SF Fed, Report: Small Business Lending and the Paycheck Protection Program

“Now that 2½ years have passed since the bulk of PPP loans were extended during the pandemic, it’s a good time to revisit the expansionary effects of the PPP and PPP Liquidity Facility. In this Economic Letter, we examined growth in small business lending over this period, both with and without PPP loans. Our results indicate that there was no significant medium-term effect of participation in either the PPP or PPPLF on small business lending growth over the entire three-year period from program implementation through the most recent data. Our interpretation is that, after the sunsetting of the pandemic-era programs, banks readjusted their expanded small business lending portfolios back towards pre-pandemic levels.”

“We should stress that our results do not identify whether these programs were “successful.” Earlier research has demonstrated that the programs encouraged banks to acquire more small business exposure during the early lockdown period of the pandemic, which is what they were designed to achieve. However, our results for the medium term raise doubts that the expanded small business lending resulting from these programs built durable lending relationships. Instead, it appears that, after these programs ended, banks on average moved to return their exposure towards pre-pandemic levels.”