Distribution of Paycheck Protection Program Funding During the Covid-19 Pandemic

Abstract We investigate racial disparities in the distribution of Paycheck Protection Program (PPP) loans, focusing on the third tranche and rural business impacts. Using a Cragg-Hurdle regression model, we analyze how a community's racial composition influenced PPP loan allocation. Our findings reveal a large increase in funding for majority-minority communities, particularly those with higher Black populations, during the third tranche compared to earlier rounds. This tranche introduced notable shifts in loan distribution patterns, influenced by nontraditional lenders and policy changes under the Biden-Harris Administration. We observe a marked difference in loan allocation based on racial composition and urban-rural distinctions: the Black population's share consistently correlates positively with both loan numbers and amounts, a trend amplified in the third tranche. In contrast, the relationship between the White population share and loan distribution varies, becoming less positive or more negative in different tranches and regions. These findings challenge prior assessments of racial equity in PPP loan distribution, underscoring the third tranche's critical role in shaping the overall program. Our study emphasizes the need for a revised understanding of racial disparities in PPP loan allocation, particularly in light of evolving lender practices and policy changes.