Who Supplies PPP Loans (And Does it Matter)? Banks, Relationships and the COVID Crisis

Li, Lei; Strahan, Philip E.

doi:10.3386/w28286

Cited by 59 publications

(21 citation statements)

References 40 publications

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“…Pre-existing Banking Relationships. A number of observers of the PPP program have highlighted that many banks tended to first serve their own clients' PPP loan applications, which may have distorted allocations away from the government's intended "first come, first serve" approach (Cowley, 2021;Rosenberg and Myers, 2020;Li and Strahan, 2020). 20 If banks indeed prioritized administering PPP loan applications from their own clients, and if Black-owned businesses did not bank with active PPP lenders, this could explain some of the observed differences in their propensity to eventually borrow from other lenders such as fintech firms.…”

Section: Borrower Bank Relationships and Financial Situationmentioning

confidence: 99%

“…Much of the work on the PPP focuses on the effectiveness of the program in mitigating job loss (Hubbard and Strain, 2020;Faulkender et al, 2020;Granja et al, 2020;Autor et al, 2020;Bartik et al, 2020b;Barraza et al, 2020;Bartlett and Morse, 2020). Other researchers have examined whether firm size or pre-existing banking relationships can explain access to PPP loans (Humphries et al, 2020;Li and Strahan, 2020). Finally, we add to a literature that assesses the role of fintech firms in the financial system (Seru, 2019;Philippon, 2019;Federal Reserve, 2020;Ranson, 2020;Gopal and Schnabl, 2020).…”

mentioning

confidence: 99%

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Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Howell¹,

Kuchler²,

Snitkof³

et al. 2021

SSRN Journal

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We explore the sources of racial disparities in small business lending by studying the $806 billion Paycheck Protection Program (PPP), which was designed to support small business jobs during the COVID-19 pandemic. PPP loans were administered by private lenders but federally guaranteed, largely eliminating unobservable credit risk as a factor in explaining differential lending by race. We document that even after controlling for a firm's zip code, industry, loan size, PPP approval date, and other characteristics, Black-owned businesses were 12.1 percentage points (70% of the mean) more likely to obtain their PPP loan from a fintech lender than a traditional bank. Among conventional lenders, smaller banks were much less likely to lend to Black-owned firms, while the Top-4 banks exhibited little to no disparity after including controls. We use novel data to show that the disparity is not primarily explained by differences in pre-existing bank or credit relationships, firm financial positions, fintech affinity, or borrower application behavior. In contrast, we document that Black-owned businesses' higher rate of borrowing from fintechs compared to smaller banks is particularly large in places with high racial animus, pointing to a potential role for discrimination in explaining some of the racial disparities in small business lending. We find evidence that when small banks automate their lending processes, and thus reduce human involvement in the loan origination process, their rate of PPP lending to Blackowned businesses increases, with larger effects in places with more racial animus.

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Section: Borrower Bank Relationships and Financial Situationmentioning

confidence: 99%

mentioning

confidence: 99%

Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Howell¹,

Kuchler²,

Snitkof³

et al. 2021

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Some researchers also find evidence consistent with the policy suggestion of prioritizing firms with existing bank relationships (e.g., Amiram and Rabetti, 2020;Bartik, Cullen, Glaeser, Luca, Stanton, and Sunderam, 2020;Balyuk, Prabhala, and Puri, 2021;Li and Strahan, forthcoming). One of these studies suggests that while large firms are often prioritized, this effect is mitigated for small firms with relationships with small banks, likely reflecting the importance of small firms to small banks (Balyuk, Prabhala, and Puri, 2021).…”

Section: Pppmentioning

confidence: 71%

Banking Research in the Time of COVID-19

Berger

Demirgüç-Kunt²

2021

SSRN Journal

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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“…Turning to the community level, a number of studies link PPP with reduced unemployment (Barraza, Rossi. Yeager, 2020; Bartik, Cullen, Glaeser, Luca, Stanton, and Sunderam, 2020;Granja, Makridis, Yannelis, and Zwick, 2020;Duchin and Hackney, forthcoming;Li and Strahan, forthcoming). One study also suggests that subprime consumer debt declined in local markets in which banks made more PPP loans (Berger, Epouhe, and Roman, 2021).…”

Section: Pppmentioning

confidence: 99%