Paycheck Protection Program funding eased job losses and reduced adverse economic impacts from the Covid-19 pandemic, according to recent research on employment and PPP loans across states by the Federal Reserve Bank of Cleveland.
The research covered the first round of Paycheck Protection Program loans from March 2020 until early August 2020 as social distancing measures and mass shutdowns forced many businesses to end operations while remaining in business.
“We find that PPP loans helped mitigate the negative impact of the pandemic recession on state-level employment growth,” the report states. “States that received most of their funding early in the loan period had smaller employment declines than did states that received comparable funds later in the period.”
According to the Fed, PPP funding — intended to help small businesses maintain payroll, hire back laid-off employees and cover overhead costs — was especially beneficial for businesses through April 2020 as the U.S. unemployment rate surged to a pandemic-high of nearly 15 percent. One additional week of payroll support in the form of PPP loans during that first distribution period lessened the state-level employment decline by between approximately 1.5 percentage points to 2.3 percentage points, according to the Fed. That positive impact, however, became less pronounced from May to August.
PPP was reinstated in January 2021, with new funding through the Consolidated Appropriations Act, which was active until the end of June. By July 2021, the SBA guaranteed more than 11.8 million PPP loans, exceeding $806 billion. As of mid-July, the SBA had remitted more than 4.3 million forgiveness payments to lenders. Loans of $150,000 or less represented 93 percent of outstanding PPP allocations. Previous research has found that employment subsidies following a major recession, though more expensive, could have long-lasting positive impacts on employment than alternative policies that provide hiring subsidies and payroll tax deductions.