Minority entrepreneurs struggled to get PPP loans – Finance & Commerce
Southern Bancorp is a lender serving Arkansas and the Mississippi Delta, where poverty rates are among the highest in America and decades of redlining shaped neighborhoods with little generational wealth.
When the Small Business Paycheck Protection Program began in April 2020, so many of Southern Bancorp’s customers were not eligible for financial assistance as the Bank of Arkansas CEO, Darrin Williams, turned to donors to raise money for grants of $ 1,000 so he didn’t have it. to dismiss candidates empty-handed.
The bank has awarded 128 such grants, including more than 100 to businesses run by women or minority owners. We let a nail salon owner buy some plexiglass so she could reopen. Another allowed a small cafe to buy safety equipment for its staff. One day care center used the money for new disinfection equipment it needed.
“So many businesses will never come back, and disproportionately the ones that will be lost are black and brown businesses,” Williams said.
Congress created the Paycheck Protection Program in March 2020 as an emergency stopgap for what lawmakers expected to be a few months of severe economic disruption. But as the pandemic raged, the program – which made its first loans a year ago last week – became the largest small business support program in U.S. history, sending $ 734 billion dollars in forgivable loans to troubled businesses.
The program has helped nearly 7 million businesses retain their workers. But it has also been plagued by complex and changing rules with every stage of its existence. And a year later, it became clear that the hasty deployment and design of the program hurt some of the most vulnerable businesses.
A New York Times analysis of data from multiple sources – including the Small Business Administration, which manages the loan program – and interviews with dozens of small businesses and bankers show that black-and-white-owned businesses other minorities have been disproportionately underserved by relief efforts. , often because they did not have the connections to access help or were rejected due to program rules.
The deployment was rapid
After Congress created the program in last year’s CARES Act, President Donald Trump’s administration – particularly his Treasury Secretary Steven Mnuchin – has prioritized getting money to the door quickly. businesses in need. Just seven days after the signing of the law, the first candidates received their checks.
But the rush meant that the rules were mostly written on the fly. Reaching the hardest to serve businesses was an afterthought. Lenders and advocacy groups have warned that the relief efforts presented structural challenges that could inadvertently but disproportionately harm women and minority business owners. Reaching the most vulnerable businesses required determination, they said, and the program did not encourage lenders to make the effort.
The government relied on the banks to make the loans, creating a barrier for borrowers who had not established banking relationships. Some banks have favored their larger and richer customers, which has pushed regular customers to the bottom of the queue. Studies of “mystery shoppers” have found that black applicants are consistently treated worse than their white counterparts.
The program has also largely locked in sole proprietorships and independent contractors – two of the most popular structures for minority-owned businesses. These businesses were not eligible for the first week of the program. When they did gain access, a rule banning lending to unprofitable sole proprietorships – a restriction that did not apply to large businesses – prevented many from getting help. Most non-bank lenders, including those who specialize in underserved communities, have been shut out for weeks while waiting for the Small Business Administration to approve them.
“In the beginning, the emphasis was on speed, and it came at the expense of fairness,” said Ashley Harrington, federal director of advocacy at the Center for Responsible Lending.
Black and minority businesses are suffering
Since lenders are not required to collect demographic details about their borrowers, data on the racial distribution of the Paycheck Protection Program is scarce, but economists have consistently found signs of gaps.
An analysis by the Federal Reserve Bank of New York noted that some counties with large numbers of black-owned businesses – notably the Bronx and Queens in New York and Wayne County in Michigan, which includes Detroit – had surprisingly low concentrations of relief loans. According to a San Francisco Fed analysis released last month, predominantly white zip codes in several metropolitan areas had higher loan coverage than zip codes with heavily minority populations.
And data from the Small Business Administration shows the tilt of the relief effort. The vast majority of lenders did not release demographics on the 3.6 million loans they made this year, but of the 996,000 that included information on the borrower’s race, 71% of the dollars went to white-owned businesses.
Pilar Guzman Zavala founded Half Moon Empanadas, a small restaurant chain, in Florida 12 years ago. It employed 100 people before the pandemic and had established bank accounts and years of detailed business records. But Zavala’s application was blocked with the first two lenders she tried, forcing her to spend a month hunting before finally finding a local bank to process her loan.
She is grateful for the help, which helped her retain 50 workers, but found the process maddening.
“The financial system is not for real small businesses, Hispanic businesses, women-owned businesses. It’s just not the case, ”she said.
Of the 1,300 paycheck protection program loans Southern Bancorp made last year, many went to customers who had been turned down by the big banks, Williams said.
In a recent Federal Reserve poll, nearly 80% of black and Asian small business owners said their business was in bad financial shape, compared to 54% of white business owners. And black homeowners face unique challenges. While homeowners in all other demographic groups told the Fed that their main problem at the moment was weak customer demand, black respondents cited another major challenge: access to credit.
When Jenell Ross, who runs an auto dealership in Ohio, applied for a Paycheck Protection Program loan, her long-time bank told her to look elsewhere – a message that big banks like Bank of America, Citi, JPMorgan Chase, and Wells Fargo have passed on many of their clients to the program’s frantic start.
A few days later, she got a loan from Huntington Bank, a regional lender, but the experience stung.
“Historically, access to capital has been the primary concern for women-owned and minority-owned businesses to survive, and during this pandemic it has been no different,” Ross, who is black, told a House committee last year.
Community groups intervene
Community lenders and aid organizations have taken a shoe-leather approach to filling the gaps.
Last year, the American Business Immigration Coalition, an advocacy group, worked with local nonprofits to create a ‘community navigator’ program that sent outreach workers to black, minority businesses. and rural in Florida, Illinois, South Carolina and Texas. They plowed the roadblocks, like a mole.
Language barriers were common. Many business owners had never applied for a bank loan before. Many did not have an email address and needed help setting up one. Some had not filed income tax returns; the coalition hired two accountants to help people sort out their finances.
“Our people literally went door to door and walked people through the process,” said Rebecca Shi, executive director of the group. “That takes time.”
The group’s work has grossed $ 8 million in paycheck protection program loans for 219 companies. For these businesses, the help has made a profound difference.
TruFund Financial, a New York lender that focuses on historically disadvantaged communities, spent an average of two working hours on each of the 490 loans made last year – far more than the major lenders. Dozens of his requests took 10 hours. or more to complete, said James Bason, Managing Director of TruFund.
Many TruFund customers have walked through the door after being turned down by big banks, where “not being able to talk to anyone at the bank, just sit and wait to hear, then not hear a thing for weeks – all of this created a lot of anxiety for our small business borrowers, ”Bason said.
Shaundell Newsome, a Las Vegas business owner and co-chair of Small Business for America’s Future, an advocacy group, said improving outcomes for black business owners will require deliberate and lasting changes in the entire banking sector.
“The solution is intentionality,” he said. “What I mean by that is making sure that bankers, regulators, and policymakers remain intentional in building black businesses and helping us access capital.”
That’s a message Newsome passed on to Treasury Secretary Janet Yellen at a recent meeting. Yellen is committed to increasing support for minority-focused lenders and making other changes to alter a financial system that, on its own terms, still produces results unacceptably similar to those when the Jim Laws Crow were in effect.
Economic crises like the one now plaguing the country “are hitting people of color harder and harder and for longer” and deepening economic inequalities, Yellen told the meeting. “I’m afraid the current crisis will do it again. In fact, I know we will, unless we take action.
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