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State firms lagged in receiving federal coronavirus rescue money

A closed barbershop in Boston.
A closed barbershop in Boston.JOSEPH PREZIOSO/AFP via Getty Images

Massachusetts, New York, and other states hard hit by the coronavirus came up short in the first round of federal rescue money for small businesses, while states with far fewer cases such as Nebraska and North Dakota got proportionally more money.

According to an analysis of the $349 billion Paycheck Protection Program by Moody’s Analytics, firms in the Plains states pulled in a larger share of the government-backed loans than firms in more densely populated coastal states.

Massachusetts ranked 38th among states, while Connecticut was 44th, and New York and California came in at 49th and 50th, respectively. Moody’s ranked states by comparing the amount of loans each received against the total payrolls of firms with fewer than 500 employees.

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The top four recipients proportionally — Nebraska, North Dakota, Kansas, and South Dakota, — received loans equal to 18 percent to 19 percent of their small business payrolls, Moody’s said.

Massachusetts firms received loans equal to 12 percent of eligible payrolls, about the national average.

Some of the states at the bottom of Moody’s list have seen their unemployment rates climb much higher than those at the top. In Massachusetts over the past four weeks, new jobless claims have equaled nearly 15 percent of the state’s workforce, according to the Pioneer Institute. By contrast, applications for unemployment pay in South Dakota were 4.9 percent of its workforce.

“You would really want the program to provide money to businesses in the states that are hardest hit by the virus,” said Mark Zandi, chief economist at Moody’s Analytics. “The areas that got hit by the COVID hurricane got disproportionately less help than other places.”

On Tuesday, the Senate passed a second round of funds for the program, at $310 billion, in legislation that also seeks to rectify some of the shortcomings in the initial aid package. The House is expected to vote on the measure Thursday, and President Trump has said he would sign it.

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Authorized by Congress and administered by the US Small Business Administration, the Paycheck Protection Program was designed to cushion the blow of job losses caused by stay-at-home orders and the closing of nonessential businesses implemented to contain the COVID-19 pandemic, but it was depleted in just 13 days. The new legislation includes stipulations to resolve complaints that many firms missed out on the first round, earmarking $60 billion for smaller lenders, a stipulation pushed by Democrats to help businesses that may lack relationships with banks that are participating in the program.

Indeed, analysts said that one reason small businesses from more rural states may have fared better in the first round is they had stronger ties with community banks that were already set up to make SBA loans.

“I think the plan to use the SBA was motivated in part because it has established relationships with a fairly large number of financial institutions, which simplifies the communication and disbursement process,” said Deborah J. Lucas, a finance professor at MIT’s Sloan School of Management. “So one hypothesis is that there was a huge first-mover advantage because the pot of money was small relative to the demand, and the banks that could in fact move quickly were not concentrated in the areas most in need of assistance.”

In Massachusetts, banks processed 46,937 loans for the program totaling $10.4 billion, according to the SBA.

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But many more firms were shut out when the money ran out April 16. According to a survey conducted by the Massachusetts Bankers Association on Friday, institutions reported that they had queue of about 12,000 applications totaling close to $1 billion in loan requests.

Among those who have to wait for the next round of funding is Patty Houpt, executive director of the New England Employee Benefits Council, a Concord nonprofit that is seeking a $63,000 loan through Bank of America. Her nonprofit applied shortly after the program began on April 3 but still was unable to secure funding.

“I knew it was a crap shoot going in,” said Houpt.

Still she faults the “first come, first serve” nature of the program, which puts smaller outfits likes her at a disadvantage.

“I want to see a program like this implemented as it was intended,” she said. ”The rich and well-connected people are going to be first in line for these things.”

The program has been the centerpiece of the government’s rescue of small businesses. The loans, issued through banks, provide up to $10 million to companies with fewer than 500 workers and can be used for salaries, rent, and other expenses. Much of the loan can be forgiven depending on the number employees the business can retain or rehire.

The average loan size in Massachusetts was $221,000. While the program was aimed to help mom and pop businesses, big companies managed to score sizable loans.

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According to an analysis by Reuters, more than 25 percent of the funding went to fewer than 2 percent of the firms that got relief. Among those getting loans were 94 publicly traded companies, some of which employ thousands of workers and generate hundreds of millions of dollars in annual sales, according to the Associated Press. Congress did not prohibit public companies from taking rescue money, and rules sometimes permit smaller subsidiaries or individual locations such as restaurants to apply separately.

Construction and professional services were among the top sectors that got the most in terms of dollars, each getting about 13 percent, according to the SBA. Accommodation and food services companies, which have been crushed by the shutdown, nabbed about 9 percent.

The SBA rushed the program’s rollout in order to give small businesses a financial lifeline, but it got off to a rocky start. Guidelines and terms of the loans kept changing, confusing banks and their customers. Some of the country’s biggest banks — Chase and Wells Fargo — weren’t ready to take loan applications when the program launched, prompting criticism from Senators Ed Markey and Elizabeth Warren of Massachusetts.

Other institutions, including Bank of America, initially restricted the loans to certain types of customers, but quickly relaxed its rules after a public uproar.

Daniel Forte, president of the Massachusetts Bankers Association, said banks struggled with the flurry of changing guidelines and a flood of applications.

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But by the end, banks — some working round the clock and even on Easter weekend — processed through an impressive number of loans, said Forte. In a typical year, the SBA issues about $28 billion in loans.

“The banking industry in 13 days processed 13 years of loans,” he said. “It is a bit of a pig in a python.”



Shirley Leung is a Business columnist. She can be reached at shirley.leung@globe.com. Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.