Summary: Companies with 10 to 99 employees were significantly more likely to get their PPP loans accepted than their smaller 1-9 employee counterparts. Based on the US distribution of companies, it looks like $7 billion or more in small business loans ended up going to large 500+ employee enterprises. And the PPP program will likely be underfunded even in a second round, as it will take over $1 trillion to fully meet demand and banks are overwhelmed with the number of loans they need to process.
The United States has recently completed its first round of Paycheck Protection Program (PPP) loans. This program was theoretically designed to provide small and medium-sized businesses up to 500 employees with up to 2.5 months of payroll support. Additional stipulations within the program also allowed companies with over 500 employees to apply if they had franchise groups of under 500 employees, leading to headlines where large companies such as Ruth Chris’ Steak House and Potbelly were able to get these small business loans while other companies did not.
But was there a significant effect from large businesses entering the PPP program or was this a relatively minor problem? To figure this out, Amalgam Insights took a look at the current breakout of SMB companies in the United States to figure out what an optimal PPP program should have looked like vs. what actually happened.
As a starting point, we looked at the 2012 Census data for firms and employees and found the following breakdown. This analysis basically ignores the sole proprietorships with no employees because, quite frankly, I think those companies are going to be completely ignored and passed by in this loan process. Banks are already overwhelmed by trying to support companies with employees and I don’t see that changing any time soon.
| Category | Firms | Employees | % of SMBs | % of SMB Employees |
| Firms with 1 to 4 employees | 3,705,275 | 6,139,463 | 61% | 10% |
| Firms with 5 to 9 employees | 1,060,250 | 6,974,591 | 18% | 12% |
| Firms with 10 to 19 employees | 644,842 | 8,656,182 | 11% | 14% |
| Firms with 20 to 99 employees | 532,391 | 20,922,960 | 9% | 35% |
| Firms with 100 to 499 employees | 88,586 | 17,173,728 | 1% | 29% |
| Total | 6,031,344 | 59,866,924 | 100% | 100% |
Nearly half of America’s workforce works for small businesses. We used the average payroll per employee as a starting point to calculate compensation, as smaller firms tend to spend less on payroll than larger firms. We then added a multiplier to acknowledge consultants and the overhead associated with payroll and multiplied by 2.5 months to estimate the payroll per employee that was requested. And then we compared this to the average loan sizes that the PPP provided at various loan tranches ranging from <$150,000 to > $2 million. When we put it together, our initial expectations looked like this for the $342 billion that ended up being disbursed:
| Category | Expected Number of Loans | Expected Amount of loans |
| Firms with 1 to 9 employees | 1,543,926 | $ 70,997 million |
| Firms with 10 to 19 employees | 208,915 | $ 45,344 million |
| Firms with 20 to 99 employees | 172,483 | $ 119,309 million |
| Firms with 100 to 499 employees | 28,700 | $ 106,628 million |
Compare that with the metrics that the Small Business Administration provided:
| Size | Approved | Loan | Average Loan |
| <$150K | 1229893 | $ 58,322 million | $ 47,420 |
| >$150K-$350K | 224061 | $ 50,926 million | $ 227,288 |
| >$350K-$2M | 181435 | $ 137,816 million | $ 759,591 |
| >$2M-$5M | 21566 | $ 64,315 million | $ 2,982,263 |
| >$5M | 4412 | $ 30,898 million | $ 7,003,169 |
This isn’t a perfect matchup. The first few sets of loans match up well enough for the back-of-the-napkin estimate we’re looking for, but we need to match up the 100-499 employee group with the PPP loans a bit better to figure out what we’re looking for.
Based on business distributions, we’d guess that about 15% of the 100-499 companies are above 300 employees, so we’ll break that category up into 100-299 and 300-499 estimates, which looks like this. I wish I had better breakdowns from the government, but beggars can’t be choosers and I’m trying to figure out what’s happening now.
| Category | Firms | Employees |
| Firms with 100 to 299 Employees | 75,298 | 12,549,539 |
| Firms with 300 to 499 Employees | 13,288 | 4,624,189 |
When we compare the actual loans to what we would have expected from this basic model, we see the following:
| Category | Number of Loans | Amount of Loans | % of expected loans | Delta of expected amount vs. actual amount |
| Firms with 1 to 9 employees | 1,229,893 | $ 70,997 million | 82% | $12,676 million |
| Firms with 10 to 19 employees | 224,061 | $ 45,344 million | 112% | -5,583 million |
| Firms with 20 to 99 employees | 181,435 | $119,309 million | 116% | -18,508 million |
| Firms with 100 to 299 employees | 21,566 | $ 77,606 million | 83% | 13,291 million |
| Firms with 300 to 499 employees | 4,412 | $28,710 million | 108% | -2,187 million |
A few things are happening here.
