The Small Business Administration’s Paycheck Protection Program, the signature policy response to provide bridge financing to small firms with 500 or fewer employees in one location, has exhausted the first $349 billion tranche in aid provided by Congress and the Trump administration.
Based on our interaction and discussions with the core small and medium-size enterprises that make up RSM’s client base, we have always anticipated an oversubscribed aid program. The increase of 22 million in first-time jobless claims over the past month and other data strongly suggest that another $250 billion in aid is simply not sufficient.
Congress and the Trump administration need to quickly provide adequate bridge financing that we think will ultimately surpass $1 trillion. We are fully confident that the Fed can ramp up its PPP liquidity facility to accommodate demand from firms fully ensconced in the real economy.
Given that small and medium-size firms are responsible for roughly 52% of total gross domestic product, and were accounted for approximately 70% of all new jobs created during the 2010-2020 economic expansion, a policy response that comes up short will create conditions that will result in a delayed recovery from the current recession.
During the first 13 days of the PPP program, the SBA fully committed to the $349 billion as a result of 1.66 million approved applications from 4,975 participating lending institutions. The average loan made was nearly $200,000 per application. Of that, according to CovidLoanTracker.com, nearly 84% of loan money that has been sent out was completed by small and medium-sized banks. This strongly implies that in any successive round of financing, small and medium-size enterprises may want to consider local, state and regional lenders.
With respect to Economic Injury Disaster Loans, there were roughly 4 million applications made with a loan value requested of $383 billion for a program allocated only $17 billion in the CARES Act.
As one can ascertain via a first look at publicly available data, the scale of the economic challenge before us far outstrips the policy put forward. We are definitely going to need a bigger boat.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.