- Paycheck Protection Program, or PPP, loan approvals are more concentrated in areas with existing small business-bank partnerships instead of regions hit hardest by the coronavirus,
Federal Reserve Bank of New Yorkeconomists wrote Wednesday.
- Virus hotspots including New York, New Jersey, Michigan, and Pennsylvania are receiving fewer PPP loan approvals per small business than less-affected states.
economistsfound “strong similarity” between states with high proportions of small business-bank financing relationships and PPP loan issuance.
- States with larger shares of community banks also issued a greater proportion of relief loans, the
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Emergency loans issued by the
Paycheck Protection Program, or PPP, loans were among the critical relief measures taken to keep the US from sliding into economic catastrophe. Eligible businesses first criticized the program’s bumpy rollout and relatively small capacity, as the facility ran out of funds in less than two weeks.”
PPP lending has since resumed, but the New York Fed’s latest study suggests the emergency capital isn’t being allocated efficiently. Some of the hardest-hit areas including New York, New Jersey, Michigan, and Pennsylvania are receiving fewer loans per small business than less-affected states in the Midwest and near the West Coast, the Fed found.Advertisement
Only about 20% of small businesses requesting PPP loans in New York have been approved, while more than 55% of eligible firms in Nebraska expect to receive emergency funding.
“The economic impact of COVID-19, both measured by the number of COVID-19 cases per capita and by the number of initial unemployment claims per capita, does not explain the geographical distribution of PPP loans,” economists Haoyang Liu and Desi Volker wrote.
The team then tested whether existing financing agreements between small businesses and banks boosted the likelihood of PPP loan approval. Of the 20 states studied, those with the most small business bank financing also held the highest percentage of small firms receiving loans.
The team also found that areas with a greater proportion of community banks to larger lenders were more effective in granting PPP loans. States including Wyoming, Iowa, and Kansas with nearly 50% of deposits in community banks saw a greater percentage of small businesses taking in PPP loans, the Fed said. States with less community-bank market share saw a significantly smaller proportion of small businesses approved for the funds.
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