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The Weekly Data:
Having been following the saga of SBA and PPP loans via reading Nathan Tankus’s Newsletter on how the federal reserve is trying to stem the economic impact of COVID-19, I noticed that data regarding SBA loans has been semi-publicly open, requiring the usage of alternative data for public companies via checking their statements if they mention anything about getting or returning SBA loans.
Not So Small Businesses
While in theory the loans PPP loans with the Small Business Administration are meant for small business, in practice, what is defined as a small business, and who can actually get a loan, is looser then you would think. From the SBA FAQ:
Question:
Are small business concerns (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in the PPP?
Answer:
No. Small business concerns can be eligible borrowers even if they have more than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue- 1 This document does not carry the force and effect of law independent of the statute and regulations on which it is based. As of April 8, 2020 based size standard corresponding to its primary industry. Go to www.sba.gov/size for the industry size standards. Additionally, a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million. A business that qualifies as a small business concern under section 3 of the Small Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the Borrower Application Form, unless otherwise ineligible.
From the SBA FAQ directly, even the 500
employee limit can be passed if a company is considered a small business based on different industry standards, along with the usage of a alternative way of measuring if a company is a small business, mainly if the network of a given business is less then $15
million.
While a majority of publicly owned companies were under the 500
employee limit, 14%
of all companies were bigger then 500
with a few even having more than 10,000
employees. The biggest example of this behavior was with large restaurant chains, for example, Carrols Restaurant Group had 31500
employees, Potbelly had 6000
, and Shake Shack had 7603
. Many of these much larger companies after outcry gave the loan money back, but for example, Carrols Restaurant Group has not return it’s loan money back while Shake Shack after much outcry did return the $10
million loan in the end.
There are two points of view to be taken by companies like Shake Shack getting PPF loans. On one hand, many of these business are run as franchises, so on the local level, they are small business. On the other hand, one has to question if these companies were actually going to distribute the money to the workers in the local franchises, and not keep the money. Regardless, the roll out of the program has proven to be chaotic overall.
Market Caps and Loan Returns
The $15 million
net worth recommendation the SBA came out with, would likely allow Shake Shacks and other franchises to apply to the loans as each individual shake shack likely is considered a small business. But it is good to question if the PPP money would actually be distributed to the franchises, versus just being kept by the main company. There is a way to see if the size of companies was different for those who returned versus kept the loans however.
To test if the market cap of companies who returned loans was significantly different then those who did not return loans. A Wilcox test
was performed on a dataset, with the formula Market Cap ~ Returned Loan
being used to see if there was a significant difference in means. A regular T-Test
could not be used as the data regarding market capitalization not normally distributed in this case, considering that the mean market cap for companies who did not return loans was $57,953,492
while the mean market cap for companies who did return loans was $180,454,790
, a difference of $122,501,298
.
For reference, the output of the test below as a table. As the P Value < 0.05
, there is a significant difference between the mean market cap of companies who returned or did not return their loans.
Unexpected Banks
The banks getting in on helping set up the loans may not be the ones expected.
While this dataset is not as representative of the overall PPP program due to only publicly traded companies being tracked, as seen with Silicon Valley Bank as number one, it is not the major banks that have been sending out PPP loan money, but smaller banks that are more connected to smaller businesses. As noted by Barrons:
New data from the Federal Reserve show the total amount of commercial and industrial loans on commercial bank balance sheets has increased by $153 billion since April, with $130 billion, or 89%, coming from smaller U.S.-chartered commercial banks. (The Fed classifies any U.S. commercial bank outside the top 25 by assets as a small bank.) For perspective, smaller domestic banks held only a third of all U.S. C&I loans before the coronavirus outbreak.
As many of the larger banks required either a account with them already, or due to larger clients already exhausted the amount of PPP loan money that they were going to give out, smaller banks have taken the lead in supplying much of the PPP loan money.
Now, some links…
Nils Gilman: The New International Economic Order: A Reintroduction
What, exactly, was the New International Economic Order (NIEO)? Promulgated as a United Nations declaration in 1974 (reprinted as the frontispiece to this special issue of Humanity), the NIEO was the most widely discussed transnational governance reform initiative of the 1970s. Its fundamental objective was to transform the governance of the global economy to redirect more of the benefits of transnational integration toward ‘‘the developing nations’’—thus completing the geopolitical process of decolonization and creating a democratic global order of truly sovereign states.
It was, in short, a proposal for a radically different future than the one we actually inhabit
Bazzi, Fisbein & Gebresilasse (Boston University): Frontier Culture: The Roots and Persistence of “Rugged Individualism” in the United States
The presence of a westward-moving frontier of settlement shaped early U.S. history. In 1893, the historian Frederick Jackson Turner famously argued that the American frontier fostered individualism. We investigate the Frontier Thesis and identify its long-run implications for culture and politics. We track the frontier throughout the 1790–1890 period and construct a novel, county-level measure of total frontier experience (TFE). Historically, frontier locations had distinctive demographics and greater individualism. Long after the closing of the frontier, counties with greater TFE exhibit more pervasive individualism and opposition to redistribution. This pattern cuts across known divides in the U.S., including urban–rural and north–south. We provide suggestive evidence on the roots of frontier culture: selective migration, an adaptive advantage of self-reliance, and perceived opportunities for upward mobility through effort. Overall, our findings shed new light on the frontier’s persistent legacy of rugged individualism
ARUP: 2050 Scenarios: Four Plausible Futures
What will the world look like in 2050? This report explores four plausible future scenarios based on the intersection between our planet’s health and societal conditions.
The four divergent futures – Humans Inc., Extinction Express, Greentocracy and Post Anthropocene – range from the collapse of our society and natural systems, to the two living in sustainable harmony.It is our aim, through sharing this report, to inform decisions on the design and planning of the built environment, and show how progress towards achieving the United Nations’ Sustainable Development Goals can drive change for our planet and outlook for humanity.
Web Smith (2pm): On DTC Ideas Taking Shape
Since the beginning of 2020: eCommerce adoption has doubled, we’ve come to terms with our condition of over-retail, malls are shuttering, Hollywood has gone direct, DTC brands have found a second life, acquisition costs have fallen, total addressable market has grown, the American consumer has bifurcated, and The Law of Linear Commerce has become a prevailing strategy, and Generation Z’s tools of the trade have taken the spotlight.
Gwyneth Cheng (Kontinentalist): Born to fly: The life, journey, and trials of a migratory bird
A flyway is a generalised area that covers a series of flight paths taken by a great number of birds when they migrate. There are currently nine flyways on Earth, and the East Asian-Australasian Flyway (EAAF) is the most remarkable of the lot. It supports approximately 40 percent of the world’s migratory birds—more than 500 species in total—and encompasses the entirety of East Asia, Southeast Asia, Australia, and some West Pacific islands as well as parts of India and Alaska.
Miscellany:
Mike Dean, a producer for many famous hip hop artists like Kanye West, Travis Scott, Jay-Z, and others, came out with his own album roughly two week. It’s a very instrumental album, lots of interesting stuff done with synths.
Thanks!
Thanks for taking the time to read this, I will be back next soon! In the meantime, you can follow me on Twitter or reach out via email.