This question has gained new urgency as the federal government scrambles to bring emergency funding to millions of small businesses across the country under the Paycheck Protection Program (PPP). The PPP consists of forgivable loans that borrowers may use to cover employee payroll, rent, and utilities for eight weeks. The Small Business Administration (SBA) manages the PPP, but funds are allocated by authorized private lenders.
Although the program ostensibly seeks to assist the smallest concerns in America, which cannot gain access to funding through other Fed and Treasury facilities, it came under strong criticism when it emerged that several rather large firms had benefited from it. Data from the SBA for its first ($342 billion worth) round of PPP loans corroborate these anecdotes: 44 percent of loan volume consisted of loans of over $1 million and went to just four percent of (presumably the largest) applicants.
The apparent inequity prompted public outrage, followed by a string of exculpatory press releases and stern official “clarifications” concerning eligibility for PPP loans. The public shaming seems to have hit a nerve: SBA data for part of round two lending, which will total $310 billion, show that loans under $150,000 accounted for 37 percent of volume, compared to just 17 percent in the first round. The average loan so far in round two is $79,000, against $206,000 for round one loans. Still, loans over $1 million represented 27 percent of total lending, and those loans went to just 0.96 percent of applicants. The big guys continue to get a large slice of the PPP pie.
This disappointing outcome has occurred despite a tweak Congress made to the program, ostensibly for the sake of getting more PPP funds to the smallest of small businesses. Of the $310 billion in round two funding, $60 billion was set aside for small banks, credit unions, and community financial institutions (CFIs).[1] Specifically, $30 billion was earmarked for banks and credit unions with assets between $10 billion and $50 billion, while another $30 billion was reserved for institutions, including CFIs, with assets below $10 billion. Thanks partly to this carve-out, lenders with under $50 billion in assets have collectively accounted for 48 percent of round two loans so far, while $27 billion (15 percent) of all lending has come from lenders under $1 billion, including CFIs.
It’s tempting to suppose that small depository institutions are more likely to lend to smaller businesses. Didn’t Bailey Building & Loan, the thrift in It’s A Wonderful Life, serve the Main Street shops next door? Alas, life doesn’t always imitate art: it turns out that the average large-bank loan is a lot smaller than the average small-bank loan. Since a commercial loan’s amount is usually indicative of the borrower’s size, these data suggest that large banks are actually more likely to cater to the smallest businesses. Specifically, recent FDIC filings show that the average small loan made by a bank with assets in excess of $10 billion was $13,250, against $40,650 for banks with assets between $1 billion and $10 billion, $30,170 for those between $100 million and $1 billion, and $42,095 for banks under $100 million.[2]
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