US Bank Lending to Small Businesses: An Analysis of COVID-19 and the Paycheck Protection Program

Benjamin A. Abugri () and Theophilus T. Osah ()
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Benjamin A. Abugri: Department of Finance, School of Business, Southern Connecticut State University, New Haven, CT 06515, USA
Theophilus T. Osah: Department of Business Administration, Texas Lutheran University, Seguin, TX 78155, USA

JRFM, 2025, vol. 18, issue 5, 1-26

Abstract: This paper examines the characteristics of banks and their lending behavior in relation to Paycheck Protection Program (PPP) loans and commercial and industrial (C&I) loans to small businesses during the COVID-19 pandemic. Our findings show that lenders facing greater risk tended to lend more PPP loans, consistent with the risk-aversion theory. Specifically, banks with a higher loan–deposit ratio, lower overall profitability, poorer loan quality, and higher exposure to risks in business (C&I) loans are characterized by higher PPP loans. C&I loans to all businesses are negatively related to the loan–deposit ratio and loan loss allowance ratio, but are positively linked with the capital ratio. However, we find important differences in C&I lending to small businesses versus large businesses. Furthermore, there is evidence regarding the success of targeting PPP loans towards more productive sectors of the US economy. Using FDIC-defined banks’ lending specializations, we show that banks focused on international lending had a limited role in PPP lending.

Keywords: paycheck protection program; small business lending; commercial and industrial loans; COVID-19 pandemic; risk aversion; US banks (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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