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Federal Pandemic Loans Were Welcome (But Unequal) Lifelines Across Austin area

Federal Pandemic Loans Were Welcome (But Unequal) Lifelines Across Austin area
Written by Publishing Team

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In Austin’s local job market, the leisure and hospitality sectors suffered the largest drop in employment in the city due to COVID. More small businesses, including struggling coffee shops and small entertainment venues, have been helped in the second wave of Federal Paycheck Protection Program loans than in the first. However, many have yet to see their business return to pre-pandemic levels.

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Most Austin PPP loans are granted to companies that provide professional, scientific, and technical services. The temporary federal loan program, part of the CARES Act, is designed to protect jobs and keep businesses afloat during a crisis by covering the costs of up to eight weeks of payroll and the purchase of on-the-job protective equipment for employees.

Many US businesses small and large owe their survival in the COVID era to the low-interest loans offered as part of the federal paycheck protection program. However, the PPP safety net did not evenly cover all neighborhoods experiencing economic challenges associated with the pandemic in 2020 and 2021.

During the summer of 2020, the University of Houston Hobby’s School of Public Affairs, in collaboration with the Austin Chamber of Commerce, conducted a survey of the owners of 1,050 Austin PPP companies to find out how those companies were affected by the pandemic and what actions decision makers are taking. to keep their companies running.

By April 2020, industries in the Austin area were experiencing the largest loss of employment since the start of the COVID-19 pandemic. The services, leisure and hospitality sectors have been the hardest hit, and both have yet to return to their pre-pandemic levels.

The first wave of PPP loans (April-August 2020) protected about 38% of pre-COVID-19 jobs, more than double the jobs protected in the second wave of PPP loans (January-May 2021). On average, the first and second waves of PPP loans covered about 20% of each worker’s salaries in the pre-pandemic period.

Most of the industries that have received PPP loans are in the professional, scientific and technological services sectors, health care, social assistance and other services.

“The information we have collected can benefit future policymakers in determining how to provide a lifeline for companies that need help to stay afloat during the worst moments of future crisis,” said Maria Perez, a researcher at the Hobby School, who is one of the four co-investigators of the project. The principals.

Other key findings of the study:

  • The jobs and businesses that got the most loans are concentrated in white, high-income neighborhoods. While most PPP firms in those predominantly white neighborhoods are in professional, scientific, and technical services, the majority of PPP firms in predominantly ethnic neighborhoods are in the retail sector.
  • Ethnic-majority neighborhoods received less PPP funding than predominantly white neighborhoods.
  • In contrast to the first wave of PPP loans in 2020, the distribution of loans in the second wave of PPP loans the following year was less variable between ethnic and white neighborhoods, as well as between neighborhoods of different income levels. Moreover, more small businesses participated during the second wave.
  • As expected, companies with higher credit scores earned more PPP funds on average than those with lower credit scores.

“Women and minority-owned businesses are often the most vulnerable to economic shocks, and many of these owners may not have the knowledge of how to access programs such as PPPs. These findings demonstrate how important it is for elected officials to know the needs of businesses in their regions, and who manage these businesses and know what to do to keep the business community informed of vital resources,” said Savannah L. Sebol, a research associate at the Hobby School.

Low-interest PPP loans are designed to reduce the risk of job layoffs and business closures by covering the costs of up to eight weeks of payroll and the purchase of personal protective equipment on the job. The loans were granted by private lenders and supported by the US Small Business Administration as part of the Coronavirus Relief, Relief and Economic Security (CARES) Act.

In addition to Perez, the project’s team of principal investigators included Associate Professor Gilles Butorff, co-director of the Survey Research Institute. Professor Pablo M. Pinto, Director of the Center for Public Policy; and Professor Sunny MC Wong, Director of Graduate Programs.

Joining Sipole on the research team is research assistant Johsen Ani Hsu and postdoctoral fellows Yewande O. Olapade and Agustín Vallejo.

For more information about the study from the UH Hobby School of Public Affairs, see the economic impacts of the COVID-19 pandemic and the distribution of PPP loans in Austin.

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