Garrett Borawski and Mark E. Schweitzer, How Well Did PPP Loans Reach Low- and Moderate-Income Communities? (2021)
Summary
Federal Reserve Bank of Cleveland Economic Commentary Number 2021-13, dated May 28, 2021, by Mark E. Schweitzer and Garrett Borawski, on how well Paycheck Protection Program loans reached low- and moderate-income communities. Geocoding SBA loan data to census tracts and counting loans rather than dollars, the authors find the program had broad reach in LMI communities but reached higher-income communities to a greater extent. Areas with Black, Hispanic, and American Indian or Alaska Native majorities were reached to a lesser extent. The paper notes that Congress allocated up to $659 billion for PPP and that the April 24, 2020 extension set aside $60 billion of $321 billion in new funding for community and smaller lenders. It quotes the SBA's claim that 27 percent of PPP loan dollars went to LMI communities.
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“Garrett Borawski and Mark E. Schweitzer, How Well Did PPP Loans Reach Low- and Moderate-Income Communities? (2021).”
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Number 2021-13
May 28, 2021
How Well Did PPP Loans Reach
Low- and Moderate-Income Communities?
Mark E. Schweitzer and Garrett Borawski*
We investigate the degree to which Paycheck Protection Program (PPP) loans reached small businesses in low- and
moderate-income (LMI) communities. We use PPP loan data from the Small Business Administration that we geocode
and link to census tracts. We assess the program’s reach in a few ways and focus on the number of loans, rather than
the amount of funds, that went to different areas in order to capture the program’s impact on businesses with fewer
than 50 employees—the vast majority of small businesses. We find evidence that the program did have a broad reach
within LMI communities, but that it reached higher-income communities to a greater extent and areas with Black,
Hispanic, and American Indian or Alaska Native majorities to a lesser extent.
To address the decline in small-business revenues Administration (SBA): “SBA guidance was not sufficient to
experienced during the COVID-19 pandemic, Congress ensure PPP lenders prioritized underserved markets during
and the US Department of the Treasury allocated up the initial round of funding.”2 When Congress extended
to $659 billion of Paycheck Protection Program (PPP) funding for PPP loans, it was careful to emphasize that
loans for small businesses in the Coronavirus Aid, Relief, businesses in low- and moderate-income (LMI) communities
and Economic Security (CARES) Act and subsequent should be prioritized. Specifically, the Paycheck Protection
extensions.1 Congress has been clear that its intent with Program and Health Care Enhancement Act, signed on
this PPP funding was to prioritize smaller businesses in April 24, 2020, set aside $60 billion (out of $321 billion
underserved markets. of additional PPP funding) for lending by community
financial institutions and by banks and credit unions with
Yet the initial round of PPP loans favored larger, more
consolidated assets of less than $10 billion to better reach
established small businesses, according to a report of the
underserved communities.3
Office of the Inspector General of the Small Business
*Mark E. Schweitzer is a senior vice president at the Federal Reserve Bank of Cleveland, and Garrett Borawski is a research analyst at the Bank. The views
authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve
System, or its staff.
Economic Commentary is published by the Research Department of the Federal Reserve Bank of Cleveland and is available on the Cleveland Fed’s website at
www.clevelandfed.org/research. To receive an email when a new Economic Commentary is posted, subscribe at www.clevelandfed.org/subscribe-EC.
ISSN 2163-3738 DOI: 10.26509/frbc-ec-202113
It is clear from SBA program data that the PPP program We next categorize each census tract by income level
was attractive and accessible enough for program funding to (low, moderate, middle, high) as designated by the bank
reach many businesses in LMI areas. The SBA announced in regulators on the Federal Financial Institutions Examination
October 2020 that “27 percent of the PPP loan dollars were Council (FFIEC).6 This approach compares the median
made in low-and moderate-income communities which is in income in a census tract to the median income of the
proportion to the percentage of population in these areas.”4 surrounding region. For metropolitan tracts the region is the
surrounding metropolitan area; for rural and micropolitan
However, considering the distribution of loans in terms of
tracts it is the nonmetropolitan areas of the state. A low-
the percentage of program dollars is just one way to think
income tract is one for which the median is less than half
about the reach of the program in LMI communities.
