Their research shows that in New York, for example, less than 20% of all small businesses in the state were approved for a loan during the first round of Paycheck Protection Programs. But 55% of small businesses in Nebraska were approved.
The program was set up by Congress with no geographical restrictions on who could receive the money. Applicants submitted a self-declaration of need and had to have a total salary of less than 500 employees.
The New York Fed economists found that small business owners would be more likely to be approved for loans if they had existing relationships with banks in the community.
While the Paycheck Protection Program approves loans after first come, Lenders have prioritized
those from borrowers they already have business with.
The New York Fed economists warned that their analysis is preliminary and acknowledged that the number of coronavirus cases per capita and unemployment claims are imperfect ways of measuring the impact of the virus. There may be other factors at play, such as the severity of the state's home visit order.
A separate report
released last week by the non-profit Institute for Local Self-Reliance, also found that several loans were granted in states where local community banks make up a larger portion of the market, such as North Dakota. It found that almost three times as many emergency loans were given per capita in the 10 states with most social banks per capita, compared to the 10 states with the fewest.
The Small Business Administration issued 1.6 million loans, worth about $ 350 billion, in the first round of the Paycheck Protection Program – until it ran out of money. During the first round
Of financing, small business owners in California received the most money, totaling about $ 33.4 billion. But according to Fed economists' research, fewer than 25% of the state's small businesses received loans.
Actual, fewer emergency loans went to California than Texas
– draw ire from California Rep. Jackie Speier, a Democrat.
"Although California received incremental loans more gradually, the amount still does not seem to adequately reflect the fact that California is economically much larger than Texas and one of the states most severely affected by coronavirus," she wrote in a letter
to Finance Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza.
The emergency loans were intended to help business owners continue to pay their employees and the fixed costs to stay afloat for the next two months. The loan will be forgiven if the funds are used to pay such expenses.
Only one loan is allowed per business. They are made in an amount equivalent to two and a half months of average monthly labor costs in 2019.
Congress has since replenished the program's funds with an additional $ 310 billion and a second round of loans
started being treated last week. As of Tuesday, an additional $ 181 billion in loans to 2.4 business owners was approved.