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Stories Behind the Numbers IV: Where's the Money Going? Small Business Relief During the COVID-19 Pandemic

Written by Sam Finnerty

As the American economy struggles to regain its footing during the ongoing COVID-19 public health crisis, many are looking to Congress and the White House for leadership and a continued plan of action. Small businesses have been particularly hard hit by the pandemic with the number of active small business owners dropping from 15 million to 11.7 million between February and April, the largest drop in US history. So far, aide to small businesses has come in the form of the Paycheck Protection Program (PPP) as part of the CARES Act, which has provided almost 4.9 million loans totaling $521 billion to small businesses. For an organization that normally disperses about 1,000 business loans a year, the Small Business Administration’s (SBA) efforts in processing 4.9 million loans in a matter of weeks is commendable. However, it is still important to examine where this money was dispersed and what impact it has had for small businesses. The Runway team is dedicating this week’s blog post to seeing what the data tells us about the efficacy of the PPP program in helping small businesses.

The stated goal of the PPP was to provide forgivable loans to small businesses to keep them afloat and allow them to retain their payroll. The loans were intended for companies of 500 employees or less and provide up to eight weeks of cash flow assistance. Companies were incentivized to dedicate 60% of the funds to maintain their payroll (this was initially 75%), which would then allow for the loan balance to be forgiven. The funds were distributed through SBA-approved lenders – primarily community and national banks - on a first come-first serve basis. The table below in Figure 1 breaks down the volume of loans dispersed by industry, showing that healthcare, professional services, construction, and manufacturing account for the bulk of PPP loan dispersals thus far. The data released by the Small Business Administration (SBA) surrounding the number of retained jobs has been found to be error-ridden and inconsistent, so we will not comment on that information here. However, the data regarding which businesses have received these “small business” loans is certainly worthy of examination. On July 5th, the SBA released data for the businesses that received loans between $150,000 and $10 million. While the loans over $150,000 only constitute 15% of the total number of loans, they account for 73% of the total money dispersed.

Curious to know where the biggest loans have gone? Forbes watchdog organization Open The Books has developed a Mapping Tool from the released SBA data that allows users to view what businesses or non-profits in their area have received subsidies of $1 million or higher. The tool allows you to select a pin or search by zip code to view a table of loan recipients within a given zip code in a table below the map. An image of the map is shown below in Figure 2; search your own zip code using the tool here. For those that are a little more tech-savvy and familiar with business classifications, the map developed by Quiver Quantitative is even more detailed and is shown below in Figure 3. This map shows all of the businesses and non-profits that received PPP loans of $150K or greater, categorizing them by business classification as you can see in the legend below (LLC, Corporation, etc). This tool can be found here. Some might ask: Why is this data important? In March, it was obvious that thousands of businesses were in dire need of assistance in the wake of government-ordered closures. Why keep tabs on who is receiving it and how they are using it? In Runway’s first blog post about St. Mark’s Episcopal Church, we discussed the importance of member-supported organizations embracing financial transparency to demonstrate to their stakeholders that their funding is being used appropriately in support of the organization’s overarching mission. While the scale of the Paycheck Protection Program is far greater than the annual budget of a single church, the ethics in this scenario are no different. The stakeholder is every American citizen who will have to pay off the massive debts incurred to get through this crisis, which is estimated to be about $16,800 per taxpayer for all the COVID-19 stimulus bills thus far. The organizations in question are the entities who are receiving taxpayer-funded relief, as well as the policy makers who dictate which entities receive funding and how much.

As a program that was designed to help “Main Street” American businesses, many may be surprised to learn that 65% of the PPP funds thus far – a total of $365 billion – have gone to publicly traded companies. Several of these are listed below in Figure 4, some with valuations of over $100 million! On top of this, several 7-figure small business loans have been distributed to the businesses of magnates such as Kanye West, the Kushner family and billionaire property developer Joe Farrell. Meanwhile, 41% of small businesses who have applied for PPP funding still had not received any funds as of late-June. Small business pulse survey data shows that two-thirds of businesses surveyed have less than two months cash on hand to continue their operation. Nationally, small businesses are closing at a rate of 22% with Black and Latin American-owned businesses feeling the effects even greater, with closure rates of 41% and 32%. At a time when so many small businesses are struggling to stay open, is it economically efficient to be siphoning so much of the taxpayer-funded aid to publicly traded companies or to businesses owned by billionaires?

A recent study by the Federal Reserve of New York tracking PPP spending found that existing ties to banking institutions has been the strongest indicator of how the stimulus funds have been distributed at the state level. Many of the largest PPP lenders – which include the likes of JP Morgan Chase, Bank of America, and Wells Fargo – stand to profit handsomely from the fees associated with these taxpayer-funded loans, though many have stated that they will donate a portion of those funds back to small businessess.

But regardless, should a business’s relationship to the financial industry be such an important factor in their ability to access public relief funds in a time of crisis? Is the private banking industry really the most efficient intermediary for delivering emergency relief funds to struggling businesses during said time of crisis?

As we navigate through this unprecedented time, it is important to ponder such questions, and to be willing to rethink our strategies in response to a challenge that continues to evolve. As stakeholders in the future of our country, it is important that we pay attention to how our limited relief funds are being used to help small businesses, and that the system isn’t being gamed in favor of larger businesses with deeper pockets and influence. In the case of programs like the Paycheck Protection Program, it is especially important that we towards the data to ensure accountability, and to help improve our economic relief systems as we work through the COVID-19 pandemic.