Leading Indicators

The Paycheck Protection Program (PPP) in Philadelphia

Since the initial outbreak of the COVID-19 virus in the U.S. and the subsequent economic lockdown, the federal government provided relief to small businesses via the Paycheck Protection Program (PPP). This loan program, administered by the Small Business Administration (SBA), was meant to infuse small businesses with cash to prevent further layoffs and business closures. In this week’s Leading Indicator, we explore the publicly available PPP data to determine how Philadelphia businesses fared.

 

Key Takeaways 

  • The U.S. Small Business Administration has approved 4,950,923 PPP loans across the nation valued at a total of over 500 billion dollars. 

  • As of July 9, 2020, approximately 16,403 PPP loans were allocated to Philadelphia businesses. 

  • Of Philadelphia’s PPP loans, approximately 2,492 loans (15.2%) were valued at $150,000 or more while 13,911 loans (84.8%) were less than $150,000. 

  • Only 11.9 percent of Philadelphia’s loan recipients provided demographic information; if these data are representative, disproportionate numbers of male- and white-owned businesses received PPP loans. 

 

An Overview of the PPP 

The PPP was created in March 2020 as part of the federal government’s CARES Act to support small businesses affected by the economic shutdown induced by the COVID-19 pandemic. Any small business with less than 500 employees could apply, including: sole proprietorships, independent contractors, self-employed persons, and nonprofit organizations. To qualify for the loan, applicants were required to apply through an approved lender and certify that the COVID-19 pandemic negatively affected their business. Upon approval of the loan by the lender and the SBA, funds were transferred directly to the business. The program’s terms stipulated that at least 75 percent of the loan was to support salaries, vacation/sick time, bonuses, and severance pay, with the remainder allowable for rent and utilities and other qualifying small business expenses [1]. Millions of businesses across the U.S. applied for PPP loans; as of July 19, 2020, the SBA approved 4,950,923 loans valued at a total of over 500 billion dollars, with an average loan size of $104,682 [2].

  

While federal officials deemed the PPP a success, critics have questioned whether the program was efficient or equitable. According to estimates from the SBA, the PPP may have saved upwards to 51 million jobs across the nation [3]. While others support more conservative estimates, the national unemployment rate did decrease by 3.6 percent between April 2020 and June 2020 [4]. The distribution of loans, however, does not seem to match the overall need. Data suggests that the “first-come-first-served" design of the program failed to allocate loans efficiently to states and industries most in need.  For example, the service sector accounts for roughly 69.9 percent of the 20.5 million jobs lost during the pandemic but only received 36 percent of all approved PPP loans [5]. The SBA’s own Inspector General concluded that due to a failure to provide adequate guidance to lenders, many of them privileged existing customers, perpetuating financial inequity. The Center for Responsible Lending estimates that up to 90% of businesses owned by people of color were shut out of the PPP due to structural barriers [6]. 

 

Exploring PPP Loans in Philadelphia 

According to data provided by the SBA, as of July 9, 2020, approximately 16,403 PPP loans were allocated to Philadelphia businesses. Using a 2019 estimate of 90,601 businesses in Philadelphia from Dun & Bradstreet, this would equate to a crude PPP coverage rate of 18.1 percent, that is, just under a fifth of the city’s businesses received a PPP loan. The SBA estimates that approximately 166,000 jobs were saved in Philadelphia, roughly a quarter (23.8%) of the city’s total employment in February 2020.  It should be noted, however, that the SBA has faced scrutiny for its “jobs saved” estimates – particularly since it is not quite clear how this metric is calculated [7].

 

The SBA reports the data in two sets, firms that received loans less than $150,000 and those that received more. While the exact amounts of small loans were recorded by the SBA, for reporting purposes large loans were categorized into five different loan ranges. Figure 1 shows the distribution of large loan recipients in Philadelphia by the categorized ranges. Approximately 2,492 large PPP loans were distributed in Philadelphia as of July 9, 2020 - making up 15.2 percent of Philadelphia’s total PPP loans. Most of these large PPP loans (53.5%) ranged between $150,000 and $349,999 while only 15 percent ranged over a $1 million. 

 

FIGURE 1

NOTE: Data for this graph were obtained from the U.S. Department of the Treasury’s SBA Paycheck Protection Program Loan webpage.

 

An analysis of industry codes showed that law offices, full-service restaurants, home health care service businesses, and elementary and secondary schools received the greatest number of large PPP loans in the city. The largest loan amounts, however, went to construction firms, law offices, and a few local community and arts organizations (including the Philadelphia Art Museum and Free Library of Philadelphia Foundation, which both received large loan amounts ranging from $1-3 million). 

 

Approximately 13,911 small PPP loans were distributed in Philadelphia; accounting for 84.8 percent of all PPP loans in the city as of July 9, 2020. Figure 2 provides a breakdown of small loan recipients by a range of amounts. The average small PPP loan amount received in Philadelphia was $32,612. Nearly two-thirds (64.4%), ranged from $1 to $29,999.  

  

FIGURE 2

NOTE: Data for this graph were obtained from the U.S. Department of the Treasury’s SBA Paycheck Protection Program Loan webpage.

