How small businesses got stiffed by the coronavirus pandemic

The story of American businesses in the coronavirus pandemic is a tale of two markets — one made up of tech firms and online retailers as winners awash in capital, and another of brick-and-mortar mom-and-pop shops that is collapsing.

Why it matters: The coronavirus pandemic has created an environment where losing industries like traditional retail and hospitality as well as a sizable portion of firms owned by women, immigrants and people of color are wiped out and may be gone for good.

• This dichotomy of winners and losers could shape the face of American business for decades to come.

What's happening: Banks are tightening lending standards and weeding out some of the neediest borrowers.

• The Fed's latest survey of senior loan officers finds that banks have raised interest rates and collateral requirements as well as loan covenants and are charging higher premiums for what they see as riskier loans.

What we're hearing: Lenders are applying a "COVID filter" to determine which companies are risky, making decisions largely based on firms' performance from January through June, says Alex Cohen, CEO of Liberty SBF, a commercial real estate lender that works with the SBA to provide firms government funding.

• "If you’re a prime borrower whose business has done well, survived and thrived during COVID, your access to capital is significantly better than businesses that have had any disruption whatsoever," he tells Axios.
• "For businesses like hospitality, health care, restaurants — which have been the hardest hit of any that we cover — access to capital is just extremely difficult if not impossible."

The big picture: Government agencies are supposed to act as a counterbalance, but instead have made the problem worse.

• The Paycheck Protection Program disproportionately benefited large and well-heeled companies, data show, while missing the industries and areas most heavily impacted by COVID-19.
• The Fed's Main Street Lending Program has been a "failure" and "unmitigated disaster," economists say, because banks aren't inclined to lend even the Fed's money to distressed companies, and because the regulations governing the program are too strict.

The result: Big companies have borrowed a record $1.9 trillion in corporate debt, including leveraged loans and investment grade and junk bonds thanks to the Fed's unprecedented asset purchases. But, as Bloomberg pointed out...

• More than 80,000 small businesses permanently closed from March 1 to July 25, including about 60,000 local businesses, or firms with fewer than five locations, according to Yelp.
• In the first seven months of the year, chapter 11 filings rose 30% from a year earlier, according to Epiq.
• About 800 small businesses filed for Chapter 11 bankruptcy from mid-February to July 31, according to the American Bankruptcy Institute.

U.S. banks reduced lending in the second quarter after accounting for the PPP, new analysis from S&P Global shows. And even when including more than $500 billion in PPP loans that used government funds, lending increased by just 0.3% from Q1.

• Only one of the top 10 banks by total assets as of June 30 — TD Bank — had non-PPP loan growth on a quarter-over-quarter basis.

The intrigue: Banks aren't only cutting back on commercial and business lending, they slashed their credit card exposure by 7.4% in the second quarter.

• Credit card loans totaled $808 billion across the industry as of June 30, S&P noted.
• That was the lowest level since Sept. 30, 2017.