New Study Finds Nonprofits with Financial Obligations More Likely to Participate in COVID-era Paycheck Protection Program
TORONTO – Thursday, May 25, 2023 – The COVID-19 pandemic inarguably disrupted everyday life, from work from home to online schooling, from mask mandates and social distancing to washing groceries. Economic activity slowed. Fear and anxiety increased. Unemployment spiked.
To help small businesses cover payroll costs and keep employees on the job, the U.S. Federal Government created the Paycheck Protection Program (PPP) in April of 2020. The program issued almost 12 million loans worth nearly $800 billion, and these loans were forgivable if the business kept payroll at pre-pandemic levels.
But not all eligible businesses participated – and not all received loan forgiveness.
To examine what motivated nonprofits’ participation in the program, Gregory Saxton, Professor of Accounting at the Schulich School of Business at York University, and his co-authors Paul Wong from the University of California-Davis and Daniel Neely at the University of Wisconsin-Milwaukee, analyzed data from over 100,000 nonprofits that applied for PPP loans. The results of their study were recently published in Management Science in their article, “Nonprofit Organizations’ Financial Obligations and the Paycheck Protection Program.”
The authors found that only 38% of eligible nonprofit organizations participated in the PPP, substantially lower than for-profit businesses.
They also found that nonprofits with long-term debt obligations and donor-restricted net assets were more likely to apply for and receive PPP loans. In effect, an organization’s financial obligations—such as debt or promises to donors to use resources in a specific manner—played an important role in determining PPP participation and the characteristics of the loans obtained. Notably, not only did pre-existing financial obligations make organizations more likely to participate in the program, but financial obligations led participating organizations to receive larger loans, relative to payroll costs, and increased the likelihood that their loans were ultimately forgiven.
This study furthers our understanding of the PPP by examining the financial characteristics of participating businesses. At a practical level, the study informs policymakers in designing business-focused economic relief programs to maximize societal benefit during economic downturns.
Overall, the study suggests that the PPP played a crucial role in supporting both employment and critical services during the COVID-19 pandemic. “The PPP helped to keep nonprofits afloat during a very difficult time,” Saxton said. “It’s clear that the program was particularly beneficial for nonprofits with pre-existing financial obligations.”
Gregory Saxton is available for interviews about this research.
