Page 13 GAO-21-601 Paycheck Protection Program
Research on small business lending and PPP suggests businesses with
pre-existing relationships with banks were able to access PPP earlier
than businesses without such relationships. For example, one study on
PPP found that among businesses that applied for PPP loans from banks,
approval rates were generally higher for businesses with a pre-existing
relationship with a bank.
28
Also, larger businesses were more likely to
have these relationships than the smallest businesses.
29
Other research found that the smallest businesses were less aware of
PPP and less likely to apply early in the program.
30
If they did apply, the
smallest businesses applied later, faced longer processing times, and
were less likely to have their applications approved, which may also partly
explain why early lending skewed toward larger businesses during Phase
1.
Businesses in rural areas. Rural counties generally received a higher
number of loans per small business in Phase 1 than metro counties (see
fig. 5).
31
Additionally, while only 13 percent of small businesses are
28
Alexander W. Bartik et al., “The Targeting and Impact of Paycheck Protection Program
Loans to Small Businesses,” (working paper 27623, National Bureau of Economic
Research, July 2020). Additionally, as we found in GAO-21-577, because lenders were
required to apply relevant Bank Secrecy Act program requirements, they had to collect
additional information from PPP loan applicants with which they did not have a pre-
existing relationship. Because pre-existing clients required the lender to conduct less due
diligence, their applications could be processed more quickly. The Bank Secrecy Act
requires banks and other financial institutions to take precautions against money
laundering and other illicit financial activities by conducting due diligence activities and
informing the Department of the Treasury of suspicious activity by their customers.
29
According to the Federal Reserve Banks’ 2020 Small Business Credit Survey, larger
businesses (those with annual revenue greater than $1 million) were more likely to have
existing banking relationships. See Federal Reserve Banks of Atlanta, Boston, Chicago,
Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St.
Louis, and San Francisco, “Small Business Credit Survey: 2020 Report on Employer
Firms (New York, NY: 2020). The survey was conducted in the third and fourth quarters of
2019 and yielded 5,514 responses from small employer firms with one to 499 full or part-
time employees, in the 50 states and the District of Columbia.
30
Christopher Neilson, John Eric Humphries, and Gabriel Ulyssea. “Information Frictions
and Access to the Paycheck Protection Program,” (working paper 27624, National Bureau
of Economic Research, July 2020).
31
We used data from the Department of Agriculture’s Economic Research Service to
classify counties as “metro” if they have one or more high-density urban areas with 50,000
or more residents or are outlying counties that are economically tied to these central
counties, as measured by the share of workers commuting on a daily basis to the central
counties. Rural counties are outside the boundaries of metro areas and have no cities with
50,000 or more residents.