PPP changes open the door for more Mississippi businesses

By Llewellyn Jones / Mississippi Center For Investigative Reporting


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The Mississippi Center for Investigative Reporting used data from IRW’s Accountability Project to develop this story.

The federal Paycheck Protection Program has provided life support to Mississippi rural hospitals facing bankruptcy and closure.

It has kept the lights on for the state’s rural electric utilities and boosted the prospects for expanding broadband access in a state that ranks at the bottom for connectivity.

And now, it may help sole proprietors from Gulf Coast fishermen to Delta farmers stay in business whose loan applications from this sector are outpacing the national average by 27%.

Initial restrictions held back the potential benefits to Mississippi businesses when it was passed with bipartisan congressional support. Those restrictions were removed as the nation went into a freefall from the coronavirus pandemic.

“If the intent of the program was to blunt an economic cliff caused by continuously growing unemployment, it did that,“ said Gordon Fellows, president of the Mississippi Bankers Association. “The SBA (Small Business Administration) had to build the plane while we were all flying in it in the middle of a crisis unlike anything any of us had ever experienced.“

The program was particularly successful in Mississippi with over $4.1 billion approved so far according to SBA data collected from lenders. Mississippi saved jobs with the least amount of money on average. It also ranks in the top 10 for the number of loans handed out relative to the number of small businesses in the state, and there’s been little evidence of fraud or waste.

According to Fellows, it was also a success of the state‘s banking system. “Many people don‘t think of Mississippi as a financial hub, but in a way we are. The Mississippi banking sector punches above the economic weight of our state.”

Sole proprietors

Many of the loans Mississippi banks handed out were low dollar amounts and the state had one of the lowest average loan amounts nationwide. That trend is associated with smaller businesses and sole proprietors: self-employed individuals like truck drivers, farmers, and fishermen that might file a 1099 Schedule C with the IRS.

Originally the PPP program based the total amount that a sole proprietor could qualify for based on their net profit, which for some might not be much and make it not worth applying for. That has since been amended with the program’s renewal in 2021 so that businesses can apply based on their total revenue rather than total profit.

That change is expected to open the floodgates for many more sole proprietors, of which Mississippi has plenty.

According to Fellows, sole proprietors are now applying in force, with more coming from rural parts of the state. “Since those recent changes took effect, we’ve seen the numbers of PPP loans made in Mississippi increase substantially. Mississippi banks have made more than 13,000 PPP loans between March 21 and April 4. That’s a much faster velocity of new loan origination than we were experiencing in February, and anecdotally it appears that most of those loans are going to sole proprietors or self-employed individuals.”

Fellows believes charter fishermen on the Gulf Coast will be looking to PPP lending as many are sole proprietors hurt by the pandemic in a way that commercial fishermen haven‘t been. “They’ve lost that whole spring tourism market,” he added.

Rural hospitals

Rural hospitals in particular leaned heavily on PPP loans. As a result, medical facilities were the largest category of PPP borrowers in the state. Medical businesses represented the largest percentage of Mississippi loans by amount, 14.8 percent. Nationwide, medical businesses received about 10 percent on average.

Many of them were in dire straits before the pandemic. Data from the Center for Healthcare Quality and Payment Reform lists Mississippi as having the third largest number of rural hospitals at risk of closure, 41, and it ranks the second worst in the nation in terms of average profit margins. A 2015 report by Mississippi State University listed nine Mississippi hospitals at very high risk of closure, and five rural hospitals in the state have already closed, according to data from the Chartis Center for Rural Health.

Hospital room with bed and equipment
Rural hospitals leaned heavily on PPP loans. As a result, medical facilities were the largest category of PPP borrowers in Mississippi. Medical businesses represented the largest percentage of Mississippi loans by amount, 14.8 percent. (Sarah Warnock/MCIR)

Brock Slabach, senior vice president of the National Rural Health Association, told MCIR that in the early days of the pandemic so many patients were deferring or terminating elective procedures that rural hospitals were hemorrhaging cash. But once the PPP program was in place, “hospitals were able to keep their workforce in place by paying workers without any business coming in the doors.”

