WASHINGTON – The Payment Check Protection Program (PPP), which is an incentive for small businesses to keep their employees on the payroll during the health crisis, helped companies improve cash flow in the first few weeks of the program and mainly flowed to less difficult areas. affected by the virus, according to a study by the Becker Friedman Institute at the University of Chicago.
Scholars who examined the early effects of relief loans on businesses and local economies found that businesses had used the first round of PPP funds to strengthen their balance sheet and liquidity.
“We found no evidence that the PPP had a substantial effect on local economic results – including decreases in hours worked, business closings, initial unemployment insurance claims and small business income – during the first round of the program,” they stated in a statement. report.
Academics Joao Granja, Constantine Yannelis and Eric Zwick of the University of Chicago, and Christos Makridis of the MIT Sloan School of Management, examined weekly employment and business closure data, as well as initial unemployment insurance claims (UI ) at the county level
“The absence of a significant effect on UI claims during the first few weeks of the program is surprising,” they wrote, since one goal of the program was “to provide relief for congested state unemployment insurance systems.”
Examining data from the Census Bureau’s small business survey, the researchers found that some companies appeared to use PPP funds to increase liquidity and pay off loans and other non-payroll expenses.
“For these companies, the PPP may have strengthened balance sheets at a time when shelter-in-place orders prevented workers from doing the job and when unemployment insurance was more generous than wages for a large portion of workers. “the researchers say.
“This finding is important because it implies that while the effects on employment are small in the short term, they can be positive in the medium term because companies are less likely to close permanently.”
Relief loans provided by the Small Business Administration (SBA) have a two-year maturity and an interest rate of 1 percent. They are offered to companies with less than 500 workers.
The program began accepting applications on April 3 as part of the Coronavirus Economic Relief and Relief Act (CARES). The first round of $ 349 billion financing ended 13 days after launch. Congress approved another $ 310 billion for PPP loans in April.
Researchers at the Becker Friedman Institute examined the time period between the third week of January and the last week of April to understand the effects of PPP during the early stages of the pandemic.
Their research showed that almost 15 percent of companies in the worst affected congressional districts were able to obtain PPP loans through April 15, while more than 30 percent of companies in the least affected districts were able to access the fund during the same period. period. This implied that funds flowed to less affected areas.
“The evidence suggests that PPP worked less as social security to support the most affected areas and more as liquidity support for the least affected companies,” the academics wrote.
As of June 30, the number of PPP loans exceeded 4.8 million and totaled $ 520 million, according to the SBA. The average loan amount was $ 107,000.
An important aspect of this program is that companies can qualify for loan forgiveness if they keep their employees on the payroll and use a certain amount of the fund to pay wages. Recent changes to the program allowed companies until December 31 to rehire their employees to qualify for full forgiveness.
“Because PPP support is more generous to companies that maintain their payroll, the program probably attracted more companies with smaller reductions in their business,” the researchers noted.
However, as the data becomes available, they said they would continue to study the impact of PPP loans on employment and local economies, which may reveal a different picture in the long term.
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