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Federal Reserve Study: Small Businesses in Hardest-Hit States Less Likely to Get Coronavirus Relief

Federal Reserve Study: Small Businesses in Hardest-Hit States Less Likely to Get Coronavirus Relief

Small businesses in the states hardest-hit by the coronavirus were less likely to get coronavirus relief loans than in less affected areas, according to a study by economists at the Federal Reserve Bank of New York.

Businesses in states with the most cases -- like New York, New Jersey, and Michigan -- saw a far lower rate of relief distribution under the Paycheck Protection Program, which was part of the $2.2 trillion relief bill Congress approved in March. The program distributes loans that are forgivable if companies use the money to pay their workers.

Just 20% of small business applicants in New York were approved for a loan, for example, compared to 55% of small businesses in Nebraska.

Lenders prioritized existing clients:

The research also found that small businesses were more likely to be approved for loans if they had a preexisting relationship with the bank even though the PPP is supposed to be on a first-come, first-serve basis, CNN reports.

A separate report from the Institute for Local Self-Reliance found that states with strong local community banks saw the highest rate of loans.

The report found that nearly three times as many emergency loans per capita in states with the most community banks compared to those with the fewest number of community banks.

Democrats cry foul:

The research shows that hard-hit California has received fewer loans than Texas.

"Although California received incrementally more in loan funding, the amount still does not seem to adequately reflect the fact that California is economically much larger than Texas and one of the states hit hardest by the coronavirus," California Rep. Jackie Speier said in a letter to Treasury Secretary Steven Mnuchin.