The Paycheck Protection Program (PPP) was an SBA-backed loan program that provided uncollateralized loans to small businesses (firms) with fewer than 500 employees to help blunt the negative effects of the pandemic. Alternatively, if a business had 500 or more workers and thus didn’t meet the SBA’s core definition of “small”, it could have qualified for PPP by using one of the SBA’s industry-specific size standards. Another important detail is that the size threshold was generally firm-specific. However, businesses operating in the NAICS 72 sector, which includes hotels and restaurants, were able to meet the size threshold at the establishment level, meaning firms with more than 500 total employees could qualify if individual establishments were small.
Importantly, PPP loans were fully forgivable if recipient businesses maintained employment and wages at pre-pandemic levels in the months after receiving payment. Recipient businesses were also able to qualify for forgiveness through two “safe harbor” options which either extended the timeframe to restore employment and wages to pre-pandemic levels or completely absolved businesses of this requirement if they could document in “good faith” that lockdowns and local restrictions made it impossible to return to full business activity. The vast majority of all PPP loans (92 percent) were forgiven.
In total, there were three tranches of funds appropriated by Congress which totaled roughly $800 billion. Starting in late March 2020 eligible businesses were able to apply for a “first draw” loan of up to $10 million from the first two tranches of funding. The third tranche helped distribute loans to first-time recipients in early 2021 as well as businesses that qualified for a “second draw” loan. To promote greater access to funding during the first several weeks of 2021, loan applications were only accepted from community financial institutions and first-time borrowers in low- or moderate-income neighborhoods with no more than 10 employees. Businesses were eligible for a second PPP loan of up to $2 million if they met three conditions. These included having already received and appropriately depleted a first draw loan, being able to show a reduction in gross receipts of at least 25 percent between comparable quarters in 2019 and 2020, and finally meeting a more stringent definition of “small” which was fewer than 300 employees. Lasting for roughly a year and a half, PPP ended at the end of May 2021.
Although smaller in scale, the COVID Economic Injury Disaster Loans (COVID-EIDL) program provided an alternative source of funding to businesses during the pandemic starting around the same time as PPP. Unlike PPP, COVID-EIDL loans did not have a forgiveness condition. Each loan came with a term of 30 years and fixed interest rate between 2.75 percent for private non-profit organizations and 3.75 percent for businesses with payments being deferred for the first two years. COVID-EIDL loans were eventually distributed up to $2 million and were to be used for operating expenses, such as payroll, rent, mortgage payments, debt, and other ordinary business expenses. Also in departure from PPP, COVID-EIDL loan recipients were required to provide collateral for loans in excess of $25,000. And while some businesses only received COVID-EIDL funds, many businesses also received PPP.
The SBA also backed two additional and more targeted loan programs. The first was the Restaurant Revitalization Fund (RRF), which launched in May 2021. RRF was designed to provide emergency funds to eligible restaurants, bars, and other qualified businesses that were impacted by the pandemic. Other qualified businesses included food trucks, caterers, and snack bars, as well as bakeries, breweries, wineries, and inns that had on-site sales to customers amounting to at least one third of gross receipts. Eligible businesses received funding up to $10 million per business. Similar to the loan forgiveness nature of PPP, recipients of RRF were not required to repay the funding so long as the funds were put toward eligible uses. And while being smaller in scale than PPP, nearly thirteen times as many businesses received both PPP and RRF than RRF alone.
The final program that operated during the pandemic was the Shuttered Venues Operator Grants (SVOG) program, which launched in April 2021. This program was aimed at providing pandemic assistance to operators of live venues, theatres, live performing arts organizations, museums, and motion picture theatres, as well as talent representatives. Businesses that were born after February 2020 were not eligible for SVOG. Additionally, venues or promoters that received a PPP loan after December 27, 2020 were still eligible, but their SVOG funds would be reduced by the amount of their PPP loan. The maximum grant amount for eligible businesses was $10 million and similar to PPP, these funds were forgivable.
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