How Did the MSLP Borrowers Fare Before and During COVID-19?

This policy brief uses Dun & Bradstreet (D&B) data to assess whether the Main Street Lending Program (MSLP) borrowers were in worse financial health than their peers before COVID-19 hit the economy hard in March 2020 or suffered worse deterioration afterward. The findings can help us better understand why these firms sought to obtain MSLP loans. We find that MSLP borrowers tend to be larger than their peer firms (that is, firms in the same industry and state). Within the same size group, MSLP borrowers are on average younger than their peers. Borrowers tended to have a slightly higher predicted risk of failure than their peers in March 2020. Their failure risk grew somewhat more than their peers' risk from March to the month when their MSLP loan request was submitted. These firms' relative performance in 2020 appears to be little correlated with their relative performance over the corresponding months in 2019. MSLP borrowers had worse actual delinquency records in March 2020, as well as more deterioration than their peers from March to the month of the MSLP loan submission. For the subset of borrowers with business spending data available from D&B, spending was on average higher in March 2020 than their peer companies' spending, and it fell somewhat less from March to the MSLP loan submission month. Taken together, our findings suggest that these firms borrowed from the MSLP because 1) their greater growth or survival potential, and hence relationship value, made lenders willing to lend to them, and 2) their higher credit risk made the MSLP attractive, as it enabled the borrowers to pay a lower price or obtain more credit than they would have otherwise.