of the reference median. A moderate-income tract has a
This Commentary examines the extent to which PPP loans
median of at least 50 percent and less than 80 percent of the
reached small businesses in LMI communities, and, unlike
reference median; a middle-income tract has a median of at
the SBA, we assess reach by focusing on loan counts
least 80 percent and less than 120 percent of the reference
instead of loan dollars. We estimate the share of PPP
median; and an upper-income tract has a median of at least
loans that went to areas with different income levels and
120 percent of the reference median.7
compare them first in terms of population and then in
terms of the percent of businesses in those areas. Overall, Finally, we augment our data set with additional data
we find that the program did have quite a broad reach we will need to calculate our different measures of
across the country, but it did not reach LMI communities reach. We add the population of each census tract and
to the same extent that it reached higher-income the race or ethnicity of the majority of residents in the
communities. Nonetheless, the PPP loan program was tract, information which we obtain from the 2015–2019
still more prevalent in LMI areas than traditional loans to American Community Survey (ACS). The PPP loan data
small businesses. Finally, we examine the counts of PPP include an owner’s race variable, but the vast majority of
loans provided in areas where a Black, Hispanic, Asian, or PPP loan applications are missing the information on the
American Indian or Alaska Native population comprises race or ethnicity of the owner, making that data source
the majority. In this comparison, we find considerable uninformative. Our ACS information on the race or
unevenness in the reach of the PPP loan program. ethnicity profile of the tract is an imperfect indicator for
the race or ethnicity of the owner, but it should be accurate
Data in terms of fiscal support for businesses located in these
Our PPP loan data come from the SBA. The data cover the communities.
original PPP loan program and its extensions with loans
starting on April 3, 2020, and ending on August 9, 2020, Measuring PPP Reach in LMI Areas
when the program ran out of funds. The key data items As a check on our dataset, we first calculate the reach of
we focus on are the amount of the loan; the name, legal the PPP in the same way the SBA did in its report: We
structure, and address of the firm receiving the loan; and calculate the percentage of PPP loan funds that went to
information (which is incomplete) on the characteristics LMI areas. We estimate that roughly 26 percent of PPP
of the business owner. Because we need more information funds were lent to businesses in LMI census tracts. This is
about the area in which the loans were made, we assign similar to the SBA’s reported rate of 27 percent and, as the
each PPP loan to a specific census tract by geocoding the SBA noted, similar to the percentage of the US population
firms that received PPP loans. Census tracts are one of the living in LMI neighborhoods.8
smallest geographic areas for which data are available, and
While this is an encouraging statistic, it ignores an
they often represent recognizable neighborhoods.5 Of the
important factor that might distort the assessment of reach.
5,155,987 PPP loans in the data, we were able to assign
PPP loan sizes generally grow proportionally with the
more than 99 percent to a tract (table 1).
payroll size, so firms with more employees received larger
loans. But the distribution of small businesses is skewed
Table 1. Data Excluded from the Analysis
toward companies with fewer employees: While small
Number of Average loan businesses are defined as companies with anywhere from
loans amount ($) 1 to 500 employees, more than half of US small businesses
Total loans 5,155,987 101,419 have only 1 to 4 employees, according to Census data. The
Unable to geocode 11,760 81,628
vast chunk of remaining small businesses has between
5 and 49 employees, and only a tiny fraction—5 percent—
Not in FFIEC dataset 40,996 201,163
has between 50 and 499 employees.9 Basing shares on loan
Loans in analysis 5,103,231 100,663 amounts places the focus sharply on relatively less common
small businesses with more than 50 employees.
