It’s no secret that banks have not provided capital to businesses equitably. Financial institutions within the U.S. have been twice as likely to approve loans for white business owners than for black business owners. Many people think that’s a thing of the past, but unfair lending methods are exposed once again as it relates to the Paycheck Protection Program. Although the Federal government provides funds, the program's management is handled by the same commercial lenders that were accused of previous discriminatory practices. In a recent BCT Partners blog, we explored how COVID-19 has exposed many of society’s inequities. In this blog,
When Congress passed the second round of funding for the PPP, about $60 billion was set aside for businesses that did not have established banking relationships, such as rural and minority-owned companies. However, many companies still feel they are being left out and rightly so. CBS News found that up to 90% of minority and women-owned businesses received no funding in the first round. Bigger banks also prioritized larger loan applications to maximize fees and profits, according to several class-action lawsuits representing small businesses still waiting for their approved funding.
For people of color, this is not a new phenomenon. As Ron Busby, president of U.S. Black Chambers, said, "I hear a lot about making America great again. In order to have a great America, there has to be a great black America. In order to have that, we need great black businesses. We need access to capital." One business that has experienced this lack of equity for many years is Terra Eatery. Operating in Baltimore, Maryland, Terrence Dickinson started the café to serve healthy and affordable food while also giving back to the community. Although he has been trying to ramp up delivery services, he has been hit hard by COVID-19, and he desperately needs funding to survive. "The financial industry has shown me no love for 20 years," he said of his challenges qualifying for traditional bank loans. And now that’s proving true with the PPP program as well. He continued, "I'm tired of hearing about the money. I want to see the money," Although he applied to his personal bank, Bank of America, NBC News found that the application was not even in their system. While it has now been resubmitted, no one seems to know how the oversight happened in the first place and when he will receive the funds that will help him stay in business.
Natasha Crosby, a Virginia realtor, said her bank only made its PPP loan application available on April 16 — the same day funds ran out. Other banks in her area required an existing lending relationship with them, so she was effectively prevented from taking advantage of the program. "I wasn't even able to apply and be in a position to be denied. I was essentially denied from the onset.”
Brookings Institution research also suggests that the U.S. Small Business Administration-backed loan program favored larger, and mostly white-owned businesses. As Joseph Parilla, a fellow at the Metropolitan Policy Program at Brookings stated, "In order to achieve scale and rapidity, they did it through lenders, and lenders rationally said, 'We'll start with our existing customers first because we have all of their info,' and those tended to be larger small businesses. It stands to reason that the way the PPP was structured, approved loans tended to skew toward white-owned small companies."
And this program does not seem to be discriminating only against minority and women-owned businesses. Program funds were distributed unequally even among states. During the first13 days of the federal government’s small-business rescue program, Nebraska did incredibly well with companies based there getting enough money to cover 81% of the state’s eligible payrolls. However, it was a different picture in New York and California, where companies did only half as well. For example, the two states with the highest unemployment claims between March 15 and April 11 received a proportionately lesser amount of PPP dollars. California experienced 14.8 percent of the nation's unemployment claims but only 8.4 percent of PPP lending. New York saw 10.6 percent of unemployment claims but only 4.7 percent of PPP lending. Although those states are starting to catch up, it's impossible to ignore the politicism of the disbursement of funds.
In summary, while this pandemic is negatively impacting almost every business to a certain degree, not every company is suffering equally. Small businesses are the lifeblood of this country, and yet, resource distribution is benefiting larger organizations and white-owned companies more than those owned by people of color. As the Huffington Post pointed out, “Over 99 percent of employing organizations are small businesses, and more than 95 percent of them have fewer than ten employees.” The reality is that most Americans rely on employment from small companies, so Congress has to act now to ensure that all of these businesses get the help they desperately need to stay afloat during the COVID crisis and this time of civil unrest.