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In hardest hit areas, fewer small businesses saw money from federal loan program


The first round of federal loans earmarked for small businesses didn’t always reach areas upended by the pandemic, according to a new working paper co-written by MIT Sloan researcher Christos Makridis. If anything, researchers said, funds went to better off areas.

Applications for the loans — formally titled the Paycheck Protection Program, or PPP, part of the federal CARES Act — opened April 3, and were overseen by the U.S. Small Business Administration.

The program enabled small businesses with fewer than 500 employees — with some industry-specific exceptions — to apply for forgivable loans. These loans would help to cover payroll costs and other fixed expenses. Firms would apply through banks.

The program, which is in its second round of loans, has been criticized for providing loans to large businesses and companies that are not facing hardships.

Did the Paycheck Protection Program Hit the Target?” examines how those loans were disbursed geographically. Just 15% of establishments in the regions most affected by declines in hours worked and business shutdowns received PPP funding, while 30% of all establishments in the least affected areas received PPP funding. 

“For example, whereas California received fewer PPP loans after accounting for their number of small businesses, North Dakota received more,” Makridis said. “A lot of establishments receiving loans were in areas with slightly better employment outcomes, slightly fewer COVID infections and deaths, and less social distancing.”

This is possibly because business owners had more time to focus on applying for loans, while harder-hit areas were absorbed with health issues, he said. But more complex issues were also at play.


Fifteen percent of businesses in hard-hit areas received a first-round PPP loan.

Most notably, according to the researchers, there were significant differences in outcomes among banks. That could be driven by how each bank participated in the program and what types of borrowers they served, among other factors.

The four largest banks in the country — JPMorgan Chase, Bank of America, Wells Fargo, and Citibank — are usually major lenders to small businesses, accounting for 36% of loans to small businesses in normal times. But for a variety of reasons, those banks barely participated in dispersing PPP funds;  only 3% of PPP loans came from those four large banks. That left the balance of loans to be distributed by banks and other non-traditional lenders (e.g., fintech firms) who usually account for a smaller portion of the small business lending market.

It’s also possible that for what loans those large banks did distribute, they prioritized their large clients, though Makridis said it is difficult to determine intentionality.

Moreover, “Anecdotal evidence suggests some banks were eager to participate in the program, while others were unable or unwilling to process large numbers of loans in the short program window,” perhaps due to staffing and infrastructure issues, the researchers wrote.

Some small businesses might have lacked lending relationships with banks, or banks couldn’t process loans quickly enough. Many lenders also might have prioritized existing business relationships when considering applications. 

“While all businesses generally have at least some sort of banking relationship, the quality and priority of these relationships may vary a lot across companies and geographies,” Makridis said.

“For example, [we] found that areas that had greater exposure to the PPP lending program also received more loans … Some businesses were more likely to receive PPP loans simply because they were located closer to banks that processed a larger share of PPP loans.”

The researchers received confidential information from the Small Business Administration, which contained data on amounts and number of loans approved by each lender, amounts and number of loans received by small businesses in each state, and the total amounts and number of PPP loans received by small businesses in each congressional district as of April 15.

Things may improve in the future, Makridis said, noting that the Department of the Treasury will likely continue monitoring the rollout of the program, together with the SBA, as new waves of funding are administered.

“The hope is that additional funding will provide sufficient liquidity for small businesses to retain their workforce until the economy opens again and consumer demand picks back up," Makridis said. "This will also boost consumer confidence and assuage fears about job loss, which are particularly important factors for understanding recovery from a crisis."

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