We need to ensure our assessment of PPP reach accurately
Sources: Small Business Administration, Federal Financial reflects small businesses with smaller payrolls. These firms
Institutions Examination Council (FFIEC). represent the majority of small businesses, and there is
2
evidence they have not been able to access the credit they
Table 2. PPP Loans by Tract Income Level
needed during the pandemic. According to a Federal Reserve
Small Business Credit Survey, just 73 percent of respondents Census tract Number of Percentage Percentage of
with 1 to 4 employees applied for a PPP loan (figure 1), a income level loans of total identified loans
number which compares to an average rate of 82 percent Low 274,776 5.3 5.4
for all small businesses (SBCS, 2021a, reporting on data
Moderate 933,077 18.1 18.3
collected in 2020). Businesses with 1 to 4 employees also
received a smaller percentage of the amount of funds they Middle 2,041,373 39.6 40.0
applied for compared to firms with more employees: Of the Upper 1,854,005 36.0 36.3
firms that applied for funding during the pandemic (from Missing 52,756 1.0
the PPP or other sources), 28 percent of firms with 1 to 4 Total 5,155,987 100.0 100.0
employees received all the financing they sought, a figure
that is much lower than for firms with 5 to 49 employees
Source: Small Business Administration.
(44 percent) or 50 to 499 employees (59 percent). To
address this issue, we focus instead on the number of loans
approved in LMI areas rather than the amount of funding. income tracts received 12.9 PPP loans per 1,000 people. That
In table 2 we break down the number of PPP loans by each is considerably lower than the 19.6 rate of loans per 1,000
income designation. people seen in the upper-income census tracts. Assessed in
this way, the results cannot be considered proportional to the
Next, to assess reach, we compare the number of PPP loans
population in these tracts. Even the difference between the
that went to census tracts of different income designations
middle- and moderate-income tracts could be meaningful.
to the distribution of the population in those census tracts
Given that the average tract has about 4,500 people, a
(as the SBA did with loan amounts). To account for varying
1.2 difference in loan frequency per 1,000 people would be
populations across census tracts, we compare the numbers of
associated with 5 fewer businesses receiving a PPP loan in a
loans made per 1,000 residents of a census tract.
small neighborhood on average.
About 91 million Americans, or about 28 percent of the US
However, businesses are not distributed proportionally
population, live in LMI census tracts based on the 2015–
to the population. Some areas such as central business
2019 ACS. If we assume for the moment that the number
districts have proportionally more businesses than
of small businesses in census tracts is proportional to the
people, while other areas are relatively residential and
population of the tract and is not affected by residents’
have fewer. Figures provided by the FFIEC indicate that
income level, we would expect about 28 percent of loans to
proportionally more small businesses operate in upper-
have been approved in these census tracts.
income census tracts than in lower-income census tracts.
Figure 2 shows the average number of PPP loans per 1,000 Given that fact, we would not expect to find that loans
residents by the income level of the census tract. The low- were exactly proportional to population.
Figure 1. PPP Application Rates by Number of Employees Figure 2. Reach of PPP Loans by Income Level
in the Firm of the Census Tract
Percent applying Average for all
for a PPP loan small businesses Number of loans per 1,000 residents
100 25
80 20
60 15
40 10
20 5
0 0
4–9 5–9 10–19 20–49 50–499 Low Moderate Middle Upper
Number of employees in firm Income level of census tract
Source: Authors’ calculations based on Small Business
Source: SBCS, 2021a, data appendix; data are from 2020. Administration loan-level data released 11/24/2020.
3
Table 3. Comparing Shares across Census Tract Income Levels
Share of small loans to
businesses with revenue
Census tract Share of Share of small Share of of less than
income level population (percent) businesses (percent) PPP loans (percent) $1 million (percent)
Low 6.5 6.0 5.4 4.6
Moderate 21.4 20.3 18.3 17.2
Middle 43.0 41.7 40.0 37.7
Upper 29.0 32.0 36.3 40.5
Source: Small Business Administration.
