Are California Businesses Getting a Fair Share of Coronavirus Loans?

California businesses have received $66.6 billion in federal Paycheck Protection Program loans so far, about 13% of the nation’s total, according to federal loan data.

Gov. Gavin Newsom said the state’s businesses didn’t receive a proportional share of the federal money in the first round, but that it is now “punching above its weight” in the second round, so it’s starting to balance out.

The federal loan program is administered by the Small Business Administration to help cover payroll and expenses during the coronavirus pandemic.

Businesses and nonprofits with up to 500 employees are eligible for loans up to 2.5 times their monthly payroll, with a maximum of $10 million, to spend on wages, rent and utilities for eight weeks. If the business can show it spent the money on allowable expenditures, the loan will be forgiven. (CalMatters applied for and received a $535,000 PPP loan.)

California businesses received $33.4 billion in the first round of PPP funding, Newsom said, or less than 10% of the total disbursement. In the second round, which is only 60% complete, state businesses have already drawn $33.2 billion. That’s about 11% of PPP loans nationwide, and 13% of the money distributed.

The state so far has received more loans than any other state in the second round, and the 320,000 California businesses that got them made up 19% of all second-round recipients. The next-closest state, New York, received 164,000 loans for a total of $17 billion.

“The first round of dollars, Californians did not fare as well as we should have in terms of the percentage of the loans we were able to draw down and the amount of dollars we were able to draw down,” Newsom said during a visit to a Sacramento gift shop. “We are doing much better in this second round.”

Criticism of the program has centered on how unevenly it’s being distributed among the states. According to a study published this month by economic researchers at MIT and the University of Chicago, the Small Business Administration loans weren’t appropriately targeted to the states that needed it most.

“We find little evidence that funds were targeted towards geographic regions more severely affected by the pandemic,” the authors wrote. “If anything, preliminary evidence indicates that the opposite is true and funds were targeted towards areas less severely affected by the virus.

“We find that PPP allocations across congressional districts are very weakly correlated to the impact of the epidemic crisis on labor markets and aggregate firm outcomes.”

California by far has the nation’s largest economy, worth about 14.5% of the GDP in 2018, and 4.1 million Californians have applied for unemployment during the pandemic, according to numbers Newsom released Tuesday.

In the PPP’s first round of funding, less-populous states did exceptionally well compared to their unemployment numbers, while more-populous states languished. In mid-April, California had 2.8 million unemployment claims, or about 14% of all unemployment claims nationally, and received about 9.7% of PPP loans. South Dakota, by contrast, had about 0.1% of the nation’s unemployment claims in the same period, yet secured 0.4% of all PPP loans.

The program began distributing money in April and ran out in two weeks.

In its first round of funding, the PPP distributed $342 billion to more than 1.6 million businesses, making the average loan about $206,000. During the ongoing, second round of funding, $175.7 billion has been loaned to more than 2.2 million businesses, and the average loan dropped to $79,000.

Tuesday afternoon, at a roundtable that Newsom held via video chat with manufacturers and small business owners, Susana Almack of Chatsworth-based clothing and fabric manufacturer Almack Liners said she had received PPP funding on Tuesday, after being denied in the first round.

“What do you think changed?” Newsom asked. “What did they say was the secret sauce?”

Almack said she thinks the program reacted to criticism that the PPP had been lending money to companies that could survive without it.

“I think what happened is they realized they helped – I don’t want to say the wrong companies – but maybe companies that didn’t need it,” Almack said. “I think that the SBA and the banks got the message that we need to help small companies and to work with that.”

Earlier Tuesday, Newsom cautioned businesses to only apply for PPP loans if they truly need one.

“Critical for small businesses to be able to draw those dollars down, critical that people that don’t need it, don’t take advantage of that program,” Newsom said. “And critical for companies that are very large and have huge cash capacity not to compete with businesses like this, that must be the top priority of a program like that.”

Total COVID-19 cases in the state reached 56,212 Tuesday, a 2.3% increase, and 2,317 people have died.

Newsom on Monday announced that portions of the state’s economy will reopen on Friday. Clothing outlets, bookstores, florists and other merchants across the state will be allowed to offer curbside pickup as long as they obey physical distancing guidelines. California companies that make clothing, furniture, toys and other goods those retailers sell can also resume operations, with appropriate worker protections.

“We have to maintain the core construct of our stay-at-home orders,” Newsom said Tuesday, “make sure we are appropriately doing the social distancing and physical distancing.”

He had harsh words for officials in Yuba and Sutter counties, who on Monday announced plans to reopen restaurants, gyms, retailers, playgrounds and libraries, among other places where people congregate.

“They’re making a big mistake,” Newsom said. “They’re putting their public at risk. They’re putting our progress at risk.”

Editor's note: KQED is among the local businesses and media organizations that have received a PPP loan. This helps us continue to provide essential information and service to our audiences during the COVID-19 pandemic.