Analysis of the Small Business Administration's initial release of data on loans approved under the Paycheck Protection Program as design considerations for a future Pandemic Risk Insurance Program

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Insights from the Paycheck Protection Program
Insurance Programs for Pandemic Events
CBI
CBI-PAN-20-08

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Paycheck Protection Program
Executive Summary
The U.S. Small Business Administration released data on approved loans under the first $349 billion funding of the Paycheck Protection
Program (PPP). Congress is expected to add another $310 billion to the program shortly. While this first report from the SBA shows only
half the picture, three key insights can be drawn about business income coverage needs of small businesses in the context of a pandemic.
1
Three quarters of PPP loans are for an
amount less than that necessary to
cover the payroll of businesses with:
• 15 employees in an industry with
average weekly earnings; or
• 36 employees in an industry with
the lowest weekly earnings.
The average PPP loan in this group
covers the payroll of 3-12 employees at
a cost of less than $4800 per week. An
allowance for rent and utilities adds
another $1200 per week.
The other quarter of loans consumed
83% of PPP’s initial funding.
2 Shut-down orders appear to be
a poor trigger for coverage.
Small coverage limits could
go far for many businesses.
3 Coverage far out-scales the current
capabilities of the insurance industry.
There is no evident correlation between
a need for pandemic coverage and the
issuance of stay-at-home orders or
closure of non-essential businesses.
• The 10 states without mandatory
statewide stay-at-home orders
represent 8% of national GDP and
population and 7% of COVID-19
cases but have taken out 13% of the
PPP loans; and
• The 12 states that have not ordered
comprehensive closure orders for
non-essential businesses represent
9% of GDP, 10% of population, 6% of
COVID-19 cases but have taken out
14% of the PPP loans.
The first funding allotment of $349
billion resulted in 1.66 million loan
approvals. The expected $310 billion
additional funding is likely to drive total
applications to over 3 million.
• The initial $349 billion funding
allocation is the equivalent of the
combined property insurance claims
payouts for Hurricanes Katrina,
Maria, Irma, Ike, Andrew, Sandy,
Harvey, Wilma plus 9/11 and
Northridge earthquake together with
10 years of claims from the Federal
Crop and Flood Insurance program.
• Using TRIA as a benchmark, it would
125 years to collect enough premium
to fund just the initial PPP allocation.
Any insurance program to provide coverage to small businesses for business income losses from a future pandemic should consider:
The performance of PPP so far makes a compelling case for the insurance industry to rethink the design of its business income coverages and
strengthen its claims capabilities so it is better positioned to be an effective part of the solution should the national face another pandemic.

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Overview of the Paycheck Protection Program (PPP)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (HR 748) includes the Paycheck Protection Program (Sec. 1102). HR
266 is expected shortly to amend the program primarily by increasing loan capacity from $349 billion to $659 billion. A loan applicant
must certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
LoanGuaranty the loan
will be repaid
Participating
Bank
Qualifying
Business
Payroll
Utilities
Rent, Interest on a
Mortgage or other
Debt Obligation
Authority to issue $349
billion of loan guarantees
1% per annum interest with a 2-
year maturity and no payment
due for the first six months.
Permitted Uses
of Loan Proceeds
Guarantees are available for loans
made on or before June 30, 2020 on
a “first come, first served” basis.
The full loan (including accrued interest) will be forgiven if the
loan proceeds are applied toward permitted uses during the
first 8 weeks of the loan including at least 75% to payroll costs.
In addition to interest earned on the loan, the lender receives a
processing fee from the SBA based on the amount of the loan.
5% <$350,000
3% <$2,000,000
1% >$2,000,000
A participating bank may hold a loan or sell it on the
secondary market at a premium or discount to par value.
Payroll costs for employees* with a US place of residence includes:
• Salary, wages and commissions
• Cash tips (as recorded or estimated)
• Payments for vacation, parental, family, medical or sick leave
• Cost of employee benefits such as insurance and retirement
• State and local payroll taxes
*For sole proprietors or independent contractors, payroll consists of wages,
commissions, income or net earnings (subject to the $100,000 annualized cap
Cash compensation is
subject to a $100,000
annualized cap