To take the distribution of businesses by income level Again focusing on PPP loan counts by census tracts,
into account when considering PPP reach, we compare we find substantial differences for certain census tracts
the share of total PPP loans made in the tracts of each (figure 3). Businesses in majority Asian areas, particularly
income-level category to the share of total small businesses those in LMI census tracts, received more PPP loans per
operating in each of those categories (table 3). We see there 1,000 people than other racial or ethnic groups. Majority
are proportionally fewer businesses in LMI tracts, but the Black and majority Hispanic areas generally had lower-
shares of PPP loans going to those tracts were smaller than than-average rates of PPP loans per 1,000 people. This
the shares of businesses in those tracts. This comparison reflects higher rates of PPP lending in the census tracts
suggests that PPP loans were not provided in proportion to not shown—census tracts that either are majority white or
the number of businesses operating in LMI communities. are more demographically diverse and without a racial
or ethnic majority. In all income categories, census tracts
Finally, we consider data on conventional lending to small
with American Indian or Alaska Native majorities had
businesses (table 3, column 5). We don’t have a perfect
significantly fewer loans per 1,000 people, indicating that the
measure of lending to businesses that might have qualified
PPP loan program is likely to have had a lower impact in
for PPP loans, but the FFIEC reports on the number of
these communities.
small loans to businesses with revenues of less than
$1 million. This is a commonly cited measure of financing Splitting the census tracts by income level across these
for small businesses, but it certainly is not the equivalent to groups highlights that the upper-income tracts have distinct
having fewer than 500 employees or otherwise qualifying patterns. Majority Hispanic areas show a similar trend to
for a PPP loan. Still, these data indicate that conventional the national average, as upper-income majority Hispanic
lending to small businesses (using a revenue metric) is areas received more PPP loans per 1,000 people than
typically even more skewed to businesses that are operating
in upper-income census tracts. This means that while PPP Figure 3. Reach of PPP Loans across Income:
loans were not proportionally received in LMI communities, Racial Differences
the share of conventional small-business loans that businesses
Number of loans per 1,000 residents
in LMI communities received was even smaller.
30
Underserved Communities and the Reach of PPP loans
25
Another question of PPP reach is how the program
performed in terms of the race or ethnicity of loan recipients. 20
Black, Hispanic, American Indian, and Alaska Native
business owners may have been disadvantaged in their 15
access to the PPP loan program. The 2021 Small Business
Credit Survey on firms owned by people of color shows that 10
Black- and Hispanic-owned firms applied for PPP funding
less frequently than white- and Asian-owned firms (SBCS, 5
2021b, page 12; note that the survey reports on 2020 data).
One reason for this outcome might be if these firms have Low Moderate Middle Upper
weak connections to the banking system that was central
Income level of census tract
to the PPP loan application process. Early reports on PPP
loan access pointed to the fact that businesses with larger or Asian Black Hispanic American Indian/ National
more established connections to banks had loans processed Alaskan Native average
more quickly (Liu and Volker, 2020).
Source: Authors’ calculations based on Small Business
Administration loan-level data released 11/24/2020.
4
majority Hispanic tracts from each of the other income Community Reinvestment Act compliance. In the FFIEC
categories. This finding contrasts with findings for all other file, there are 72,381 census tracts that have at least one PPP
minority census tracts. For example, upper-income majority loan and an income designation provided by the FFIEC.
Black census tracts received fewer loans per 1,000 people In addition, there are 316 census tracts that have a nonzero
than middle-income, majority Black tracts. population or a nonmissing population figure according to
the 2015–2019 ACS and an income designation provided by
Conclusion the FFIEC, but they have no PPP loans. Together, these total
The Paycheck Protection Program was a key part of the 72,697 census tracts, and we include all of these in our analysis.
fiscal response to the pandemic and the ensuing recession.