First, small firms with less than 10 employees are definitely not able to get their fair share in many states. Because they both have hundreds of thousands of additional applications and they are relatively small amounts, they go to the back of the line compared not only to the big businesses, but even their colleagues in the 20-100 employee space that ended up getting more than expected. Noted exceptions are the Plains (Kansas, Oklahoma, Iowa, Nebraska), Mountain West (North Dakota, South Dakota, Wyoming, Montana), and Northern New England (Maine, Vermont, and New Hampshire) states that processed loans per capita well above the rates of the rest of the country. For more details, check out the data for yourself.
(Side note: Amalgam Insights estimates this PPP loan program is providing about $18,000 per employee in total, or $7,300 per employee-month. Just a metric to keep in mind as you compare this to other current bailout efforts in place.)
Second, it looks like the sweet spot for PPP loans is to be in that 20-99 employee space where you have enough resources to act quickly and can pull out the $500,000 to $1 million that lets you be taken seriously by your bank. Another aside is that this is what seems to have happened in the Western States of Arizona, Nevada, and California, where the average loan provided was above average, even considering cost of living, but each of these states processed less than 60% of loans per capita compared to the rest of the country.
Third, “small businesses” with over 100 employees are underrepresented based on our initial model. This is likely because many small business definitions have a receipts limit, some of which are as low as $7.5 million per year, which would likely support less than 50 employees. As a result, many industries cannot grow to over 100 employees while retaining a small business status. But at the same time, it looks like companies between 100-299 employees are at 83% of expected loans while larger companies got much more than expected.
Here’s where the large companies come in. Companies with franchising models, including hotels, restaurants, and retail stores, were able to also join the PPP program. This allowed a variety of enterprises with current credit lines and cash on hand to participate. But how much did these companies get? Based on this initial view, let’s just assume that companies with 300+ employees are like their 100-299 peers and only 83% of companies traditionally in this space would have gotten loans. It could be less, but again, we’re just trying to get a quick and dirty look of what happened.
| 300 – 499 Employee Companies | Loans | Amount |
| Actual | 4412 | $ 30,897,983,582 |
| At 100-299 levels | 3398 | $ 23,793,534,981 |
| Delta | 1,014 | $ 7,104,448,601 |
Yes, this says that there were possibly over 1,000 loans going to non-small businesses, resulting in over $7 billion in payroll loans. That’s almost 150,000 additional loans at the 1 – 9 employee level. And, this is assuming that these largest of small businesses qualify to be small at the same percentage as their smaller counterparts, which is doubtful. This number could be even higher.
So, if you are at a small company under 10 employees, your chances for getting a PPP loan are definitely lower than your larger peers. Amalgam Insights estimates that 26% of firms under 10 employees got PPP loans compared to 34% of companies between 10 and 99 employees. You are also competing with large enterprises that are also taking out a couple of percent of the loan amounts and which Amalgam Insights expects will continue to be aggressive in subsequent rounds of PPP loan funding. Although these enterprises are frustrating, it does not seem like they are taking a substantial percentage of the total funds being made available.
If you’re in this predicament of trying to get a low-amount PPP loan under $100,000 and aren’t in a state that processes loans quickly, you may want to consider going to an online-based PPP program that can process loans in bulk, as traditional banks are limited both in their velocity of loan processing and their reality where they make money off the fees of these loans and will make 10-20 times more from processing a larger “small business” and getting their 2%.
If your company has between 10 – 99 employees, be aware that there is still a lot of competition. 2/3rds of companies at this size still have not received PPP loans and it is not because they are all doing well in a global pandemic recession quarantine. It will likely take over $1.1 trillion to fully fund all small businesses seeking PPP loans. The rumored $250 billion extension will provide additional funds, but likely not enough for demand.
And for companies with 100 or more employees, especially those in low-margin industries, programs like PPP show the value of having a flexible corporate structure that allows for small business access to capital. Companies at this size may wish to consider whether it is in their best interests to be under a single corporate umbrella or to run as a group of sub-corporations and franchises to maximize access to capital and business resources. Or consider how much you need this particular loan compared to other financing options. Note that Shake Shack has given back its PPP loan given its current financial position. Being a good neighbor can have strong brand repercussions for companies looking at their long-term business prospects.
