One of the surprising features of the U.S. government’s early small-business rescue was that it showered money on states least hurt by the coronavirus pandemic and overlooked some areas hit the hardest. Now, that gap is closing.
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States that got an undersized share of the first tranche of loans under the Small Business Administration’s Paycheck Protection Program, including New York and New Jersey, are catching up in the second round, SBA data released May 18 show. Lending accelerated in New York, the epicenter of the outbreak in the U.S., where businesses now have loan approvals worth 74% of eligible payroll as of May 16, up from 40% as of April 16. Shares were measured as a percentage of eligible payroll in each state, as estimated by Ernie Tedeschi, an analyst at Evercore ISI.
The Paycheck Protection Program offers forgivable loans, distributed by banks, to help small businesses, in most cases those with fewer than 500 employees, pay for wages and other expenses. The first round of loan approvals took place between April 3 and April 16 and totaled $341 billion. Congress appropriated a second round of $320 billion, starting April 27, and as of May 16, the total of approved loans was $513 billion. That was lower than the total as of May 8, reflecting cancellations of almost $18 billion.
Among the top early beneficiaries of the program were Great Plains states, such as Nebraska and the Dakotas, whose governors never issued stay-at-home orders common in the rest of the country. Lending in those states slowed during the second round, the data show.
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In a May 6 blog post, researchers at the Federal Reserve Bank of New York reported a similar disparity among states in the first round of the program. Haoyang Liu and Desi Volker used a different metric, comparing the number of loans in each state to the total number of small businesses. By that measure, the disparities between states also narrowed in the second round, a Bloomberg analysis shows, although not as dramatically as when looking at eligible payrolls.
Read The Previous Analysis On The First Round of Funding
The New York Fed economists, as well as a separate group at the University of Chicago and the Massachusetts Institute of Technology, found no evidence that the program favored areas hit harder by the coronavirus. The latter group, which analyzed lending by congressional districts, found that less hard-hit areas actually benefited more.
Both groups point to banks as a potential explanation for the disparities. States whose small businesses had more pre-existing lending relationships did better than others, the Fed economists found, and states where small banks predominate also outperformed. It’s possible that trend, too, is reversing. Large banks with more than $10 billion of assets were responsible for about 40% of lending in the first round, but increased their share to 57% as of May 16.