Some of the areas most affected by the COVID-19 pandemic got relatively fewer forgivable business loans from the government than other areas, according to a study by the Federal Reserve Bank of New York.
“Some of the hardest hit areas–such as New York, New Jersey, Michigan, and Pennsylvania–are getting fewer loans than some Mountain and Midwest states on a per-small-business basis,” the study found.
In New York, which has become the global epicenter of the pandemic, fewer than 20 percent of small businesses had been approved for one of the Small Business Administration-backed loans that are part of the Paycheck Protection Program (PPP) created by Congress earlier this year, while over 55 percent in Nebraska had been.
Even without considering the two hardest hit states, the study found that the extent of the outbreak a state faced had little to do with how many loans its small businesses got.
“Building on this initial evidence, we further show that there is no statistically significant relationship between the severity of the economic impact of COVID-19—measured both in terms of cases and unemployment claims–and the share of small businesses getting PPP loans, after excluding New York and New Jersey,” the study said.
The report looked at the first round of PPP, which ran from April 3 to April 16 and faced criticism for disbursing some of its $349 billion in loans to large chains and publicly traded companies, some of which have offered to return them.
Some lawmakers say they understood the program would be imperfect, but put a priority on getting money flowing quickly over directing the money more precisely. Additional steps to restrict or guide the money, they said, would have added more red tape and processing time for the desperately needed loans.
The second round of PPP, which began last week after Congress replenished the fund with an additional $310 billion, seems to have avoided some of the major missteps of the first round. The average loan size is down nearly two-thirds, meaning more of the money is going to smaller businesses.
The number of businesses receiving funds has also already surpassed the total in the first round, even with only half of the new funds obligated.
But the second round did not include regulations to prioritize loans based on how hard the state was hit by the pandemic, either in terms of unemployment or COVID-19 cases.