White America Got a Head Start on Small-Business Virus Relief

The U.S. government’s small-business relief program delivered an outsize number of loans to predominantly White parts of the country in its first two weeks of operation, leaving firms in mostly Hispanic and Black areas to wait until a second tranche of funds was made available, according to a Bloomberg News analysis of Small Business Administration data.

In the first round of the Paycheck Protection Program in April, 27% of businesses in congressional districts with a majority of non-Hispanic White residents received loans compared with 17% in districts where minorities make up more than half the population. The difference was starkest in the 36 majority-Hispanic districts, where only 15% of firms were able to tap into the $349 billion of available funds before they ran out on April 16.

Round One’s Uneven Loan Distribution

Percentage of small businesses that received PPP loans in majority White and predominantly minority congressional districts, April 3-16

Only after Congress appropriated an additional $320 billion and money began flowing again on April 27 did the situation reverse, and sections of the country left behind in the first round caught up, the analysis found. The examination of disparities in SBA lending is part of a larger Bloomberg News effort to track how the government’s $3 trillion of pandemic relief is being spent, who’s getting left out and how effective the various aid programs have been.

How Lending Patterns Changed to Reach More Diverse Districts

Percentage of small businesses that received PPP loans versus the minority share of a congressional district’s population
Each set of two dots represents a congressional district
  • Round 1
  • Round 2

The data for the 4.9 million PPP loans approved through June 30 don’t show the effects of the delay, but economists and people with first-hand experience said it could have contributed to layoffs or closures of businesses in minority neighborhoods, which were hit hard by the pandemic. “In the first round of funding, we knew we weren’t going to get any,” said Regina Smith, executive director of the Harlem Business Alliance, which supports entrepreneurs in a New York neighborhood that’s home to mostly minorities. “Your business is closed abruptly and you still have bills to pay. Getting money sooner is better than later, right?”

For Denice Coles JeffriesEl, executive director of a school and day-care center in Queens, not getting a loan in the first round – she sought help from three banks – meant having to furlough one-third of her roughly 65-person staff, most of them Black and Latino. She cut hours for the rest. Her school, A Child’s Place Too, is in New York’s 14th congressional district, where half the population is Hispanic and only 6% of firms got loans in the first round, one of the lowest rates in the country, Bloomberg’s analysis found. The school secured a loan of about $350,000 in the second round that enabled it to avoid permanent layoffs. “It was only by, in my opinion, the grace of God that we were able to get through until the loan came,” JeffriesEl said.

The second round of lending appears to have sent enough loans to businesses in the 129 predominantly minority congressional districts to make their rates comparable to those in the 306 mostly White districts, according to Bloomberg’s analysis, which compared SBA loan data with Census Bureau figures for the number of small businesses in each district. As of the end of June, 72% of firms in majority non-Hispanic White districts had gotten loans, compared with 75% in minority ones. Those totals exclude loans to businesses that aren’t included in Census Bureau business data, such as farms and nonprofit organizations. An analysis looking at lending by ZIP code yielded similar results.

A more complete picture of how aid was distributed would come from analyzing the value of loans received, said Lisa Cook, a professor of economics and international relations at Michigan State University who has testified before Congress about the program. But the SBA didn’t provide specific amounts for loans greater than $150,000, except in ranges too broad to be meaningful. Cook pointed to a report suggesting that many minority-owned businesses weren’t able to get the full amount they sought.

Just because a loan went to a predominantly minority district doesn’t mean that Black or Latino business owners or employees benefited. Or, conversely, that loans made in White areas failed to help minority businesses or employees. Still, the finding that majority White areas got loans quicker dovetails with data on the race and ethnicity of business owners that the SBA collected for 11% of the loans. They show non-Hispanic White people, who own 77% of all small businesses in the U.S., got 83% of the first-round loans. By June, the data show, that share had fallen to 78%.

White Business Owners Got Outsize Helping of Early Loans

Only after the second round did minorities get loans in proportion to share of business ownership

Policymakers crafting the program in March faced intense pressure to get money to businesses quickly as the coronavirus pandemic sent much of the country into lockdown, forcing restaurants, gyms and barbershops to close and revenue to plunge at a broad swath of companies. The program offers low-interest loans that will be forgiven for borrowers who use most of the money to cover payroll. In order to speed delivery, Congress deployed the aid through an existing SBA loan program that uses banks to distribute funds. That decision appears to have determined which neighborhoods got served first.

Much of the early money flowed through smaller community banks, clustered in rural America, which proved nimbler at accessing the aid. On April 3, the first day of the program, the most prolific PPP lender in the nation was family-owned Stockman Bank of Montana, the data show. Only during the second round did larger banks with more urban and racially diverse customer bases, such as JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. predominate. Those three banks were the top PPP lenders overall, together providing almost 800,000 loans.

