Posted on 05/07/2020 1:49:37 AM PDT by fluorescence
Small businesses in areas hit hardest by the coronavirus epidemic haven't been able to secure loans through the Paycheck Protection Program (PPP), according to a new study released Wednesday by the Federal Reserve Bank of New York.
The study has actually shown a "negative relationship" between a state's COVID-19 cases per capita and its share of small businesses getting PPP funding. Most PPP loans have gone to central and midwestern states that have reported the fewest number of coronavirus cases.
"In New York, the epicenter of the coronavirus in the United States, less than 20 percent of small businesses have been approved to receive PPP loans," the study says. "In contrast, more than 55 percent of small businesses in Nebraska are expecting PPP funding."
A state's total number of unemployment claims also had no effect on whether it received more PPP funds. However, the study did find a positive correlation between PPP loans and states with higher concentrations of business funds invested in community banks.
While community banks have used PPP loans as a way to attract new customers, banks and lenders tend to process loan applications more quickly for borrowers that already have existing relationships with them. Thus, the more money a state's businesses have invested in community banks, the quicker banks were to process applications for the first-come first-serve PPP loans.
[snip]
Additionally, the study found that business sectors most affected by the epidemic's financial downturn—namely retail, accommodation and food services—have been receiving more PPP funding than industries that lost less revenue, such as educational services, information, finance and insurance.
However, construction, professional, scientific, and technical services have all "received a relatively large share of PPP loans"—even more than food services—despite the fact they haven't been nearly as negatively affected.
(Excerpt) Read more at newsweek.com ...
>> because their employees can make more on unemployment
It’s not the ordinary unemployment, but the $600/week COVID-19 payment that’s complicating things.
This article is written by someone without a clue.
PPP works for businesses who kept their employees.
In hardest hit areas, small businesses are largely closed. Small businesses can’t afford to carry their staff when closed. (Kind of obvious!)
The additional $600 in weekly unemployment benefit in CARES was better for their employees anyways! (In NY, if the employee earned under about $52k a year; state plus CARES umemployment is more lucrative than working) - so why pay them out of pocket if they can earn more on unemployment?
So - for smaller companies - you are doing your employees a favor by putting them on unemployment.
More unemployment benefits for closed business employees; PPP for operating companies. Makes perfect sense.
Larger - essential employers (mainly) who kept their people employed - that is precisely what PPP was for. In fact, you need to be a larger company (more reserves) or still making money to consider PPP.
My bank did thousands of PPP loans.
The biggest challenge will be getting the loans forgiven.
If the borrower has a smaller staff now than at 2/15/20 and don’t bring them all back by 6/30/20, the loan forgiveness will be proportionate. (Unforgiven portion to be paid back in about 22 months at 1% interest.) Could be ugly for the unprepared.
It’s not the ordinary unemployment, but the $600/week COVID-19 payment that’s complicating things.
That has to go ASAP. Let employees stay home on their regular UE benefit
If they want, but cut the 600 wk and you’ll see unemployment numbers drop 5% per month!
Another twist: Companies that stayed in business, such as roofing companies, continued to operate, took the loan, used it to pay their employees and pocketed the extra cash.
The PPP loan will probably save my small service business in suburban NYC. We applied for the loan on 4/8 at a regional bank where we have done business for several years. We were approved on 4/10 and the loan was funded on 4/20. Year over year business in April is down 60% and May, so far, is even worse. If I had to close shop for three or four months, the few customers that remain would go someplace else; but more importantly, I would risk losing skilled and valued employees, who are essential to the success of my business. I fully expect to retain 100% of my employees as of June 30th, and I fully expect that the loan will be forgiven in full because I will have spend at least 75% of the loan on allowed payroll costs, and the balance on rent and utilities. In the mean time, I am banking the revenues that do come in so that we have the funds to move forward after the PPP loan runs dry, although perhaps on a smaller scale.
I looked at the PPP and you’re right. It was not made for smaller small business. It was made for businesses with quite a few employees since the goal was to keep the employees working. EIDL was perfect for the smaller businesses but then they ruined it by basing it on number of employees which was redundant since that’s what PPP was for.
——My bank did thousands of PPP loans.——
in the final analysis, banks actually make the loans.
So, must the bank make a loan to a depositor known or believed to be not credit worthy for a loan of the amount proposed? If the business is barely there, marginal in good times, must the bank lend and then in 6 weeks hold a bad loan?
Who pays the bank for the loan loss? Who pays for administering the bad loan?
I got mine. It’s not a lot, but it helped. Plus, we have been paying our employees the same as always anyway though income is down quite a bit. It’s working as planned for me.
This ticks me off. The criteria for qualification was loss of income, not number of corona virus cases in the area. Newsweakest is trying to foment unrest on a criteria that never applied to the program in the first (or second) place.
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