Worst Hit Sectors Get Smaller Share of PPP Loans

Restaurants and hotels haven’t received much, relatively speaking

Small business closed for COVID-19 lockdown

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Some of the U.S. business sectors most impacted by the coronavirus pandemic, including the hotel and restaurant industries, have gotten a surprisingly small share of the loan relief provided by the federal government’s Paycheck Protection Program (PPP) so far, a data analysis by The Balance shows. 

The hotel and restaurant sector has experienced the biggest chunk of job losses since March, accounting for 5.74 million, or 32%, of the 18 million private sector jobs lost, according to the U.S. Bureau of Labor Statistics. But small businesses in that sector have received just $41.5 billion—or 8%—of the $514.9 billion in PPP loans approved as of June 20, according to the U.S. Small Business Administration.

Key Takeaways

  • The industries with the worst job losses since the pandemic began aren’t the ones getting the most relief from the Paycheck Protection Program. For example, 32% of job losses have been in the hotel and restaurant sector, but those businesses have received just 8% of PPP funds.
  • The disparity may underscore design flaws in the original program, which made it harder for industries with relatively low payroll costs to qualify for loan forgiveness.
  • Recent changes to make the program less payroll-focused and more flexible may help. 
  • There are still funds available, but the deadline for small businesses to apply is August 8.

The mismatch is striking, given the dire state of the hotel and food service industries and the intent of the aid as a major lifeline for small businesses across the country. The loans don’t have to be repaid if certain conditions are met, and yet several other industries—including the retail sector and sectors representing administrative roles, arts, and sports—showed a similar trend when net job losses in March, April, and May were compared to total loan proceeds approved by the PPP program through June 20.

PPP Too Focused on Payroll?

The PPP’s original design may have been partly to blame for the discrepancy between the hardest hit sectors and those that got the biggest share of loan proceeds, according to Mehrsa Baradaran, a professor of banking law at the University of California, Irvine.

Loans were previously only forgivable if at least 75% of the forgiven amount was used for payroll, and that may have been an unfortunate deterrent for small businesses in sectors such as restaurant and retail. These businesses aren’t likely to have a large roster of highly paid employees, so their biggest burdens may be other expenses, she said. 

"A lot of these businesses that are smaller, payroll is not their biggest cost," Baradaran said. "I understand why the focus on payroll. The point is to keep people employed. But these companies need to survive, and they need help with rent, utilities," and other costs.

In fact, the disparity may underscore why recent changes to the program were so badly needed.

The PPP Flexibility Act, enacted on June 5, reduces the usage restrictions so that only 60% of a borrower’s loan proceeds must be spent on payroll in order to qualify for full forgiveness. Even if less than 60% is used for payroll, the borrower will still be eligible for partial forgiveness, as long as at least 60% of the forgiven amount was used for payroll. 

“Your rent or lease expense may be more than the money that you need to use for payroll,” said Roderick Johnson, a lender relations specialist with the Small Business Administration (SBA), which administers the PPP. “I think there was a recognition of that.” 

Earlier PPP Access Problems 

The outbreak of the COVID-19 virus triggered an unprecedented shutdown of most non-essential businesses around the country, and the PPP was just one of a number of emergency government relief measures aimed at helping consumers and businesses crippled by the closures. Established by the CARES Act, the PPP was designed as an incentive for small businesses to either keep workers on their payroll or quickly rehire them. 

In contrast to overly complicated relief programs that missed the mark after the Great Recession of 2008, lawmakers designing the PPP focused on speed. With tens of millions of people losing jobs, experiencing temporary layoffs, and working fewer hours, the goal was to get money moving quickly. But the program has been anything but smooth sailing, and it’s not clear that it has worked the way it was intended. 

An initial $349 billion earmarked for the program was nearly exhausted within the first 13 days amid accounts of technical problems, favoritism from lenders, and other access issues. Plus, widespread media reports sparked outcry about the size of the companies that were receiving the loans, prompting some borrowers to return funds. 

A second round of funding began in late April after an additional $310 billion was made available. While better serving the country’s smaller small businesses has been a focus in the second round, it wasn’t until June that key components of the program were revised in the PPP Flexibility Act. Even then, officials had to clarify the new rules because there was so much confusion.

Making PPP Loan Forgiveness Easier

Besides changing the percentage of loan proceeds that need to be used for payroll to 60% from 75%, the latest legislation makes loan forgiveness easier in a number of ways:

  • Borrowers now have up to 24 weeks, rather than eight weeks, to use the loan proceeds and still qualify for forgiveness. 
  • Borrowers now have until the end of the year, rather than June 30, to get back to normal employment levels before the amount of the loan that can be forgiven is reduced.
  • Getting back to normal employment levels isn’t necessary to qualify for loan forgiveness if the borrower is able to document that they weren’t able to fill positions or were at reduced staff in order to comply with public health requirements.

The change to 60% "really helps companies that have a higher amount of overhead and a lower amount of payroll costs, relatively speaking," said Curt Mastio, managing director at Founder’s CPA, a Chicago-based accounting firm for small businesses. And perhaps even more importantly, businesses that were unable to spend the full loan amount in eight weeks now have a longer time period to be eligible for forgiveness, he said.

Still, if entrepreneurs don’t see light at the end of the tunnel, they may be unwilling to borrow money for a business that’s likely to fail.

While none of Mastio’s clients have made the decision to shut down for good, “some people look at this PPP as a Band-Aid on a larger issue,” he said of conversations with clients and colleagues. If a business was not on solid ground before the crisis, extended shutdowns may have exhausted any available resources.

