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Main Street's mainstays: How some U.S. states tapped crisis loans

FILE PHOTO: Empty restaurant tables sit on a plaza on Pennsylvania Avenue in during the coronavirus outbreak in downtown Washington

By Howard Schneider and Timothy Aeppel

(Reuters) - As the coronavirus crisis gripped the U.S. economy and Congress approved hundreds of billions of dollars in emergency small business loans, Utah builder Clark Ivory knew what to tell his local colleagues.

Take the money. Keep your employees. Be ready to invest when the pandemic passes.

To those who said they had enough cash to wait out the crisis, "I said you are nuts," Ivory, the chief executive officer of Ivory Homes, recounted in a recent webinar at the David Eccles School of Business at the University of Utah.

"Use this money now, and the reason? You don't have to deplete your savings. And in the next year, that building you were planning to start? That is what is going to help Utah's economy."


People apparently listened. A Reuters analysis of Small Business Administration data shows Utah, along with heartland manufacturing powers and key political battlegrounds like Ohio, Pennsylvania and Wisconsin, punched above their weight in the race to get loans from the $349 billion "Payroll Protection Program" that ran out of money in under two weeks.

A comparison of local industry mix and payroll against national averages signals that important sectors in a handful of places - manufacturing in the heartland of the country, construction and oil and gas in the West - mobilized quickly and helped their states receive billions of dollars more than otherwise expected. Utah, for example, received about $600 million in SBA loans beyond what would have occurred if its firms had borrowed at national averages.

A new tranche of $310 billion was expected to be authorized by Congress on Thursday after complaints the first round did not reach the country's most fragile businesses - the local restaurants, artisan shops and bespoke retailers that keep the country's Main Streets distinct.

Interactive Graphic - A small business win in the Heartland


Nonetheless, it apparently did hit the country's industrial core, and that may have had as much to do about organization and networking as size.

In Utah's case, as leading executives like Ivory applied for their own loans - in his company's case for $2.7 million to keep paying 181 employees - they also recruited volunteer lawyers and accountants to assist smaller firms, including key suppliers and subcontractors, to be ready for the recovery.

In Indiana, with a heavy manufacturing presence, small businesses overall received about $1.2 billion more than if their industries had borrowed the same share of payroll as national firms.

One was Holder Mattress Co, with 73 years in business and a tight web of local relationships. Its accountant is a founder of the local Community First Bank in Kokomo and some of the bank's officers are Rotary Club members alongside Holder President Lauren Taylor.

Getting a $100,000 SBA loan wasn't smooth, said Taylor, the granddaughter of the company's founder. But it came through, and "We'll be using the money to cover eight weeks of payroll, payroll taxes, health insurance and our IRA plan," she said. "That will give us a little left to pay some utility bills."

The initial tranche of PPP loans included 1.2 million loans of less than $150,000 and totaling around $58 billion. The average of $47,000 per loan indicates the group was weighted towards smaller borrowers.

But the initial money ran out fast, leading to complaints the country's hardest-hit sectors, particularly small businesses like restaurants, were left at the back of the line.


A recent Goldman Sachs analysis suggests another potential dynamic at work.

The restaurant and hotel industry, while dealt a terrible blow by the pandemic, is a relatively low-wage sector. Many workers would earn more receiving unemployment benefits enhanced by an extra $600 a week for at least the initial phase of the coronavirus crisis.

Based on pre-crisis employment levels, it appears that hotel and restaurants borrowed less than expected from the SBA. But they also shed more than 440,000 workers in March alone, and Goldman found hotels and restaurants actually ended up borrowing the highest percentage of any industry against the expenses eligible for loan forgiveness.

That includes spending on payroll, rent and utilities, essentially turning the funding into a government grant. The rest is repaid at an interest rate of 1%.

Sectors largely spared by shutdowns, essentially information technology, finance and others with white-collar workforces that can more easily do their jobs remotely, saw little decline in total hours worked, Goldman found.

Tech employees actually worked more hours as demand for software-based delivery and conferencing soared, and firms in those industries borrowed less - perhaps helping explain why states like tech-heavy California appeared to lag in PPP participation.

Manufacturing and construction also stood out, Goldman noted. Construction firms borrowed nearly $45 billion, about 64% of forgivable expenses compared with a national average of around 46%; factory owners borrowed about 54%.


Though the SBA did not show borrowing by industry in each state, comparisons of industry intensity and payroll size point to some conclusions.

Small construction firms in Utah, for example, employed more than 70,000, according to a U.S. Census Bureau survey in 2017, the latest available - a level about 30% higher than the national norm given the size of Utah's overall small business workforce.

The same was true for manufacturing across the Rust Belt, where the relative intensity of factory employment dovetails with PPP borrowing success for states like Ohio, Pennsylvania and Wisconsin. According to the Reuters' analysis, Ohio and Pennsylvania received about $2 billion each above national averages. Wisconsin received about $1.7 billion above average.

Ivory, who was on the board of directors of the Salt Lake City branch of the San Francisco Federal Reserve from 2006 to 2011, said his mobilization isn't done.

This week, he said, as the next round of SBA funding took shape in Congress, he had his purchasing team "call every subcontractor and supplier and say 'Have you been successful with the PPP and, if not, where are you right now? ... What can we do so you can be prepared?'"

"This is not something we take without a commitment. Don't take the PPP and rathole it. Spend it on keeping an employment base and figure you are going to invest so you can move forward."

(Reporting by Howard Schneider in Washington; Additional reporting by Timothy Aeppel in New York; Editing by Dan Burns and Paul Simao)