FindingApr 16, 2020

Congress Is Debating Whether to Add Funds to the PPP. It’s Worth Pausing to Ask, How Big Could It Be?

If all small US businesses apply for the Paycheck Protection Program, the total could exceed planned appropriation by about $120 billion.
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Estimated Paycheck Protection Program (PPP) Cost by Industry

The initial allotment for the Small Business Administration’s Paycheck Protection Program (PPP) was $349 billion, and was meant to cover primarily employee costs—including some funds for utilities, rent, and mortgage interest—for approximately eight weeks. However, many in Congress now deem this insufficient and the Treasury Dept. has requested an additional $250 billion, bringing the potential total to $599 billion. This begs the question: How many applications could be submitted and how big should PPP be? The authors calculate that maximum requests could total $720 billion (updated 4/16) if all small businesses in the US apply.

To make their calculations (see Paycheck Protection Program Calculation Tool online), the authors determined two pieces of information: the number of eligible businesses, and those businesses’ monthly payroll costs, including salaries, wages, retirement, and benefits. Eligible businesses include those with less than 500 employees, with an exception for larger businesses in the accommodation and food service sectors. In sum, the authors calculate about $3.4 trillion in total estimated payroll cost for the purposes of PPP that, when divided by 12 and multiplied by 2.5 to get the total eligible loan amount, comes to about $720 billion.

If Congress decides to increase the pool of funds to $600 billion, the PPP should be at least close to sufficiently funded to fulfill all application requests, mitigating the problems of the “first-come, first-served” design. However, it is also true that at $600 billion, Congress and taxpayers would not just fund a subset of small businesses in need, but would instead fund nearly the entire payroll for all small businesses for two months.