CSBS Issue Talking Points - March 2021

Paycheck Protection Program

CSBS Position State-chartered banks are on the front lines of Paycheck Protection Program (PPP) lending and the economic recovery from the COVID-19 pandemic. Since its inception, state regulators have supported the PPP by sharing feedback collected from supervised institutions with the Treasury Department and Small Business Administration (SBA). Summary In April 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the SBA PPP to provide short-term, low-interest loans that could be forgiven under specified circumstances to certain small business and nonprofits. Congress initially authorized $349 billion for SBA 7(a) loans, including PPP loans, which were available through June 30, 2020. Lending began on April 3, and the initial authorization was exhausted by April 16. On April 24, Congress authorized another $310 billion ($659 billion total) for 7(a) loans— including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act. The law authorized the issuance of new PPP loans with an additional $659 billion for PPP loan commitments and $30 billion for 7(a) loan commitments. At the end of the initial PPP rounds on Aug. 8, 2020, the SBA had approved over 5.2 million PPP loans, totaling more than $525 billion. In January 2021, SBA began another round of PPP with $284 billion in loans available to small businesses. The new round of PPP allows certain existing PPP borrowers to apply for a Second Draw PPP loan. The new legislation allows PPP loans to cover additional expenses, including operations expenditures, property damage costs, supplier costs and worker protection expenditures. A borrower is generally eligible for a Second Draw PPP Loan if the borrower: • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses; • Has no more than 300 employees; and • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. Why it Matters to State Regulators With the economy reeling from the pandemic and its associated lockdowns, PPP has injected a much- needed boost to struggling businesses and their local communities. CSBS analysis of the PPP shows that community banks (using the FDIC definition) had a disproportionately greater share in lending to small businesses than their larger and more complex counterparts. Community banks’ participation in the PPP was higher, they made more loans as a share of assets, they likely made more loans to smaller businesses that employ fewer workers, and they made more loans per bank employee. Talking Points • The PPP program has been one of the most successful stimulus programs in our country’s history and may need even more support based on the success of the vaccine rollout.

FOR STATE REGULATOR USE ONLY