- 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 York economists 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.
- The economists found “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 Fed found.
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Emergency loans issued by the Small Business Administration have been more concentrated in areas with pre-existing bank relationships than those most affected by the coronavirus pandemic, economists at the Federal Reserve Bank of New York said in a Wednesday blog post.
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 criticised 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.
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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