PPP failed to get money where it was most needed
With the deadline for businesses to secure funding from the Small Business Administration's Paycheck Protection Program (PPP) less than two weeks away, the most high profile portion of the $2 trillion CARES Act looks to have left out the people who needed it most.
Driving the news: Fed chair Jerome Powell said during his testimony to the Senate Banking Committee Tuesday that despite the nearly $700 billion program, the coronavirus pandemic was "presenting acute risks to small businesses."
Between the lines: That seemed to be doubly true for black-owned businesses, which were statistically much more likely to need the funds.
- Research shows 41% of black business owners have shut their doors since the pandemic started, perhaps in part because, according to a recent analysis, 95% of black-owned businesses were shut out of the PPP.
Details: An April Fed survey found some 21% of black-owned businesses were financially "distressed" at the end of 2019 compared to 5% of white-owned businesses.
- Black-owned small businesses also are highly concentrated in retail, restaurants and other service industries most affected by the shutdowns, Reuters noted.
- The ACLU and other civil rights organizations filed a lawsuit Tuesday, claiming PPP unfairly denied black and Latino business owners PPP loans.
The big picture: PPP money generally missed the industries and areas most heavily impacted by COVID-19.
- A second analysis of the program from S&P Global U.S. chief economist Beth Ann Bovino finds just 42.4% of total PPP loans approved went to service industries significantly affected by social distancing — even though the sector accounted for 66.8% of job losses.
- Similarly, seven of the 10 states that received the smallest dollar amount of loans were among the 10 states with the highest number of people approved for unemployment claims as of May 23.
What's next: There remains approximately $100 billion of government funding allocated for PPP that has not yet been claimed.
- The latest data from SBA show no significant uptick in application approvals since Congress revised regulations for the program early this month.
The last word: "While the opening of some states may have come just in the nick of time for some businesses in the service sector, there is still a long way to go," Bovino said in the report.
- "It remains unclear how many of these companies survived, or will survive, the first stage of the sudden-stop recession. That may make the climb back to prepandemic economic levels even steeper."
Go deeper: Paycheck Protection Program borrowers get more flexibility