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Paycheck Protection Program (PPP) Qualification Criteria
Qualifying businesses and sole proprietors could apply for loans beginning April 3. Independent contractors and self-employed individuals
could begin applying on April 10. The first tranche of funding ran out on April 16. There are four categories of eligible entities or concerns.
Non-employers if one of the following:
• Independent contractor
• Self-employed individual
• Sole proprietor
Employers with 500 or fewer full-time or part-time
employees (having a principal place of residency in
the US) that is one of the following:
• Business concern
• 501(c)(3) nonprofits
• 501(c)(19) veterans organizations
• Tribal business concerns
The SBA designates higher employee thresholds for
certain industries which can reach 1500 employees.
Regardless of the number of employees, a businesses that as
of March 27, 2002 had both:
• A tangible net worth of no greater than $15 million;
and
• An average net income after federal income taxes
(excluding any carry-over losses) for the two full fiscal
years before the date of the application of no more
than $5 million.
1 2
3
Hotel chains (and other in the accommodation businesses)
employing no more than 500 employees per physical
location at the time of loan dispersal
4
In applying these criteria, all entities and concerns in common control are added together.* A person controls another entity if the person:
• Holds more than 50% ownership of voting equity in the entity
• Has a minority stake but can prevent a quorum or otherwise block action by the board or shareholders
• Holds stock options, convertible securities, and agreements to merge which would qualify under either of the above criteria
• Holds a management agreement over the entity
• Holds identity of interests with close relatives with control over the entity
• Is the CEO or President (or controls the board or management) of the entity
*These affiliation rules do not apply to hotel and other accommodation industry groups or franchised businesses.

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Initial Round of Loans
Size of Loan Number of Loans
Total Loan Amount
($ billions)
Average Loan
Loan Amount
Elements of Loam Amount
Payroll Rent & Utilities
$150K and Under 1,229,893 58.3 $47,420 $37,936 $9,484
>$150K - $350K 224,061 50.9 $227,288 $181,830 $45,458
>$350K - $1M 140,197 80.6 $575,108 $460,086 $115,022
>$1M - $2M 41,238 57.2 $1,386,779 $1,109,423 $277,356
>$2M - $5M 21,566 64.3 $2,982,263 $2,385,810 $596,453
$5M - $10M 4,412 30.9 $7,003,169 $5,602,536 $1,400,634
TOTAL 1,661,357 342.3 $206,022 $164,818 $41,204
Average Weekly Employee Earnings
All Industries Lowest Pay Industry PPP Cap
$980 $410 $1932
The U.S. Small Business Administration released data on approved loans under the first $349 billion funding of the Paycheck Protection
Program (PPP) as of April 16, 2020.

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Approximate Employer Size by Loan Band
Range of employees potentially covered by loans in each loan band
Loans up to $150,000
Loans from $150,000 - $350,000
Loans from $350,000 - $1,000,000
Loans from $1,000,000 to $2,000,000
Loans from $2,000,000 - $5,000,000
Loans from $5,000,000 - $10,000,000
250
Employees
500
Employees
1
Employee
50 100 150 200 300 350 400 450
High Pay
Avg. Pay
Low Pay
74% of loans are $150,000 or less. The
average loan in this band is $47,420 which
could cover the payroll of 3-12 employees
Average Pay = $51,000 per year High Pay = All employees exceed $100,000 cap Low Pay = $21,000 per year
0.27% of loans are $5 million or more with
an average loan size of $7 million which
would cover 362 six-figure employees
Three quarters of the loans have totaled less than $150,000 and consumed just 17% of the program’s funding.

