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April 2021

PPP Lending Provides Boost to Metro Area Small Banks and Businesses

This publication is part of:

Collection: On Point


The Paycheck Protection Program (PPP), authorized by the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, was intended to stem layoffs by supporting small businesses during an unprecedented period of business disruption during the COVID-19 pandemic. The PPP provides low-cost, forgivable loans backed by the Small Business Administration (SBA), incentivizing small businesses to maintain payrolls despite facing sharp revenue declines as consumers pulled back on spending and state and local governments imposed restrictions. Incorporating lessons from the extended duration of long-term unemployment as the economy recovered from the 2008 Great Recession, the PPP seeks to maintain workers' job attachment and to support a quicker economic recovery.

How do the PPP loans get into the hands of small business owners with limited access to capital markets and other financing options? The role of originating PPP loans fell largely on the banking industry. Community banks with closer ties to local small businesses proved adept at distributing PPP loans. The ability of community banks to distribute PPP loans to small businesses swiftly increased lending activity and aided in a quick recovery in economic activity. As small businesses themselves, many community banks, through greater participation as lending agents in the PPP, were also helped by the program. The positive effect of PPP lending is demonstrated by looking at how these banks fared in 2020 with respect to their peers in less-affected rural areas.


Eleni Sherman and Paul Moloney