One of the most important parts of the 2020 CARES Act was the Paycheck Protection Program, which was administered by the Small Business Association. 

Federal funding for PPP expired in May. In this post, we look back at the program and assess its role in helping to stabilize the economy in the midst of the unprecedented downturn causes by the COVID-19 pandemic.


The Paycheck Protection Program (PPP) was a $350 billion program included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. PPP was created to support small businesses with an 8-week cash infusion in the form of 100 percent federally-guaranteed loans. An additional $310 billion was subsequently added in late April, 2020, through the Paycheck Protection Program Flexibility Act which gave businesses more time to spend funds, while making it easier to have a loan fully-forgiven. Finally, on December 27, 2020, a second stimulus package included an additional $285 billion, opening up a second PPP for businesses that used their initial PPP loan, but still experienced a 25 percent or greater loss in revenue.


The PPP evolved over time, with some guidelines loosened, and other restrictions tightened. Initially, PPP:

  • Was limited to companies with 500 or fewer employees
  • Included contract workers. 
  • Loans were guaranteed for up to two months
  • Loans were capped at $10 million.

With subsequent funding rounds, adjustments were made:

  • To qualify for loan forgiveness, businesses had to allocate a minimum of 60 percent of their PPP loans to salaries; this requirement was originally 75 percent.
  • With the second stimulus package in December, eligibility for a second loan was limited to companies with 300 or fewer employees (down from 500).
  • Also, the second round of PPP funding set aside loans for very small businesses, as well as businesses located in low-to-moderate communities.

PPP Liquidity Facility

An important extension of PPP was the related Paycheck Protection Program Liquidity Facility (PPPLF). 

Supported by the Federal Reserve, PPPLF provided low-interest loans to lenders. These Fed-backed PPPLF loans covered the “full-value of the underlying PPP loans, as the credit risk to Federal Reserve banks was minimal since the PPP loans were guaranteed by the SBA.”

The Board of Governors of the Federal Reserve, in a paper released in April, 2021, found that PPPLF played an important role in increasing liquidity and encouraging a greater degree of overall PPP lending. Specifically, the Fed study found that banks requesting PPPLF support extended more than twice the amount of PPP loans than non-PPPLF banks. 


The PPP program had widespread participation across the financial spectrum. A majority of insured financial institutions participating, as well as thrifts, credit union, fintech firms, small-business lenders, microlenders and non-bank institutions, such as the Farm Credit System. 

Here are some of the most pertinent data points related to PPP:

  • Banks and thrifts represented about 80 percent of lenders, 54 percent of loans approved and 80 percent of actual loan dollars released.
  • The average size of PPP loans in the first round of the program was $206,000. For 2021 PPP loans, the average fell to $42,000.
  • Nearly 90 percent of PPP loans in 2021 were for $50,000 or less.
  • In terms of specific allocations, the following industries received the highest shares of PPP allocations:
    • 15%: Accommodations and Food Service
    • 12%: Construction
    • 10%: Health care and social assistance
    • 10%: Professional, scientific and technical services

While there were some administrative challenges in the initial rollout of PPP, most financial experts, and particularly local bankers, thought the program was valuable. In fact, in subsequent interviews with bankers, the Fed repeatedly heard that “PPP validated the community bank business model of relationship banking.” Local banks were able to pick up new customers, while also extending their reach to many non-profit organizations such as food banks and churches. 


To learn more about Recovery Decision Science contact:

Kacey Rask : Vice-President, Portfolio Servicing

[email protected] / 513.489.8877, ext. 261