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PPP loans saturate small businesses, but geographic imbalances persist

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A temporary closed sign shows at the Neiman Marcus department store in Northbrook, Ill., Friday, May 8, 2020. Neiman Marcus became the first major department store group to file for bankruptcy protection during the coronavirus pandemic.
Source: AP photo

The federal government's small business rescue has been praised for shoveling out hundreds of billions of dollars in much-needed relief over a few short months, but criticism persists that aid has not gotten everywhere it should and that the program has been marred by unfair access.

Roughly three-quarters of small businesses across the country have received Paycheck Protection Program loans so far, according to an S&P Global Market Intelligence analysis comparing state-level loan data released by the Small Business Administration with the Census Bureau's count of small businesses. But while loan counts suggest that nearly every small business in states like North Dakota, Mississippi, South Dakota and Nebraska has received PPP funding, the data shows a penetration rate of just 69.2% in California and 63% in New York.

Nationally, the figures are roughly in line with a survey conducted by the National Federation of Independent Business, which found that 77% of small businesses had applied for a PPP loan, and 93% of those businesses had received one. "Most small businesses interested in the loan have already applied," the trade group said on June 2.

The disparities among states echo those that appeared during the program's initial $350 billion round, during which about 58% of small businesses in North Dakota received a loan, compared with 15% in California and 18% in New York. Economists at the Federal Reserve Bank of New York found that geographic patterns in lending during the first round were correlated with the prevalence of small businesses' existing relationships with banks, and community banks' market share.

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Banks of all sizes are poised to book billions of dollars in fees from the program, but the relative impact is likely to be far greater on small banks because of their size. In a May 25 note, Keefe Bruyette & Woods analysts estimated that PPP fees would cover more than 25% of their forecasts for credit loss provisions over two years at more than two dozen banks, including Customers Bancorp Inc., Heritage Financial Corp., Stock Yards Bancorp Inc., First Financial Bankshares Inc. and Glacier Bancorp Inc.

Aggregate PPP loan volume has stagnated since the middle of May, with more than $100 billion left available under the program. To encourage additional participation, legislation enacted on June 5 made it easier for small businesses to meet criteria under which loan amounts will convert into grants, including by lowering the proportion of funds that must be used on payroll costs to 60% from 75% and loosening rules that reduce forgiveness if borrowers cut employees.

In terms of distribution by industry, PPP lending continues to be concentrated on sectors hit hard by coronavirus-related lockdowns, including healthcare, construction and manufacturing, each of which accounted for more than 10% of loans approved so far. Rehiring incentivized by the program was widely cited by economists as a likely factor behind a surprise net increase of 2.5 million jobs in May.

Hiring was also strong in the leisure and hospitality industry, which includes hotels and restaurants and added 1.24 million jobs. But while loans to accommodation and food services businesses accounted for about 8% of PPP funding, ranking fifth, the sector has racked up the largest number of job losses overall during the recession, shedding 8.3 million positions from peak to trough, according to analysts at BofA Global Research, or about 38% of the total.

With social distancing likely to remain a factor for some time, businesses like restaurants face a long road to recovery, and rescue funds tied to quick rehiring remain an awkward fit.

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