The PPP Small Business Loans Program

The CARES Act gets its first test as businesses line up for loans

The "Paycheck Protection Program," created as part of the CARES Act, began accepting applications for small businesses loans of up to $10 million at a 1% fixed interest rate on April 3, 2020. The third coronavirus stimulus bill allocated $349 billion for this purpose. The SBA stopped accepting PPP loan applications on May 31, 2021. Borrowers who obtained the first PPP loan were eligible for a second draw PPP loan.

The small business loans would be forgiven as long as the funds are only spent on payrolls, mortgage interest, rent, and utility costs over the eight-week period after the loan is made. Businesses were required to retain workers and maintain compensation levels and not more than 25% of the forgiven amount can be used for non-payroll expenses. Payroll costs were capped at $100,000 on an annualized basis for each employee.

One million PPP loan forgiveness applications have been submitted as of September 2021.

Key Takeaways

  • $349 billion in small business loans were made as part of the paycheck protection program (PPP) as part of the U.S. government's COVID-19 economic stimulus package.
  • Lenders, however, were poorly prepared and received guidance only at the last minute.
  • Community banks worried that interest rates were too low for profitability.
  • In the end, more than one million PPP applications were submitted.

The stimulus program for small businesses launched amid confusion for some lenders. "Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them," said Consumer Bankers Association President and CEO Richard Hunt.

JPMorgan sent out an email saying it would not be accepting applications on day one. Bank of America's portal went live that morning, making it the first of the four major banks to participate. However, it was only accepting applications from existing customers with deposit accounts and loans at the bank as of mid-February.

Smaller banks forced the government to double the interest rate from 0.5% a day before the program's launch as they faced "unacceptable losses." The Independent Community Bankers of America, which represents banks with 52,000 locations, wrote a letter to Trump administration officials that said, "We recommend changing the guidelines to allow for rates at the 4% level provided for in the CARES Act or as close as possible to that level."

The letter also said loan terms are too short at two years, a lack of guidance shifts too much liability to the lender and the Fed needs to create a liquidity facility for community banks to obtain advances to help fund the loans and quickly securitize any unforgiven balances. 

As for the $1,200 per adult direct payments, a Treasury Department official told NBC News that 50-70 million Americans would receive it through direct deposit by April 15. The department worked to put up a website where people can provide direct deposit information if it's not on file. The IRS also started sending out paper checks. 

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  1. SBA. "Paycheck Protection Program."

  2. U.S. Treasury Dept. "Paycheck Protection Program."

  3. SBA. "PPP Data,"

  4. ICBA. "ICBA Letter to Treasury-SBA Regarding Concerns for the Paycheck Protection Program."

  5. NBC News "Many Americans May Have to Wait Months for Coronavirus Relief Checks."

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