OBSERVATIONS FROM THE FINTECH SNARK TANK
The Wall Street Journal reported:
“The House is expected to approve an additional $320 billion for the Paycheck Protection Program (PPP), amid concerns by lenders and small-business advocates that the funding still won’t be enough to meet demand for the coronavirus aid.”
This begs the question: How much would be enough?
Pulling Numbers Out of Thin Air
The new tranche of funds—$310 billion at signing—puts the PPP total at about $660 billion. The original allotment of $350 billion was loaned out within a week, leaving many applicants (and would-be applicants) empty-handed.
In addition to the $14 billion in PPP loans it’s already submitted and disbursed, JPMorgan Chase has an additional $7.3 billion in processed, but not submitted, applications.
If Bank of America—which accepted $43 billion in PPP loan applications—is in a similar situation, then it’s sitting on more than $20 billion in unsubmitted loans.
Add in KeyBank—which lent $9 billion—and total processed but unsubmitted loan apps could already exceed 10% of the new allotment. From just three banks.
It makes you wonder if the House just pulls numbers like $310 billion out of thin air. They could look at actual payroll data to estimate loan demand, but there’s no talk of anybody looking at that.
Is there any way to determine how much small businesses need?
Small Business Demand for Loans
The study focused on small- and medium-sized enterprises (SMEs) with $100,000 to $5 million in revenue, and who employ more than one person—in other words, the types of companies the PPP is supposed to support.
That last point is often misunderstood, as evidenced by one senator who commented:
“You big banks out there: You get that money out to those mom-and-pop shops, those one-person businesses.”
Of the nearly 31 million small businesses in the US, roughly 25 million have no employees—and as such, not the type of companies the Paycheck Protection Program was designed to support.
Small Businesses Expect to Borrow Nearly $2.6 Trillion
According to the study—conducted at the beginning of March—the six million small businesses with employees borrowed slightly more than $1.9 trillion in the past two years and expect to borrow nearly $2.6 trillion over the next two.
That was the outlook before the shutdown of the economy.
With the first round of PPP funding, small businesses have already borrowed 13% of what they had expected to borrow over the next two years.