Unprecedented.
It’s a word that’s been used to describe nearly every facet of life over the past 12 months as the coronavirus continues to radically alter the way most people go about their lives – whether that’s going to the doctor’s office, attending school or making a trip to a grocery store.
But it also aptly describes the level of federal funding pumped into the economy through various stimulus programs including the Paycheck Protection Program.
“We’ve never dealt with anything like this before,” John Garcia, director of the Small Business Administration New Mexico office. “… This has been very different. This is a virus that we are at war with.”
Nationally, more than $800 billion was set aside for the PPP to provide low-interest, forgivable loans to businesses for payroll and other business costs. The program was created by Congress to incentivize businesses to keep employees on their payroll rather than laying them off during business closures related to COVID-19.
And money is still coming, since the second round of funding is open until the end of March.
With nearly 12 months of data on the program available to the public, the Journal took a look at how New Mexico and its most important industries fared when competing for loans through the unprecedented program.
How did it start?
When the program launched in late March of last year, businesses rushed to lenders in order to submit their applications, Garcia said.
Last year, the stimulus program netted New Mexican businesses more than $2.2 billion in approved loans and helped cover payroll expenses for nearly 270,000 jobs, according to data from the SBA.
Under the initial rules, businesses with fewer than 500 employees per location could receive loans of up to $10 million if the business was affected by the coronavirus.
The program also allowed organizations typically exempt from receiving SBA loans, like nonprofits and religious organizations, to apply for and receive funding.
There were hitches. While the first round of the program funneled more than $500 billion in loans nationwide, many small businesses had difficulty applying, Garcia said.
“We had a lot of small businesses that didn’t have a chance to get in and get their loans processed,” he said.
A second round of funding, which began in January, came with more restrictions. Through last week, New Mexico businesses received 9,170 loans totaling more than $792 million as part of the second round, compared to $2.3 billion in the first round. All told, more than 32,000 loans have been issued in New Mexico over the course of two funding rounds, totaling more than $3 billion.
Borrowers looking to receive a second PPP loan must employ no more than 300 employees and show a 25% decrease in gross receipts in comparable quarters in 2019 and 2020.
How did New Mexico businesses fare?
While the federal program has had a massive impact on many New Mexico businesses and nonprofits, federal data shows that the PPP has provided fewer loans, and less money, to organizations in New Mexico than in most other states.
Reilly White, associate professor of finance at University of New Mexico’s Anderson School of Management, said those funds impacted about a quarter of New Mexico’s overall labor force.
However, on a per person basis, New Mexico still lags behind many of its neighbors. According to a Journal analysis of SBA data, New Mexico received more PPP funding per capita than just four states: West Virginia, Mississippi, Arkansas and South Carolina.
As a point of comparison, White said Utah, which has a population about 50% larger than New Mexico’s, has supported roughly half its labor force with PPP loans.
“The lenders, the providers … have been doing heroic work, but I think we have, proportionately, a greater amount of underserved populations than many other states,” White said.
White and Garcia agreed that New Mexico’s shortage of large, publicly traded companies worked against it when competing for PPP loans, particularly at the beginning of the eligibility window last spring.
Anne Haines, president and CEO of DreamSpring, a community development financial institution that operates in Albuquerque, said the first round of PPP funding was dominated by loans made by large banks, which prioritized existing customers during the initial rush of applications. Smaller businesses, which sometimes lack those traditional banking relationships, were largely shut out.
“If they were not a customer with a bank, then chances are they were not on the radar,” Haines said.
She said access to good information about the program has proven to be a barrier as well, particularly in rural parts of the state. Many entrepreneurs in rural New Mexico don’t have easy access to banking services, and Haines said some were intimidated by the program requirements.
“I think there continues to be, in New Mexico, an enormous information gap,” Haines said.
Garcia acknowledged that getting the word out has been a challenge, and said the SBA has held multiple webinars per day to educate business owners about the program.
Haines and Garcia agreed that the program became more inclusive to small businesses in the second round of funding, which opened in January.
The second round gave small community lenders, which tend to work with smaller businesses, two days of access before larger lenders could make loans. A federal announcement in February provided a two-week period where only organizations with fewer than 20 employees could apply.
Haines said small changes made a big difference in the second round. The program allowed business owners with felony convictions that aren’t related to fraud to apply, which Haines said made the funding more accessible to formerly incarcerated people. And a change that allowed business owners to use Individual Taxpayer Identification Numbers to apply helped clarify that immigrants could participate in the second round.
“There really are significant barriers that a lot of low- and moderate-income households face to accessing conventional financial opportunities,” Haines said.