The amount of money involved was enough to make 7. Definitions of LMI groups can be found on the Federal
significant differences for communities. Unfortunately, it Reserve Board of Governor’s page about the Community
is difficult to assess the reach of the program because PPP Reinvestment Act.
loan data do not contain needed statistics including the size 8. This difference between our estimate and the SBA’s is not
of the firm or the owner’s financial status, race, or ethnicity. meaningful and could be a result of missing income or other
This makes comparisons across income groups or by the information for some tracts or an address’s being geocoded
race or ethnicity of the business owners difficult. That this to an incorrect census tract.
situation occurred is not surprising because the SBA was
trying to get the money out to businesses as soon as possible 9. SBCS, 2021a, p 34.
with a very short application process.
References
In order to examine access by different communities in Schweitzer, Mark E., and Garrett Borawski. 2021. “Which
the United States, we used the addresses of businesses that Industries Received PPP Loans? Federal Reserve Bank
applied for PPP loans to connect these loans to census of Cleveland, Economic Commentary, 2021-08. https://www.
tract-level data from the American Community Survey. clevelandfed.org/newsroom-and-events/publications/
We find that PPP loans reached businesses across the economic-commentary/2021-economic-commentaries/ec-
United States in communities of all income levels, but they 202108-which-industries-received-ppp-loans.aspx.
were not evenly distributed. Upper-income areas received
Liu, Haoyang, and Desi Volker. 2020. “Where Have the
substantially more loans. This is the case even accounting
Paycheck Protection Loans Gone So Far? Federal Reserve
for the number of businesses in communities at different
Bank of New York, Liberty Street Economics (May 6). https://
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libertystreeteconomics.newyorkfed.org/2020/05/where-have-
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the-paycheck-protection-loans-gone-so-far.html.
rates in LMI communities than did conventional loans to
small businesses. Finally, when looking at areas with Black, SBA, 2020. “SBA Achieves Historic Small Business Lending
Hispanic, Asian, and American Indian or Alaska Native for Fiscal Year 2020.” US Small Business Administration,
majorities, we found more unevenness in the coverage Press Release (October 28). https://www.sba.gov/
of PPP lending. Census tracts with Black, Hispanic, or article/2020/oct/28/sba-achieves-historic-small-business-
American Indian or Alaska Native majorities received fewer lending-fiscal-year-2020.
PPP loans on average. The unevenness of coverage of this SBA Inspector General. 2021. “Inspection of SBA’s
key program points to the need for other avenues of support Implementation of the Paycheck Protection Program.” US
in these communities to support equity in federal aid to Small Business Administration, Inspector General. Report
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Footnotes
medium=email&utm_source=govdelivery.
1. For more general information on the program, see
Schweitzer and Borawski, 2021. SBCS. 2021a. “Small Business Credit Survey 2021, Report
on Employer Firms.” Federal Reserve Banks of Atlanta,
2. SBA Inspector General, 2021, page 2.
Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New
3. For a summary of the provisions in the Paycheck York, Philadelphia, Richmond, St. Louis, San Francisco.
Protection Program and Health Care Enhancement Act https://www.fedsmallbusiness.org/survey/2021/report-on-
(H.R. 266), see: “Paycheck Protection Program and Health employer-firms.
Care Enhancement Act.” Wikipedia, accessed 5/18/2021.
SBCS. 2021b. “Small Business Credit Survey 2021, Report
4. SBA, 2020. on Firms Owned by People of Color.” Federal Reserve
5. The average number of people in a census tract in our Banks of Atlanta, Chicago, Cleveland, Dallas, Kansas
sample is 4,461. City, Minneapolis, New York, Philadelphia, Richmond, St.
Louis, San Francisco. https://www.fedsmallbusiness.org/
6. We specifically used the 2020 FFIEC flat file available medialibrary/FedSmallBusiness/files/2021/sbcs-report-on-
at https://www.ffiec.gov/censusapp.htm. The FFIEC uses firms-owned-by-people-of-color.
these neighborhood income levels in examinations of banks’
5
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International
License. This paper and its data are subject to revision; please visit clevelandfed.org for
updates.
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