Fed Study Finds SBA Loans Went to Areas With More Bank Customers

Emergency small-business loans have gone disproportionately to areas where borrowers had pre-existing banking relationships rather than areas hardest hit by the coronavirus pandemic, according to Federal Reserve economists.

The Small Business Administration support effort, known as the Paycheck Protection Program, is a centerpiece of the government’s economic-relief package. The rollout has faced criticism in recent weeks on the grounds that it hasn’t been entirely effective in getting aid to those who need it most.

“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,” New York Fed economists Haoyang Liu and Desi Volker said Wednesday in a blog post on the bank’s website.

“In contrast, we find that lenders’ preference for borrowers with an existing relationship and the market share of community banks are the main factors explaining the geographical variation in PPP funding.”

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Ana Monteiro

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