PPP Failing To Reach Most Affected Areas, Industries
Last week President Trump congratulated the U.S. Treasury Secretary Steven Mnuchin and Small Business Administration head Jovita Carranza.
“Have you gone to sleep in the last two weeks? I don't think so. Right,” Trump said. “You broke every single lending record: numbers of loans, amount of loans small business, it's actually a very big business when you think about it “
The President was taking a bit of a victory lap on the government’s ability to move more than 350 billion tax dollars into the pockets of businesses through the Paycheck Protection Program. The program was intended to keep those small businesses afloat while keeping employees on the payroll.
The federal government is on its way to making a record setting $660 billion in loan guarantees. The dollars were intended for small businesses to stave off the economic ruin of the sector that represents about 47% of the U.S. economy.
The program has touched millions of businesses and still more employees.
But hundreds of millions of dollars went to large public companies. The bad press prompted audit threats from the Treasury and returned loans from large corporate actors.
Early indications are not only that its first round missed the most affected areas but also the most vulnerable businesses.
A paper out from the University of Chicago shows through SBA data and that of a payroll processor that the hardest hit areas didn’t see more money. In fact, less affected areas saw more.
“It’s not written anywhere that the goal of the program was to direct funds to the areas that were hardest hit,“ said João Granja, professor of accounting and lead author of the study.
The data show states like Nebraska and North Dakota led in per capita loans, despite being less affected. This likely happened because businesses didn’t have to prove severe hardship to qualify for the “first come first serve” approach.
“I think there was a clear trade off,” said Granja referring to the emphasis by program architects on speed rather than targeted relief.
Another analysis from the Urban Institute also shows the first $349 billion in PPP money didn’t get where it was most needed.
“For example, the accommodations and food industry got only 9% of funds despite, by that point, having two-thirds of job losses,” said Brett Theodos, director of the Urban Institute’s Community Development hub.
The second largest portion of PPP loans went to the professional, scientific and technical services sector. That sector has actually gained more than 7,000 jobs since March.
Geographically they also saw problems with distribution. California represented nearly 15% of all the unemployment claims the first month of the crisis, but its businesses only secured around 8% of the loans. Florida with over 5% got just over half that in funding. While Texas received more of a share in PPP loans than it saw in unemployment claims.
This didn’t surprise Theodos or his colleagues.
“Our expectation was that it would not be efficiently allocated to places of need in a it would be more of a gold rush, where whoever gets there first wins regardless of how needy they are,” he said.
Rewarding the first through the door often means the most sophisticated, better funded firms with good ties to banks that would be processing them. That often equates to more white and more wealthy.
This should worry people, Theodos said.
“The fact that we may be — as a result — entrenching inequities in who has capital in this country rather than ameliorating them, and it's worth remembering this is an enormity of money. This is a mountain of money,” he said.
"From one perspective, this program did precisely what it was designed to do, which is to get money to, to protect, the largest businesses in our country...It did that brilliantly."
Early data and a swath of anecdotes have shown less money has reached business owners of color as well as the smallest of small businesses. This in spite of being exactly what the U.S. Senate asked for when the measure passed.
Many point to the US Treasury’s administration of the program.
“From one perspective, this program did precisely what it was designed to do…,” said Noel Poyo, executive director of the National Association of Latino Community Asset Builders “Which is to get money to, to protect, the largest businesses in our country, and particularly the best customers of our largest banks. It did that brilliantly.”
Poyo and other advocates including the U.S. Hispanic Chamber of Commerce, the League of United Latin American Citizens have pointed out the inequities in PPP lending and pushed for fixes for Latino and other business owners of color. Many of those recommendations and requests went unrealized.
On April 27 the SBA began accepting applications for the second round of PPP funding.
There have been notable differences in how the funding has gone out thus far.
As of May 1, about 2.2 million loans had been issued from the second round, already 600,000 more businesses than the first round. And it has 40% left in loan guarantees.
The average loan size has dropped by more than half falling from $206,000 to $79,000, with loans under $50,000 far outstripping other loan categories.
Knowing the program’s efficacy requires more data and more time.
But the one thing we may never know is the racial makeup of those getting loans. The Small Business Administration took what experts described as an unusual step of not collecting this information.