Smaller PPP Loans

The Balance looked at the latest PPP loan data released by the SBA and the most recent job loss data released by the Bureau of Labor Statistics (BLS). Both categorized business sectors using the North American Industry Classification System (NAICS) categories that federal statisticians rely on, though they divvied up some subsectors differently and used slightly different names in some cases. The analysis reconciled any significant discrepancies so that it was an apples-to-apples comparison.

While the table below shows the average PPP loan has gotten much smaller—a promising shift, by most accounts—there continues to be a mismatch between where the money is going and where it’s needed most.

Where PPP Funds Have Gone 

As of June 20, nearly half of the loan proceeds have gone to four sectors:

  • Health Care and Social Assistance (13%)
  • Professional, Scientific, and Technical Services (13%)
  • Construction (12%)
  • Manufacturing (10%)

While those are critical elements of the U.S. economy, representing 35% of private industry gross domestic product (GDP), they account for just 23% of private sector job losses reported in March, April, and May.

At the same time, two industries account for 43% of all private job losses in the three-month period:

  • Accommodation and Food Services (32%)
  • Retail Trade (11%)

But only 16% of PPP loan dollars have gone to those two industries. 

Restaurants, hotels, and stores may not consider a PPP loan quite the lifeline it was intended to be if their rent, equipment, inventory, or other non-payroll costs represent a relatively large portion of their expenses.

Wage data from the BLS shows employees in leisure and hospitality—which includes both Accommodation and Food Services and Arts, Entertainment and Recreation—earn an average of $17.39 an hour, while employees in the retail sector earn an average of $20.88 an hour. Those are the lowest-paid sectors the bureau tracks.

“Even if you're a company with employees, your rent or lease may be more than you need for payroll,” said the SBA’s Johnson.

Plus, restaurants and other establishments that feature in-person service have faced an especially high level of uncertainty, Johnson said. “I think restaurants, in the beginning, were reticent to apply with the unknown about when they'll be able to open again,” he said.

PPP Funds Are Still Available

In a nutshell, the PPP’s latest iteration offers forgivable loans to eligible small businesses who use what they borrow for payroll and other qualifying expenses like rent during the 24 weeks after they receive the loan.

Business owners can either keep employees on the payroll or rehire them, and the entire loan is forgiven if at least 60% of the money is used for payroll. If extenuating circumstances are documented, the loan may not have to be repaid even if the borrower doesn’t maintain staff levels.


The 60% applies to all loans, whether they were received before the changes or not, according to an SBA spokesperson. Similarly, the extended forgiveness period can be applied regardless of when the loan was received.

While the deadline to apply for a loan is August 8, there are funds still available. Some are hopeful the changes in forgiveness conditions will entice more businesses in the restaurant and retail sectors to apply.

Because many in those industries had to close or limit their business to takeout food, it may have been difficult to use the bulk of the proceeds for payroll within just eight weeks, said Rob Wilson, president and CEO of Employco USA, a human resources company in Westmont, Illinois.

"The challenge when it initially came out was you had an eight-week period to use it,’’ Wilson said. “Now, with this 24 weeks, it opens the door for them to really assist on their payroll and get their doors back open."

PPP Snapshot

  • Businesses with 500 or fewer employees are eligible, including nonprofit organizations, veterans organizations, or certain tribal businesses. Sole proprietors, independent contractors, and other self-employed individuals also qualify. Some businesses with more than 500 employees are eligible if other size- and industry-specific conditions are met.
  • Loans are made by private lenders but the SBA guarantees the funds and administers the program.
  • Loans don’t have to be repaid if the small business keeps or quickly rehires its employees and 60% of the proceeds are used for payroll during the 24 weeks after receiving the loan. Unless the borrower shows extenuating circumstances, only part of the borrowed amount is forgiven if headcount or wages decline. Partial forgiveness may also apply if less than 60% of the proceeds are used for payroll.
  • If loans are not forgiven, they have a maturity of two to five years and an interest rate of 1%.
  • As of June 20, 4.67 million borrowers had received approval for $514.9 billion in PPP loans.
  • The deadline to apply for a loan is August 8. The SBA website has details on the program, including a list of participating lenders.
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  1. U.S. Bureau of Labor Statistics. "Employment by Industry, Monthly Changes." See 3-Month tab.

  2. U.S. Small Business Administration. "Paycheck Protection Program Report through June 20, 2020."

  3. U.S. Department of the Treasury. "Joint Statement by Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza Regarding Enactment of the Paycheck Protection Program Flexibility Act."

  4. U.S. Senate Democrats. "Small Business Owners Are Not Receiving Promised Funds from PPP Coronavirus Program."

  5. National Federation of Indepedent Business. "NFIB Letter Urges SBA to Make Returned PPP Funds Available to Small Businesses."

  6. U.S. Small Business Administration. "Joint Statement by Secretary Steven T. Mnuchin and Administrator Jovita Carranza on the Review Procedure for Paycheck Protection Program Loans."

  7. U.S. Small Business Administration. "Flash Report Small Business Administration's Implementation of the Paycheck Protection Program Requirements."

  8. U.S. Bureau of Labor Statistics. "Table B-3. Average Hourly and Weekly Earnings of All Employees on Private Nonfarm Payrolls by Industry Sector, Seasonally Adjusted."

  9. U.S. Small Business Administration. "Paycheck Protection Program."

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