The Paycheck Protection Program delivered grants through banks' loan rails

In March 2020 small businesses were losing revenue at once and had no way to wait for a grant agency. The government's own rails did not exist, and mailing checks or standing up a new agency would take months the firms did not have.

The Paycheck Protection Program's answer was to make the money a loan: an SBA 7(a) loan that is 100% guaranteed and forgiven if the borrower keeps payroll and headcount. That turned thousands of banks into the disbursing agents, because they earned origination fees and carried no credit risk.

The two-year, 1%-interest loans ran through the existing banking network, so more than 90% of the funds were out by the first week of May 2020. The loan form let a subsidy ride a private distribution channel that already knew each business.

Disguise a grant as a risk-free loan

The government had no rails to send cash to millions of businesses

A guaranteed, risk-free loan made banks willing to process at scale

Forgiveness conditioned on payroll targets the money at keeping workers

The 7(a) network let funds reach businesses in days, not months

Bolt a subsidy onto a channel that already knows the recipients and is risk-free and paid; the loan form lets a grant ride the rails, but guard who gets to the front.

Nearly $800 billion was lent over two draws and most was forgiven. The design delivered speed but not precision: the first-come-first-served process did not concentrate funds on the most stressed areas, and some large firms and fraudsters slip through. It proved the channel works, and showed that giving a channel speed without targeting can miss the point.