States Getting the Most Help From PPP Loans

States throughout the Great Plains are so far seeing the biggest impact of Paycheck Protection Program loans — funds designed to help small businesses stay afloat during the coronavirus pandemic. The PPP allows business owners to keep workers on the payroll even while remaining partially or fully closed.

The U.S. Small Business Administration (SBA) approved more than $342 billion in PPP loans in the first round of funding, which ended April 16, and more than $188 billion in round two as of May 8. The program continues through June 30, or until funding runs out. Populous states like New York, California and Texas have been approved for some of the highest total amounts in both rounds.

But a different picture emerges when you take a look at each state’s average hourly cost of labor. PPP loans stand to go further in several Great Plains states plus Louisiana, Idaho, Maine and Vermont. These states may be in a stronger position to weather the effects of the coronavirus pandemic, based on how long workers there could remain employed on PPP funds alone. Of course, business owners are permitted to use PPP loan funds on other expenses, including rent, mortgage interest and utilities.

Key findings

• South Dakota tops the list with nearly 133 hours of labor for each worker in the state, assuming the money was evenly distributed to every employee in South Dakota. This translates to  $1.7 billion in approved PPP loans funds so far.
• Louisiana takes second place. The state’s $7.4 billion in approved PPP funds is equal to about 125 hours of labor per employee.
• In third place is North Dakota. The state’s $1.8 billion in approved PPP loans could cover 121.4 hours of work for each employee in the state.
• The District of Columbia lands at the bottom of our list. The total amount of PPP loans approved statewide would cover just 51.3 hours of work for each employee in one of the most expensive areas of the country. One major stumbling block for small business owners in the District of Columbia is the high cost of labor: nearly $62.27 per hour including benefits, more than double the labor cost in top-ranking South Dakota.
• Some of the states the coronavirus pandemic has hit the hardest, including New York and Massachusetts, do not appear to be getting as much out of the program as less impacted areas. Both states rank near the bottom of our list — the value of approved PPP loans in New York equals 92.6 hours per worker while the value of loans in Massachusetts equals 91.2 hours per employee.
• Across all 50 states and the District of Columbia, PPP loan funds could cover an average of 100 hours for every U.S. worker.

Where PPP loans may bolster the workforce the most

1. South Dakota

Our first-place state has 425,140 workers, and the hourly cost of labor in South Dakota is $29.76. As of May 8, South Dakota businesses have been approved for $1.7 billion in PPP loans, which could cover 132.5 hours of labor for each employee in the state.

South Dakota lawmakers have pushed for PPP funding to help farmers and ranchers, as well as tribally owned casinos and gaming operations in the state. In the first round of funding, 70% of South Dakota businesses applied for PPP loans, though just 23% were approved in the first and second rounds, through May 8.

2. Louisiana

More than 1.9 million people are employed in Louisiana, our No. 2 state. With statewide hourly labor costs at $30.64 per person, the $7.4 billion in approved PPP funding for Louisiana businesses could pay for 125.2 hours of work for each employee.

Louisiana recently entered the first phase of a reopening process after the governor lifted a statewide stay-at-home order. Local businesses such as nail and hair salons, gyms, casinos and churches can operate at 25% capacity, while restaurants also may resume serving dine-in customers at 25% capacity. Louisiana businesses and residents are expected to remain in Phase One through June 5.

3. North Dakota

Similar to South Dakota, third-place North Dakota has 422,520 employees in the state. Businesses in North Dakota have been approved for nearly $1.8 billion in PPP loans, which could support 121.4 hours for every employee in the state, based on an hourly labor cost of $34.98 per person.

About 24% of North Dakota businesses were approved for PPP loans in the first and second round of funding. Like in Louisiana, restaurants, salons, bars and gyms have recently been allowed to reopen at limited capacity. North Dakota businesses are required to follow industry-specific guidelines when reopening or risk facing fines up to $1,000.

Methodology

In order to rank the states in which PPP funds would cover the most hours of work, we compared the amount each state has been approved for in PPP loans to the number of workers and average employer cost of each hour of work (data from U.S. Bureau of Labor Statistics, 2019). We divided the total amount in approved PPP loans by the number of workers (this gives us total PPP loans per worker) and then by the average employer cost per hour worked. The final number is the number of hours each worker in the state could be paid by the amount of approved PPP loans.

In order to estimate the average employer cost of labor per state we used two metrics:

• State hourly earnings multiplier. This is the state’s hourly earnings by worker divided by the national average of hourly earnings per worker.
• National cost of employing a worker. This is the average cost of employing a worker at the national level. It includes not only the cost of paying a worker but also providing benefits for that worker.

We then multiplied the state hourly earnings multiplier by the national cost of employing a worker. For example, Alabama workers earn 84% of the national average. Thus using that multiplier, we assumed that, including benefits, it costs 84% of the national average to employ an Alabaman worker.

For example, including earnings and benefits, the national average cost of one hour of work is $37.10. The national average for earnings is $25.72. In Alabama, the average hourly earnings is $21.60. To determine the average cost of labor in Alabama then we divided $21.60 by $25.72 giving us .84 or 84%. That shows that on average Alabama workers earn 84% of the national average. We multiplied that number by the total cost of compensation figure ($37.10) to arrive at the final figure for Alabama: $31.16.