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In other words, the loans weren't in line with need, and in fact "there is actually a negative relationship between COVID-19 cases per capita and the share of small firms getting PPP funding, suggesting that credit is misallocated," with New York and New Jersey in the mix. Taking those two states out of the equation, the relationship between cases and loans is not statistically significant. So we know the loans aren't correlated to the prevalence of the disease in the states. Nor are they correlated to unemployment claims, the economists find: "in the four weeks starting March 15 as the measure [we] find no statistically significant relationship between economic hardship due to COVID-19 and the chance of getting a PPP loan." There are some caveats to that—the loans could have staved off unemployment claims, and that cases per capita isn't as effective a measure for a California with very strict social distance rules and North Dakota, where low population density made for looser restrictions.
What made the most difference is something Democrats tried to correct for in the second round of funding passed—companies that had existing relationships and financing with banks were likely to get the loans. "Our interpretation is that banks' preference for their own customers causes the PPP to favor firms with existing lending relationships," the authors write. They also hypothesize that the market share of community banks as opposed to big banks could concentrate loans in these smaller, less-affected states. Community banks did have the lion's share of the smaller dollar loans. The authors see a correlation there, but point out that "the evidence presented here is preliminary and that there are many differences between states besides the variables we control for." The second round of funding came with restrictions to make sure that community banks got a large chunk of the funding.
One of the head-scratchers for the analysts was in which sectors claimed loans. The retail, hotel, and food service industries which definitely lost revenue are the biggest recipients. But then there's construction, which "has received disproportionately more PPP funding […] even though it has been classified as 'essential business' in many states, making it conceivably more immune to the social distancing measures enacted to contain COVID-19." Other groups that got disproportionate funding were professional, scientific, and technical services, a share of which should have been able to transition much of their work online.
This is all early analysis, not considering the second round of funds. The authors recognize that and caveat their findings because of that. Nevertheless, they write, "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." And that's a problem. A big problem.
We know that Black and brown business owners don't have those relationships with banks. They have a much harder time than white-owned businesses getting loans from banks in good times, so securing a loan now is even harder. So that's one group of small business owners cut out. There are so many other businesses that are already in debt and have to think hard abut taking on more debt. Others have to decide whether holding onto their employees for another eight weeks (a condition of the loan), given the uncertainty about when all this could end, makes any sense.
What should have happened with all these billions that went into this program was that it—and more—went directly into people's pockets, and kept going there. No strings attached. Paying everyone $2,000 or $3,000 each month to get them through, along with cancelling student loan and rent and mortgage and credit card debt—or at the very least suspending those payments and the interest accruing on them—for the duration. That was the only way to ensure equitable assistance. The only way to ensure that the Trump administration couldn't play political games with help. The only way to make sure we get through this without falling into another depression.
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