Supporting Small Businesses Through PPP Lending

11 Jan 2021
Read Time 4 mins
Categories :
Small Business Lending

Introduction

In response to the unprecedented and damaging nature of the COVID pandemic, Congress erected the Paycheck Protection Program (PPP) to provide forgivable loans to small businesses.  This program has been facilitated through the banking system as thousands of banks across the U.S. have partnered with the government to support small businesses during the pandemic.  In this post, we present some basic facts about PPP lending conducted by Financial Services Forum (FSF) members.  Specifically, using publicly available data, we show that the average loan provided by FSF members is significantly smaller than that provided by all other banks engaged in the PPP program.  Further, we show that this difference in average loan sizes can be traced to a greater propensity of FSF members to provide small- to moderate-sized loans and a significantly smaller likelihood of providing larger PPP loans.  Together, these facts clearly demonstrate that FSF members have been fully committed to supporting small businesses throughout the pandemic. 

Average and Median PPP Loan Sizes

The PPP program has been facilitated by thousands of banks that have made over 5 million loans throughout the U.S. to small businesses of varying sizes.  Some PPP loans have been as small as a few thousand dollars while others have been in excess of one million dollars.  In assessing the extent to which PPP loans were provided to small businesses, it is instructive to consider the average loan size provided through the PPP program.  Table 1 below reports both the average and median PPP loan size provided by 1) FSF members, and 2) all other banks engaged in the PPP program.  We report both loan sizes because both the average and the median (the value at which half of all loans are smaller and half of all loans are larger) are informative about the central tendency of loan sizes in the PPP loan program.

Table 1
PPP Loan Sizes: FSF Members vs Other Banks
   Mean Loan Size ($)  Median Loan Size ($)
 FSF Members  81,051    21,968
Other Banks105,419   23,100
Difference  24,368    1,132
Source: SBA Paycheck Protection Program Data https://sba.app.box.com/s/5myd1nxutoq8wxecx2562baruz774si6

As can be seen in Table 1, the average PPP loan made by FSF members was just over $80,000, while the average loan size made by all other banks engaged in the PPP program was just over $105,000.  This same pattern also holds in the case of the median loan size, though the difference is smaller due to the lower value of the median relative to the average.  In addition, and as expected, the median loan size is significantly smaller than the average loan size because of the presence of some relatively large loan amounts.   

Moving Beyond the Average

There is an old adage in statistics that “you can drown in a lake with an average depth of one inch.”  This truism is meant to remind people that variation in real world data is vitally important and can often be as informative, if not more so, than the information conveyed by a static average.  Figure 1 below provides a view of the heterogeneity in the PPP lending data that provides valuable insight about the identified differences in average and median loan sizes reported in Table 1.  Specifically, Figure 1 reports the odds ratio of various loan sizes – from the very small to the very large – for FSF members relative to all other banks engaged in the PPP program.  An odds ratio of 1.0 means that FSF members were as likely as other banks to make a PPP loan within a given size category.  An odds ratio above 1.0 means FSF members were more likely than other banks to make a PPP loan in a given size category.  Similarly, an odds ratio below 1.0 means FSF members were less likely than other banks to make a PPP loan within a given size category.          

As shown in Figure 1, FSF members were slightly less likely (the odds ratio is 94%) to make loans in the very smallest loan category – those loans less than $5,000.  FSF members, however, were somewhat more likely to extend small- to moderate-sized PPP loans larger than $5,000 and less than $75,000.  Finally, FSF members were less likely to extend larger PPP loans in excess of $75,000 and this pattern becomes more pronounced for larger and larger loan sizes.  As a specific example, FSF members were only 65% as likely as other banks to make a PPP loan between $500,0000 and $1 million.  

Conclusion

The PPP program has been an important part of the government’s pandemic response to support small businesses.  Banks throughout the country have worked hard to facilitate this program and have provided much needed funding to small businesses.  In support of this effort, FSF members have made nearly 850,000 PPP loans totaling roughly $70 billion.  These loans have been broadly distributed to small businesses across the entire country.  Importantly, the data show that FSF member PPP lending has been appropriately targeted toward the smaller and moderate end of the loan size distribution.  This fact clearly demonstrates that FSF members have worked hard to ensure that the PPP program reaches small businesses that have needed support during the pandemic.  Moreover, these efforts further demonstrate the ongoing commitment of FSF members to support all small businesses during these difficult times.      

Forum Updates