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

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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)

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.

Suggested Citation

  • Benjamin A. Abugri & Theophilus T. Osah, 2025. "US Bank Lending to Small Businesses: An Analysis of COVID-19 and the Paycheck Protection Program," JRFM, MDPI, vol. 18(5), pages 1-26, April.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:5:p:231-:d:1643264
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    References listed on IDEAS

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