Access to Community Banks Linked to Early Loans

The more community banks per capita, the more loans a district received in round one. By round two, as the largest banks got more active, that relationship reversed
Each set of two dots represents a congressional district
  • Round 1
  • Round 2

Even within the PPP portfolio of those large lenders, businesses in whiter districts and those with White owners got loans more quickly. At JPMorgan, 70% of loans approved in the first two weeks of the program went to firms in majority White congressional districts compared with 61% in the second round, according to Bloomberg’s analysis.

Trish Wexler, a spokeswoman for JPMorgan, cited research showing minority-owned businesses tend to be smaller than White-owned ones, and said smaller businesses typically took longer to complete required paperwork because they often didn’t have in-house accountants or other support. Wells Fargo handled all applications online and on a first come, first served basis, a spokesman there said. A Bank of America spokesman said all  applications were online and few were approved during the first round. Spokespeople for all three banks said they didn’t collect information about the race and ethnicity of their PPP customers.

JPMorgan Loans Flowed Faster to White Districts

Percentage of loans that went to majority White congressional districts

The law enacting the aid program instructed the SBA to provide guidance to lenders so they could prioritize loans for underserved and rural markets, including “socially and economically disadvantaged individuals.” The SBA didn’t provide such guidance, and didn’t initially collect demographic information on loan recipients, the agency’s inspector general said in a May report. That means the agency may never know exactly how much money flowed to those markets, the report said. The SBA is now trying to collect that information during the loan-forgiveness process.

The SBA said in an emailed statement that the agency and the Treasury Department took “many significant, concrete and meaningful steps to prioritize underserved communities.” The statement didn’t address disparities arising during the first round or the lack of guidance to lenders. In late May, after the inspector general’s report was published and demand for loans waned, the SBA set aside $10 billion in PPP funds to be distributed by the nonprofit lenders known as community development financial institutions and later set up a website to match borrowers with them. And it sent a note in June to banks urging them to prioritize borrowers in disadvantaged areas.

The coronavirus shutdowns have been particularly hard on business owners and workers of color. Although unemployment rose across the board as a result of the pandemic, it jumped more for racial and ethnic minorities. The Hispanic unemployment rate stood at 14.5% in June compared with a White rate of 10.2%. The number of active Hispanic-owned businesses fell by 19% between February and May, compared with 15% for all small businesses, according to Robert Fairlie, an economist at the University of California at Santa Cruz, who used data from monthly surveys conducted by the Census Bureau and the Bureau of Labor Statistics. The declines for businesses with Black and Asian owners were 26% and 21% respectively, Fairlie found.

Loan Distribution Evened Out in Program’s Second Round

Percentage of small businesses that received PPP loans in majority White and predominantly minority congressional districts through June 30.

Black and Hispanic small-business owners are under-represented nationwide, together comprising 8% of owners, compared with their 31% share of the U.S. population. PPP loans weren’t intended to change that imbalance but rather to support existing small businesses hurt by the pandemic.

Economic Innovation Group, a Washington nonprofit that studies distressed communities, did its own analysis of PPP loan distribution in Texas, California and Illinois. “It shows relatively even distribution,” said Kenan Fikri, the research director there. “PPP essentially doesn’t seem to have introduced any new biases or problems into the small-business financing ecosystem. It’s just grafted on top of them.”

Fikri was skeptical that a week or two delay would have affected the viability of many small businesses. But if it delayed when businesses could re-hire workers, he said, it might have hurt some furloughed employees also having trouble getting unemployment benefits.

The majority of PPP loan applications were approved by early May, and since then lending has slowed to a trickle, indicating businesses that want and qualify for aid have already received it. More than $100 billion remains unspent. Meanwhile, Congress is discussing a new round of spending, including a revamped Paycheck Protection Program with different terms. A proposal from Senate Republicans would limit aid to firms that had a 50% decline in revenue but offer more flexibility about how the money could be spent.

The areas that waited longer for aid are the ones that could least afford it. About 94% of small businesses in majority Black communities and 89% in majority Hispanic ones have less than two weeks’ worth of cash reserves on hand, compared with 35% in majority White neighborhoods, the JPMorgan Chase Institute found in a report last year.

Michelle Holder, an assistant professor of economics at John Jay College of Criminal Justice in New York, said a delay in receiving funds could have been costly for some small businesses if they were forced to lay off workers they otherwise might have continued to pay.

“Once you lay off staff, it’s hard to get them back,” said Holder, who studies women and Black workers in the American labor market. “Small businesses can stymie bill collectors. They can say, ‘I’ll pay you in 30 days.’ You can’t really do that with workers.”