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U.S. Loans Didn’t Flow to Businesses Most at Risk, Study Shows

April 27, 2020, 9:00 AM

Loans to small businesses through a federal program haven’t flowed to areas hardest hit by the coronavirus pandemic, according to a new analysis by economists.

About 15% of companies in the regions with the biggest declines in hours worked and most business shutdowns received funds from the first tranche of the Paycheck Protection Program, according to the paper from researchers at the University of Chicago’s Booth School, Massachusetts Institute of Technology’s Sloan School and the National Bureau of Economic Research.

In congressional districts least affected, firms received double that share.

“We find no evidence that funds flowed to areas that were more adversely affected by the economic effects of the pandemic,” economists João Granja, Christos Makridis, Constantine Yannelis, and Eric Zwick wrote.

If anything, the data suggests that funds flowed to areas less hard hit, according to the report, with a higher share of businesses receiving loans in “areas with better employment outcomes, fewer Covid-19 related infections and deaths, and less social distancing.”

The findings are key to understanding the state of business and the U.S. economy as it dips into a recession, and how and when it could recover.

The government’s small business loans program ran through its $349 billion in funds within two weeks. An additional $320 billion is set to become available Monday after being approved by lawmakers last week.

Read More: Small-Business Relief Program Restarts Monday With $320 Billion

Massive Layoffs

The study also provides more transparency on the program as hundreds of thousands of companies rush for cash. So far, more than 26 million Americans have lost their jobs in the crisis, basically erasing the job gains seen during the longest U.S. economic expansion.

The researchers used data from the Small Business Administration, the government arm that ran the program, to see which lenders were most active and where. They paired that with figures from Homebase, a software firm that provides scheduling and payroll support for about 100,000 local firms, to gauge the real-time reaction in the labor market via hours, wages, and overall employment -- particularly the hard-hit retail and the hospitality sectors.

Another finding, and one that could explain the skew of funds, is that the top four lenders (JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., and Citigroup Inc.) disbursed less than 3% of PPP loans in the first tranche; they usually account for about one-third of all small business loans.

The banks’ branches are located in parts of the country that received less funding, the researchers found. Wells Fargo also had an asset-cap restriction, which the Federal Reserve removed temporarily earlier this month.

For example, Cleveland, Ohio-based KeyCorp made up a greater share of total PPP volume than Bank of America, Wells Fargo, and Citigroup combined -- even though its share of small business loans is usually much less, according to the analysis.

Nevertheless there are concerns that in the next round of funding to start Monday, big banks could have the advantage because they’ve been preparing a barrage of loan applications since the first round of the program ended April 16. To help spread the loans among lenders this time, the Small Business Administration is capping the value of loans individual banks can arrange under the program.

Bank of America Chief Executive Officer Brian Moynihan said Sunday that the government needs to ensure that the lending program is fully-funded and able to provide cash to all small companies that need it, rather than it operating on a first-come, first-served basis.

--With assistance from Alex Tanzi.

To contact the reporter on this story:
Katia Dmitrieva in Washington at

To contact the editors responsible for this story:
Margaret Collins at

Ros Krasny

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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