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Employer Size at Average Loan Amount
50
Employees
100
Employees
1
Employee
10 20 30 40 60 70 80 90
High Pay
Avg. Pay
Low Pay
Range of employees potentially covered by the average loan size
Loans up to $150,000
Loans from $150,000 - $350,000
Average Pay = $51,000 per year High Pay = All employees exceed $100,000 cap Low Pay = $21,000 per year
11 employees making $100,000 annually
21 employees earning at the national average
50 employees earning at the lowest industry average
Across the entire program, the average loan is $206,000. This is sufficient to cover the payroll of between 11 and 51 employees.

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Stay At Home Orders – First States with Statewide Orders
State
Share of National
GDP Population COVID-19 Cases Number of Loans Value of Loans
California (3/19) 14.73% 12.04% 4.15% 6.80% 9.76%
Connecticut (3/23) 1.34% 1.09% 2.54% 1.11% 1.21%
Illinois (3/21) 4.21% 3.86% 4.13% 4.21% 4.67%
Louisiana (3/23) 1.24% 1.42% 3.10% 1.60% 1.49%
New Jersey (3/21) 3.02% 2.71% 11.53% 2.02% 2.78%
New York (3/22) 8.11% 5.93% 31.30% 4.88% 5.94%
Ohio (3/23) 3.27% 3.56% 1.71% 3.60% 4.12%
Oregon (3/23) 1.18% 1.28% 0.25% 1.13% 1.11%
Washington (3/23) 2.83% 2.32% 1.53% 1.83% 2.03%
Cumulative Total 39.93% 34.21% 60.24% 27.18% 33.11%
States issuing mandatory stay-at-home orders on or before March 23, 2020 have a lower take-up rate for Paycheck Protection Loans
(both in terms of number of loans and overall value of loans) than expected based on proportionate share of national economic activity,
population or cases of COVID-19.

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Stay At Home Orders – States without Mandatory Statewide Orders
State
Share of National
GDP Population COVID-19 Cases Number of Loans Value of Loans
Arkansas 0.26% 0.22% 0.04% 0.29% 0.27%
Iowa 0.91% 0.96% 0.45% 1.77% 1.26%
Kentucky 1.01% 1.36% 0.40% 1.43% 1.21%
Massachusetts 2.80% 2.10% 5.14% 2.83% 3.03%
Nebraska 0.60% 0.59% 0.21% 1.41% 0.87%
North Dakota 0.27% 0.23% 0.08% 0.66% 0.45%
Oklahoma 0.96% 1.21% 0.35% 2.14% 1.35%
South Dakota 0.25% 0.27% 0.22% 0.68% 0.40%
Utah 0.89% 0.98% 0.42% 1.28% 1.08%
Wyoming 0.18% 0.18% 0.06% 0.46% 0.24%
Cumulative Total 8.13% 8.10% 7.37% 12.95% 10.16%
States that have not issued mandatory stay-at-home orders or issued stay-at-home orders that are mandatory only for vulnerable
populations (e.g., based on age and/or medical conditions) have a higher take-up rate for Paycheck Protection Loans (both in terms of
number of loans and overall value of loans) than expected based on share of national economic activity, population or cases of COVID-19.

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Non-Essential Businesses – First States with Closure Orders
State
Share of National
GDP Population COVID-19 Cases Number of Loans Value of Loans
California (3/19) 14.73% 12.04% 4.15% 6.80% 9.76%
Connecticut (3/20) 1.34% 1.09% 2.54% 1.11% 1.21%
Delaware (3/22) 0.35% 0.30% 0.40% 0.31% 0.32%
Illinois (3/20) 4.21% 3.86% 4.13% 4.21% 4.67%
Kentucky (3/22) 1.01% 1.36% 0.40% 1.43% 1.21%
Nevada (3/17) 0.83% 0.94% 0.49% 0.52% 0.59%
New Jersey (3/16) 3.02% 2.71% 11.53% 2.02% 2.78%
Ohio (3/22) 3.27% 3.56% 1.71% 3.60% 4.12%
Cumulative Total 28.76% 25.86% 25.35% 20.00% 24.66%
States issuing closure of non-essential businesses by order before March 23, 2020 have a lower take-up rate for Paycheck Protection
Loans (both in terms of number of loans and overall value of loans) than expected based on share of national economic activity, population
or cases of COVID-19.