What industries got the most money?
When it comes to industries receiving the biggest paydays, New Mexico largely mirrors national trends, with industries like construction, food services and retail trade services receiving top spots in funding.
Nationally, health care, professional services, construction, manufacturing, and accommodation and food services were the top five recipients of funding with nearly $300 billion of aid going to those industries during the first draw of funding which lasted through August.
An analysis from UNM shows that the lion’s share of PPP funds in New Mexico from the first round of funding – more than $900 million – went to a broad swath of services ranging from health care to restaurants to automotive repair shops.
White said it makes sense that service-based industries received nearly 41% of the first round of PPP funding since there was a huge market impact for those services.
While the state largely follows the national trends in regards to funding, the mining industry received a larger share of funding in New Mexico than it did nationally. In New Mexico, mining received 8.67% of funding in the state, compared to just 0.87% of funding nationally, according to data collected from the SBA and analyzed by UNM.
A full analysis of the second round of PPP funding, which began this year in January, has yet to be carried out at the state level. But data from the SBA shows that while the top five industries receiving funds remain unchanged, the accommodation and food service industry is the greatest recipient of funds from the PPP this year.
Shelley Brown, a lender relations specialist with the SBA, expects this trend to be the same for New Mexico.
“The accommodation and food services is No. 1 throughout the nation, and I’m sure it is the same here because … that’s our source of revenue in the state of New Mexico,” she said.
The greater level of funding for lodging and food services could be in part fueled by changes to the loan program that allowed those businesses to apply for loans equal to 3.5 times their monthly payroll cost, rather than the standard 2.5 times the monthly payroll cost equation used by other businesses.
What NM organizations got the most cash?
White’s analysis showed that a wide variety of New Mexico businesses received loans through the PPP, from oil and gas giants to shellfish farmers.
Well over 90% of loans were for $500,000 or less, but a few exceeded $5 million. The largest publicly released loan in New Mexico went to BAM! Pizza Management, a Domino’s Pizza franchise-holder headquartered in Roswell that received $7.78 million to support 500 jobs. A call to the company was not returned.
The second-largest loan went to Dreamstyle Remodeling, which received $7.57 million to support 403 jobs. Dreamstyle founder and CEO Larry Chavez said the pandemic forced the company to furlough 220 employees across its footprint.
“We sat around our conference table and began planning survival mode,” Chavez said.
The company applied for a PPP loan in late spring, just as the stock market began to stabilize and the housing market began to improve.
Chavez said the loan helped the company weather the initial shock along with continuous supply chain challenges. Ultimately the company not only brought back its furloughed employees but added new positions, growing from 490 employees before the pandemic reached New Mexico to 550 today. Chavez said Dreamstyle has grown its Albuquerque footprint from 225 to about 250 employees.
“The PPP program was a real bridge from crisis to returning to being a good, solid business,” Chavez said. “And having hundreds of happy employees who are able to take care of their families and contribute to the local economy.”
Not every PPP recipient was a for-profit company. St. John’s College, a liberal arts college with a campus in Santa Fe, received a loan for just over $2.25 million. Michael Duran, treasurer and chief financial officer for St. John’s, said the college opted to send students home last spring when the pandemic hit. This meant that the school had to refund room and board for students, a decision that initially cost the school about $900,000, he said.
Duran said the school has not yet resumed in-person instruction, and estimated that the school has lost about $4 million since the pandemic hit. The federal loan helped the college make the transition without laying off employees, Duran said.
“It was one less thing to worry about for the college,” he said.
Has it helped?
Despite the challenges associated with the program, sources reached by the Journal largely agreed that it was a net positive for New Mexico. Garcia, with the SBA, said the program helped businesses stop the bleeding and reset during the worst of the pandemic. All told, the SBA estimates the program affected about 51 million American workers, Garcia said.
“We know this is working, and this is helping small businesses,” he said. “…We‘re not out of it yet, but it’s allowed the businesses to adapt.”
As the economy begins to stabilize and the program nears its end, the focus is shifting toward forgiving loans for organizations that met the program requirements.
UNM’s White said New Mexico’s comparatively low PPP usage could wind up being both a benefit and a drawback. The lack of federal dollars may have cost the state a chance to lower its unemployment rate, which remains higher than the national average, and may leave firms more vulnerable to future volatility.
On the other hand, White said fewer companies using the program means less debt for firms that can’t meet the requirements of the program.
On the whole, White said he thought the program was helpful to New Mexico businesses.
“Certainly it was a net good, because it smoothed a very significant economic shock, like a generational economic shock that happened with these firms,” White said.