 

Like large loan recipients, several of the same industries received the majority of small loans, including full-service restaurants and law offices. However, more traditional small businesses were also represented among small loan recipients, such real estate and brokers firms and beauty salons.

 

The PPP’s Reach Among Minority- and Women-Owned Businesses 

Only 11.9 percent of Philadelphia's PPP loan recipients provided demographic information in their loan applications.  Therefore, it remains difficult to determine how well the PPP impacted Philadelphia’s minority- and women-owned businesses. From this small sample, however, we can see prevailing trends. Male-owned businesses outnumbered female-owned businesses by three to one, while white-owned business representation was 2.9 times greater than Black-owned businesses, 2.1 times greater than Latinx-owned businesses, and 1.6 times greater than Asian-owned businesses.

 

To further illustrate the reach of the PPP across communities of color, figure 3 compares a normalized rate of coverage of PPP loans in Philadelphia with the residential racial or ethnic majority of the city’s census tracts. Using 2019 business counts by zip code, we normalized the PPP loan coverage per zip code by dividing the number of PPP loans by the total count of businesses. This crude coverage rate shows a normalized “reach” of the PPP among Philadelphia’s zip codes. Unsurprisingly, the coverage rate in zip codes that encompass Center City outpace all others. Other areas of high coverage include Manayunk, Fishtown, and Olde Kensington. The zip codes of West Philadelphia (particularly University City) and along North Broad Street saw much smaller coverage rates, despite the density of commercial corridors within these zip codes. However, these corridors are in predominantly majority-Black and majority-Latinx neighborhoods where business owners may have had less opportunity to apply for PPP loans [8].  

  

FIGURE 3

 

NOTE: Data for this graph were obtained from the U.S. Department of the Treasury’s SBA Paycheck Protection Program Loan webpage, the U.S. Census’ 2014-2018 American Community Survey Five-Year Estimates, and the D&B Business Brower database. 

 

The Outlook 

As the economic impact of the COVID-19 pandemic continues to negatively affect local businesses, the true impact of relief programs like the PPP can only be measured following the pandemic’s end. Critiques have already been raised about this program’s inequitable implementation since “well-resourced” businesses were able to hastily request funds over small businesses with little financial or legal experience. Demographic trends in the data already show how this negligence in understanding prevailing structural inequalities favored white- and male-owned businesses. We have written about the history of federal and local policy that has systemically kept communities of color from accessing the resources made available to predominantly white residents and businesses owners. In this current time of a social reawakening recognizing racial injustice, it is unfortunate to see how the famous quote attributed to Mark Twain bears repeating: “History doesn’t repeat itself, but it often rhymes.” 

 

Works Cited 

[1] Morrison, Brown, Argiz & Farra, LLC. 2020. “FAQs - PPP Loan Proceeds Allowable Uses and Related Forgiveness.” MBAF Certified Public Accountants and Advisors, May 8: Retrieved from: (https://mbafcpa.com/advisories/faqs-ppp-loan-proceeds-allowable-uses-related-forgiveness/).

 

[2] U.S. Small Business Administration. 2020. “Paycheck Protection Program.” Coronavirus Relief Options. Retrieved from: (https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program). 

 

[3] U.S. Small Business Administration. 2020. Paycheck Protection Program (PPP) Report: Approvals through 06/30/2020. Retrieved from: (https://www.sba.gov/sites/default/files/2020-07/PPP%20Results%20-%20Sunday%20FINAL.pdf).

 

[4] Duffin, Erin. 2020. “U.S. unemployment rate: seasonally adjusted June 2020.” Statista, July 2. Retrieved from: (https://www.statista.com/statistics/273909/seasonally-adjusted-monthly-unemployment-rate-in-the-us/). 

 

[5] S&P Global. 2020. “Economic Research: The Paycheck Protection Program Impact On Jobs: (More) Help Wanted.” S&P Global Ratings, May 27. Retrieved from: (https://www.spglobal.com/ratings/en/research/articles/200527-economic-research-the-paycheck-protection-program-impact-on-jobs-more-help-wanted-11502536). 

 

[6] Thompson, Brian. 2020. “Getting Help For Minority-Owned Businesses Shut Out Of PPP Loan Relief.” Forbes, May 12. Retrieved from: (https://www.forbes.com/sites/brianthompson1/2020/05/12/getting-help-for-minority-owned-businesses-shut-out-of-ppp-loan-relief/#5190d2c1be6d). 

 

[7] Price, Michelle & Brad Heath. 2020. “Trump administration says pandemic aid saved 51 million jobs. Did it?” Reuters, July 7. Retrieved from: (https://www.reuters.com/article/us-health-coronavirus-ppp-jobs/trump-administration-says-pandemic-aid-saved-51-million-jobs-did-it-idUSKBN24901U). 

 

[8] Popken, Ben. 2020. “Why are so many black-owned small businesses shut out of PPP loans?” NBC News, April 29. Retrieved from: (https://www.nbcnews.com/business/business-news/why-are-so-many-black-owned-small-businesses-shut-out-n1195291).