PPP Loans Averaging Lower for Round 2 – Why That’s Good

After anticipating that funding for the second round of the SBA’s Paycheck Protection Program might run out within a week of its opening on April 27, nine days later billions of dollars remain available.

The average loan size in the second round of funding has dropped significantly – from $206,000 in round one to $79,000 for round two as of May 1. SBA Great Lakes Regional Administrator Rob Scott explains why that is actually a good sign.

“The average is coming down,” Scott says. “That means that the first round we helped a lot of those larger small businesses, this second round we’re really hitting some of those smaller small businesses.”

After the first round of funding was depleted, questions were raised as to why large, publicly-traded companies like Shake Shack, Ruth’s Chris and Potbelly Sandwich Shop received loans. All three of these companies have since returned the millions of dollars in loans at the urging and guidance the U.S. Department of the Treasury. The loophole that allowed these companies to access dollars in the first place technically still remains, however the SBA has taken further measures in the second round to ensure loans are reaching true small businesses.

On April 28, the SBA announced it would review all PPP loans in excess of $2 million. As of May 1, loans over $2 million account for 0.35% of the total loans and 16.43% of the funding. In round one, loans over $2 million accounted for 1.57% of total loans and 27.82% of the funding. Reflected in the average, the number of loans under $150,000 is significantly higher for round 2, 1,993,002 so far, compared to round one’s total of 1,229,893.

The second round of funding reserved $60 billion for smaller lenders– $30 billion for entities with assets under $10 billion, and $30 billion for entities with assets between $10 – $50 billion. On April 29, the SBA closed its system for eight hours to all lenders expect those with asset sizes less than $1 billion. Scott says the nearly 500,000 loans processed by lenders of this size that include community development financial institutions, certified development companies, microlenders, farm credit lending institutions, and fintechs, have exhausted the $30 billion pot for assets under $10 billion, moving remaining applications to the larger pool of money.

As of May 5, there’s around $130 billion left of appropriations. Scott says the funds could reasonably last another week.

“We’re not going through the funds as fast, but we’re reaching more businesses, and because they are lower loan amounts, the money’s going farther,” Scott says.

His focus is now shifting to the total number of applications. For those in the queue for PPP loans, Scott recommends businesses get in touch with their lender and make sure they have all the information needed to process their application.

As queues have cleared out and batch files been processed, “Every lender should have direct access to our system and be able to in real-time enter in their customer’s application into our system,” Scott says.

In total, so far approximately 119,000 PPP loans have gone to small businesses in Ohio, totaling $19 billion. The region, which includes Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin, has fared well, ranking first in number of loans with roughly 606,000 and second in terms of dollars with $88 billion.

For more information, visit sba.gov.