Restrictions in the early drafts of the PPP program excluded a number of the hospitals for different reasons. Some were excluded for being county hospitals, which were considered governmental organizations. Others were excluded for being subsidiaries of larger hospital systems. In both situations the program was eventually amended to include those hospitals. The exception that prevented hospitals owned by local governments from applying was amended early on in April 2020. The exception for nonprofit affiliates of larger hospital systems, something Mississippi’s U.S. Sen. Roger Wicker actively campaigned to remove, was dropped in the recent PPP extension as part of the American Recovery Plan.

“It’s just the way it was written. For example, there’s a rural hospital in Carthage, Mississippi, owned by Baptist Medical Group in Memphis. It was ineligible because its ownership made its total employee count more than the limit, but the hospital itself has less than 500,” Slabach added.

Harold Miller, president of the Center for Healthcare Quality and Payment Reform, said Mississippi‘s rural hospitals struggle from large uncompensated care costs as well as little non-patient income, such as state, federal and health district subsidies. The state also has some of the highest average charity care and bad debt ratios among rural hospitals.

But when it comes to the effects of the pandemic and PPP lending for those hospitals, Miller says the outcome depends on each hospital. “It depends on the type of care they give and the community they serve. Most don‘t have surgical units so they aren‘t missing out on some elective procedures that larger hospitals are dealing with. For rural hospitals it’s more about changes to primary care. It depends on whether they have a lot of bad debt or if they are connected to a larger health care system. It depends how nearby industries were affected by the pandemic.“

Electric and water cooperatives and broadband

Originally as crafted the PPP program also excluded nonprofits, and this restriction put a number of utilities at risk. Numerous representatives successfully lobbied the treasury specifically to include for profit and nonprofit electric cooperatives.

Nonprofit electric and water cooperatives, of which Mississippi has plenty, have since borrowed from the PPP program substantially. Multi-million-dollar loans have gone to nonprofit power utilities like Dixie Electric Power Association, Northcentral Electric Cooperative and the Southwest Mississippi Electric Power Association.

Lydia Walters, communication and human resources manager for the Dixie Electric Power Association in southeastern Mississippi, told MCIR that at the time the company accepted the PPP funds, it was under a “mandatory suspension of disconnecting power for nonpayment.“ That is, the utility was still supplying electricity to those who couldn’t pay, but it had to deal with the loss of revenue.

“Although it was a 60-day order from the Mississippi Public Service Commission, there was a concern that it could be extended indefinitely,” she added.

Stephen Bell with the National Rural Electric Cooperative Association said the clarification was vital for electric cooperatives looking to the PPP for support as “they worked to keep the lights on and provide local families and businesses with certainty in an uncertain time. Congress played an important role in securing this needed clarity.”

Bell also added that a large change that came out of the CARES Act funding has been the investment into rural broadband by electric co-operatives.

Previously, Mississippi electric co-operatives were prevented from providing anything but electricity to their communities based on a rule that dated to the 1940s. In 2019, the state Legislature passed the Mississippi Broadband Enabling Act, which removed that restriction and allowed electric co-operatives to provide broadband that integrated with their electrical grid.

As the pandemic set in, the push to fund broadband grew, and the state set aside a large portion of its CARES Act grants to broadband development. Along with the PPP funds, it enabled the co-operatives to substantially invest in broadband capacity.

The state regularly ranks near the bottom for terrestrial broadband access. It is second only to Puerto Rico in having the least number of households with broadband, according to survey data from the U.S. Census.

According to Bell, “because co-operatives are built by and belong to their local communities, they’re keenly focused on the needs of the community. You‘re seeing that play out in Mississippi in real time with these broadband deployment efforts.”

IRW’s Kiernan Nicholls contributed to this report through his work on The Accountability Project.