for an influx of applications for PPP, a government relief program designed to save jobs amid widespread lockdowns.  

“It was truly an emergency response … We were literally working around the clock, evenings and weekends to completely stand up a new platform to be able to deliver [these loans] and really built it on the fly,” said Beneficial State Bank CEO Randell Leach, reflecting on the initial rollout of the program in April 2020.

The Oakland, California-based community development financial institution (CDFI), like many other lenders involved in the program, had to pull staff from their regular roles to help process the loans, which are forgivable if used by businesses to retain workers or for other permissible expenses.

PPP was established as part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act and, with the Small Business Administration (SBA) acting as the facilitator, used banks as the conduits to funnel nearly $800 billion in assistance to businesses during the pandemic.

Two years later, lenders, small businesses and banking industry experts continue to reflect on the lessons learned amid the government’s small business rescue program, and what lies ahead for the program’s participants. 

PPP demonstrated what’s possible

The SBA approved 11.8 million forgivable loans as part of PPP, according to data from the agency. For a government-backed program, essentially assembled in eight days amid a global crisis, those figures are remarkable, said Michael Brauneis, managing director and leader of the North American financial services group at consulting firm Protiviti.

PPP came with its flaws, as many lenders and small-business owners expressed frustration navigating changing guidelines and an online portal prone to crashing. But the program’s creation over such a short period of time is a testament to the banking industry’s capabilities, Brauneis said.

“The PPP happened literally in eight days, from the time that the law was passed to when applications opened up, so I do think it was an interesting test case in terms of what’s physically possible,” Brauneis said. “[The program] will probably be used as an example by lenders internally to say, ‘We can be somewhat more aggressive or operate more in an agile framework than we might have been able to in the past.’”

PPP accelerated the digital transformation of commercial banking, said Chris Hurn, CEO and founder of Fountainhead Commercial Capital, which funded more than $4.72 billion in PPP loans. 

“People generally don’t go into branches very often anymore. If you’ve been in the branch, it’s kind of like a mausoleum, there’s not a lot going on there,” Hurn said. “So I think PPP certainly accelerated that.”

Ahead of the second iteration of PPP in January 2021, Numerated CEO Dan O’Malley referred to the program’s relaunch as “the coming-out party for commercial digital loan applications.”

“In many ways, this is like so many things in COVID, just pushing banks into the future,” said O’Malley, whose Boston-based fintech was used by more than 120 financial institutions to distribute $50 billion in PPP relief funds. 

Numerated said many of those financial institutions continue to use its platform to digitize and automate traditional SBA loans and other products. 

Leach said Beneficial’s experience creating an application, document repository and processing platform for PPP has pushed the bank to find other uses for the technology.

“[PPP] gave us a chance to really align all of our resources around how to do something different than what we’ve done before,” he said. “It was not ideal circumstances to do it in the middle of a pandemic, to say the least, but our team completely stepped up as leaders and partners with each other to launch a new technology arm to be able to handle PPP, because there wasn’t a product like this out there in the market, let alone from our bank.”

Beneficial made more than 1,300 PPP loans totaling nearly $200 million. The CDFI said the vast majority of the businesses that received loans from the bank have fewer than 10 employees, and 78% of loans were for less than $150,000. 

Additionally, 35% of the PPP recipients were nonprofits, 21% were women-owned businesses and 14% were owned by people of color.

Leach said the bank now has a streamlined intake process that it’s refining for products that have credit underwriting.

“We’re looking to help increase those services so that we can provide it to the small-business and micro-business community,” he said.

PPP and fintechs

The launch of PPP marked a significant milestone in the fintech sector. After a delayed start — the SBA didn’t grant program participation to nonbanks until several weeks after the PPP’s launch — fintechs were eventually given the chance to flex their agility and speed over the course of the program.

While that opening helped make some startup firms household names, recent reports of fraud linked to PPP loans made through fintechs have led to lawmaker scrutiny of the space. 

Researchers at the University of Texas, Austin, found fintech lenders were almost five times more likely to be linked to suspicious PPP loans than traditional banks.

The study, released in August, scoured more than 10 million PPP loans for potential red flags such as unregistered businesses, multiple businesses at one residential address, abnormally high implied compensation per employee, and large inconsistencies in jobs reported with another government program.

The researchers found nine of the 10 lenders with the highest rates of suspicious PPP loans were fintechs. “While FinTech lenders likely expand PPP access, this may come at the cost of facilitating fraudulent credit,” the university’s researchers wrote.

Meanwhile, Federal Reserve Bank of New York research puts fintechs in a more favorable light, highlighting the number of Black-owned businesses that turned to the nontraditional firms for their PPP loans.

One in four Black business owners that sought a PPP loan used a fintech rather than a traditional bank — more than twice the rate of White-, Asian-, and Hispanic-owned firms, Fed researchers said.

Many Black and nonwhite business owners lacked existing relationships with traditional banks, causing many to turn to fintechs for the government-backed forgivable loans, the report said.

The close examination of PPP loans through fintechs comes as the sector is also facing scrutiny from the Justice Department over its handling of the loans. 

The DOJ’s civil division is examining whether Kabbage and other fintechs miscalculated how much PPP aid borrowers were entitled to, citing confusion over how to account for payroll taxes.


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