How PPP Loan Distribution Became the New Red Line – Mother Jones
The Paycheck Protection Program was meant to help small businesses struggling with the crippling financial effects of the coronavirus pandemic. But the advantages, as for other governments answers to the crisis, were disproportionately flocking to white communities.
A new investigation from Reveal, which analyzed the distribution of more than five million PPP loans, found that the program was plagued by widespread racial disparities. The results show a persistence of the kind of structural racism—exemplified by the racial pacts and redlining policies of the 20th century—that has long prevented communities of color from thriving. Reveal found, for example, that in the “vast majority” of large metropolitan areas, businesses in predominantly white neighborhoods were approved for loans at much higher rates than those in predominantly Latino, black, or Asian neighborhoods. According to the survey, published in partnership with the Los Angeles Times:
Los Angeles has had some of the worst [disparities] in the nation. Even though communities of color were hit much harder by COVID-19businesses in majority white areas received loans at twice the rate of those in majority Latin areas, one and a half times the rate of businesses in majority black areas, and 1.2 times the rate in Asian areas.
The New York metropolitan area, which includes Newark and Jersey City in New Jersey, saw similarly stark disparities, with white areas receiving loans at twice the rate of Latinx areas, 1.8 times the rate of black areas and 1.2 times the rate of Asian areas.
In other metro areas, including Dallas, San Francisco, San Diego, Las Vegas and Phoenix, businesses in majority-white regions also received loans at about twice the rate of those in majority-Latin regions.
The first batch of loans, totaling $349 billion, was issued last spring, days after Congress passed the CARES Act. But amid the rushed deployment, a lack of federal guidance meant that, as Reveal In other words, “any impediment, such as missing documents or no existing relationship with a bank, risked leaving a business last.”
In early April, Malik Muhammad, the owner of a Los Angeles bookstore specializing in African-American literature, contacted Wells Fargo, a bank that “effectively starved communities of color of PPP money”, Reveal reports. Muhammad heard nothing of his loan application for weeks. In early June, he received a form letter: “We cannot confirm that all applications will be submitted and processed by the SBA before funds are exhausted, and we anticipate that demand will exceed available funds.” He never received follow-up communication from Wells Fargo, although he later managed to secure a small loan from Square. “I know we’re not a big company, but we deserve a call,” he said..
The CARES Act had directed the federal Small Business Administration to prioritize “socially and economically disadvantaged individuals,” according to an October 2020 congressional subcommittee report Quoted by Reveal. But the SBA, the Treasury Department and the big banks that administer PPP loans ignored those guidelines. In fact, the subcommittee found that the Treasury had privately encouraged banks to limit their initial loans to existing customers, excluding many minority and women-owned businesses.
None of the lenders interviewed by the subcommittee recalled any direction from the Trump administration on how to prioritize underserved communities, and several set up lending programs in which large commercial customers benefited. of a “separate and faster process”. In some cases, PPP loans for the wealthiest customers have been processed twice as fast as loans for really needy small businesses.
Reveal had reported in April 2020 that small business owners in Republican states without stay-at-home orders were more likely to have obtained PPP loans than those in Democratic states where COVID hit hard first. In December, the New York Times and Washington Post both reported that the majority of PPP money went to big companies, including dozens of national chains, many of which are publicly traded. The same month when Congress passed its second COVID relief package, the legislation included a bipartisan provision that helped all PPP recipients but was most beneficial to companies with the largest loans, which resulted in an estimate $120 billion in tax relief for America’s wealthiest business owners.
The botched rollout of a program supposed to help small businesses and their employees has proven devastating for many, especially black owners, who are far more likely to be sole proprietors. Reveal cites a study by the Federal Reserve Bank of New York, which find that from February to April 2020, the number of active businesses fell 22%, but the number of Black and Latino businesses fell 41% and 32%, respectively.