Why PPP Fails Very Small Businesses

Fred McKinney, Ph.D. Carlton Highsmith Chair for Innovation and Entrepreneurship Director, People’s United Center for Innovation and Entrepreneurship Quinnipiac University

The recently passed Coronavirus Aid Relief and Economic Security (CARES) Act includes $349 billion in forgivable loans for small businesses who use the funds to pay payroll costs, utilities, rents, benefits and some lease payments. While this seems like a lot of money, my calculations conclude that it falls far short of what is needed by the small business community in CT and across the nation, particularly the smallest of small businesses. It is not surprising that after little more than a week – all of the funds have been expended.


There are over 30 million small businesses in the country. Data from the Small Business Administration suggests that over 80 percent of these businesses do not have any employees. The Paycheck Protection Program provides small businesses with loans only if they have a payroll. That means the 24 million small businesses without payroll for the purposes of this program are relegated to that grey area between “small businesses” and unemployed workers; they don’t qualify for PPP, nor do qualify as traditional unemployed workers.

Moreover, the simple fact is there is not enough money in the PPP to meet the needs of small businesses however they are defined. The simple math is this:

  • There are 30.2 million small businesses in the United States

  • An estimated 6 million of these small businesses have employees

  • The average number of employees for small businesses with employees in Connecticut is 10.6

  • Assuming an average wage for small business employees of $25.00/hour the average monthly payroll for those small businesses before benefits is $42,266

  • Two and half months of this payroll – the maximum PPP loan is $105,665

  • The total possible loan demand from just these small business employers is over $648 billion

  • The amount of money in the PPP program is $349 billion


Even with loans going only to small businesses with employers, there is likely to be twice the demand for these loans as there are available funds. Is there any question of why the PPP has run out of money?

SBA approved lenders are well aware of the excess demand for PPP loans. One large regional bank (and SBA Lender) informed me that they experienced 67 times the loan demand volume in the first week of the program compared to their normal loan volume. As a result, they decided to allocate their capital to only small businesses that they had a previous relationship with.

Millions of small businesses will not be able to get the capital they need to meet their expenses during this pandemic.

I have an alternative suggestion that would have been less costly and more efficient than this rushed to market “solution”. I recommend that for small businesses who do not receive a PPP loan be able to suspend all of their fixed cost payments until some future date when it is determined that it is safe for those businesses to reopen. This would mean these very small businesses, or the unlucky businesses with employees who were not able to get their PPP loan applications considered would not have to pay for:

  • Rent

  • Utilities

  • Telephone Services

  • Internet Services

  • State and Local Taxes

  • Federal Taxes

  • Health Insurance

  • General Liability Insurance

  • Debt to Banks and Finance Companies


In February 2020, the U.S. Department of Commerce reports the components of National Income. In the fourth quarter (annualized) of 2019 National Income was comprised of:


Compensation of Employees$11.5 Trillion Proprietors’ Income$1.7 Trillion Rental Income$789 Billion Corporate Profits$2.1 Trillion Net Interest$641 Billion


Small business income is within the Proprietors’ Income component. The U.S. Chamber of Commerce estimates that 86 percent of all small businesses are sole proprietorship’s. If fixed cost represent 40 percent of Proprietor’s Income – these costs would amount to $680 billion for the year or $57 billion per month. For two and half months we could have covered the fixed cost of the smallest of businesses for less than half the cost of the PPP.


Freezing fixed costs for small businesses is the best way to protect the 24 million very small businesses that are not likely to participate in the PPP as it currently exist, or the expanded version that Congress is considering now.


Short of this, I would recommend that very small businesses that did not get a PPP loan to just stop paying their bills as long as the economy is frozen. That will be their best strategy for them to remain in business when this crisis is over. It would be better if the utilities, the banks, the landlords would come to same conclusion and make this offer to the millions of very small businesses who need help now.

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