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Opinion: The Paycheck Protection Program Failed Its Mission: Here’s Why

Updated: Oct 18, 2021

The Paycheck Protection Program (PPP) was put into effect in late March, in order to protect small businesses and their employees during the COVID-19 pandemic. It was touted as a ‘forgivable loan program’ and allowed local businesses to be granted loans, and as long as they followed certain criteria, the loans would be forgiven. However — as businesses quickly came to realize — the PPP did more harm than good.

What is the Paycheck Protection Program?

As the coronavirus began to spread across the U.S., schools shut down, people isolated themselves inside their homes, and businesses closed. While larger corporations weren’t as concerned about the lost revenue, small businesses began to fret. Without regular customers coming in, how would they be able to earn enough money to pay their bills and support themselves?

Then came the introduction of the Paycheck Protection Program. It was passed through Congress under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The CARES Act is a $2 trillion stimulus bill that aimed to “provide fast and direct economic assistance for American workers and families, small businesses, and preserve jobs for American industries,” as stated in the legislation.

To support small businesses, the bill established the Paycheck Protection Program, a $669 billion forgivable loan program. The program is simple — if a business could show proof that they used at least 75 percent of their loan towards payroll costs and were able to maintain their pre-crisis headcount, the U.S. government would forgive the loan. Businesses and companies were excited about the proposition because this program could allow them to continue operating, despite the struggles that the pandemic brought.

But, when the first PPP checks began to arrive, business owners quickly understood the many flaws of the program.

Payroll Costs vs. Rent and Utilities

One major flaw of the program is that businesses must use a majority of their loan towards payroll costs. According to the US Treasury, payroll costs include “salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee), employee benefits including costs for vacation, parental, family, medical, or sick leave, allowance for separation or dismissal; health care benefits and payment of any retirement benefit; and state and local taxes.” The loan given to the companies is “the maximum value of a company’s loan is equal to the lesser of $10 million or 2.5 times a company’s average monthly payroll cost in 2019,” according to Inc., a business news magazine based in New York City.

However, as many small business owners pointed out, businesses are more worried about the monthly bill including utilities and rent. By forcing struggling small businesses to use over half of their federal loan on payroll, the government prioritizes incorrectly. In an interview with Inc., Mehrsa Baradaran, professor of law at the University of California, Irvine, explained, “If the government wants to save businesses — rather than just preserve paychecks — it should let them use their loans to pay for necessary expenses.”

It “failed” companies

Another flaw of the program is how it didn’t filter the applications, essentially allowing businesses who already had other sources of funding to apply for the loans as well. For Christina Stembel, the CEO and founder of a flower company called Farmgirl Flowers, this meant that she had to wait for the second round of applications to be approved. The Los Angeles Times described the PPP as a “Band-Aid — one of the small ones that goes around your finger” due to its inability to provide small businesses with the money they need, while giving larger corporations such as Potbelly’s Sandwich Shop and Ruth Chris Steakhouse multi million dollar loans. According to CNBC, over 400 country clubs and golf resorts received funding from the PPP. The Soho House, a private membership club with a company value of $2 million, received $22 million in loans and billionaire Kanye West’s Yeezy fashion brand received between $2 million to $5 million.

The program’s system allows rich corporations to get even richer and leaves local businesses struggling to pay their rent and utilities.

Black-owned businesses suffered even more

And, as if small businesses didn’t have it bad enough already, black-owned businesses were far worse off. Research conducted by the Stanford Institute for Economy Policy Research (SIEPR) showed that 95% of black-owned small businesses were denied loans from the PPP, leading to the shutdown of 41% of black-owned businesses have been shut down since the beginning of the pandemic. Further, 25% of female – owned businesses have closed, 32% of Latinx businesses, and 36% of all immigrant local businesses have shut down, compared to the closure of only 15% of all white-owned businesses in the U.S. Rashad Robinsom, president of Color of Change, told the New York Times, “If we don’t get policies to protect these communities, we will lose a generation of black and brown businesses, which will have deep impacts on our entire country’s economy.”

The Federal Reserve of New York conducted a study in April 2020 and the findings showed that 21% of black-owned businesses were financially “distressed” at the end of 2019 compared to 5% of white-owned businesses. The Paycheck Protection Program didn’t properly address the industries and businesses that needed the most help during the COVID-19 pandemic, essentially, failing its mission.


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