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Non-Essential Businesses – States without Comprehensive Orders
State
Share of National
GDP Population COVID-19 Cases Number of Loans Value of Loans
Arkansas 0.26% 0.22% 0.04% 0.29% 0.27%
Iowa 0.91% 0.96% 0.45% 1.77% 1.26%
Louisiana 1.24% 1.42% 3.10% 1.60% 1.49%
Maine 0.32% 0.41% 0.11% 0.90% 0.57%
Missouri 1.56% 1.87% 0.74% 2.80% 2.21%
Nebraska 0.60% 0.59% 0.21% 1.41% 0.87%
North Dakota 0.27% 0.23% 0.08% 0.66% 0.45%
Oregon 1.18% 1.28% 0.25% 1.13% 1.11%
South Carolina 1.16% 1.57% 0.58% 1.38% 1.11%
South Dakota 0.25% 0.27% 0.22% 0.68% 0.40%
Utah 0.89% 0.98% 0.42% 1.28% 1.08%
Wyoming 0.18% 0.18% 0.06% 0.46% 0.24%
Cumulative Total 8.82% 9.98% 6.26% 14.26% 11.06%
States that have not issued mandatory statewide orders for closure of all non-essential businesses have a higher take-up rate for
Paycheck Protection Loans (both in terms of number of loans and overall value of loans) than expected based on share of national
economic activity, population or cases of COVID-19.

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Essential and Non-Essential Businesses
Industry Percent of Total Loans
Percent of Total Amount
Loaned
Mentions in DHS Guideline
Construction 10.7% 13.1% 33
Professional, Scientific, and
Technical Services
12.5% 12.6%
Manufacturing 6.6% 12.0% 40
Cumulative Total 29.8% 37.7%
The top three industries receiving loans under the Paycheck Protection Program are either essential or conducive to temporary work from
home arrangements. Therefore, these businesses are unlikely to have closed due government order closing non-essential businesses.

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Pandemic Claims
PPP Initial Funding
10 largest US property insurance losses in 2018 dollars
(Insurance Information Institute)
TRIA Claims Capacity
Total National Flood Insurance Program losses paid
over the 10-year period ending Dec. 31, 2018
The insurance claims administration capabilities necessary to investigate, document and payout an amount of insurance claims equivalent
to the Paycheck Protection Program’s initial round of funding would be the same as if the top 10 US catastrophes (hurricanes, earthquakes
and terrorism) occurred in the same month together with 10 years of federal Crop Insurance and Flood Insurance claims.
Total claims-paying capability of the Terrorism Risk
Insurance Program including insurer shares of loss
$349 billion
TRIA
Premium
Total amount of terrorism premium collected under all lines
of business over the first 15 years of the TRIA program
Katrina
Maria
Irma
9/11
Andrew
Sandy
Harvey
Northridge
Ike
Wilma
NFIP
Federal Crop
Insurance
Program
Total Federal Crop Insurance Program claims paid
over the 10-year period ending Dec. 31, 2016

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Sources of Data
Population Annual Estimates of Resident Population (July 1, 2019)US Census Bureau
Bureau of Economic Analysis Gross Domestic Product by State (4th Quarter 2019)
National Governors Association
Centers for Disease
Control and Prevention
As of April 21, 2020
As of April 21, 2020
Cybersecurity & Infrastructure
Security Agency
Guidance on Essential Critical Infrastructure
Workers During COVID-19 (April 17, 2020)
State Orders
GDP
COVID-19 Cases
Essential Businesses
Paycheck Protection Loans Small Business Administration Paycheck Protection Program Loan Approvals as of
April 16, 2002.
USDL-20-0521, Table B-3 (April 3, 2020).Employee earnings US Department of Labor