man pulling out pants pockets to show they are empty

Less than 20 percent of small businesses in New York have been approved for Paycheck Protection Program loans, compared to greater percentages in states in the midwest and elsewhere, according to an analysis from two economists at the Federal Reserve Bank of New York.

The analysis was a nationwide snapshot of distribution of PPP loans, a centerpiece of the CARES Act coronavirus relief for small businesses. The report said that by contrast, more than 55 percent of small businesses in Nebraska were anticipating the receipt of PPP loans.

The report concluded that the prevalence of COVID-19 cases and the number of unemployment claims do not correspond with where PPP loans are going.

"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," according to economists Haoyang Liu and Desi Volker, the authors of the study posted on May 6 Liberty Street Economics blog of the New York Fed. "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."

Liu and Volker noted "between-state variation of loans has generated heated political discussions." The authors pointed to a letter that U.S. Rep. Jackie Speier, D-California, wrote to federal agency leaders in late April pressing them for more information about the distribution of PPP loans.

"As Congress votes to pass an Interim Relief Package, which includes an additional $310 billion for the Paycheck Protection Program, transparency regarding SBA's loan allocation process becomes even more urgent," Speier wrote in her letter to U.S. Treasury Secretary Steve Mnuchin and Administrator Jovita Carranza of the Small Business Administration. "California residents have a right to know whether they are being shortchanged."

The authors explore various hypotheses about the disbursement of PPP funds. "Medium-sized and small banks, including community banks, are important in channeling PPP funding," the two economists wrote. States with higher community bank shares, the authors said, show a higher share of PPP loans. The report found "a strong relationship between community banks' market shares and the share of small businesses with PPP loans."

The authors noted that the overall numbers of COVID-19 cases in any state "is an imperfect measure for the severity of the economic impact, since other variables could affect outcomes differently across states." Liu and Volker stated that, for instance, "California could have suffered from strict social distancing rules and North Dakota could have benefited from low population density even with laxer restrictions in place."

The overall PPP loan size for the second round of coronavirus relief clocked in at $73,000, according to the latest SBA report on the program. The majority of loans—about 1.9 million, worth $32.8 billion—were received for $50,000 or under, the SBA report on second-round loans said.

Mike Scarcella is a senior editor in Washington on ALM Media's regulatory desk. Contact him at mscarcella@alm.com. On Twitter: @MikeScarcella.

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Hardest hit COVID-19 areas aren't necessarily seeing PPP loans

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