Data from the Paycheck Protection Program shows that many minority owners desperate for a loan only received one in the final weeks of the PPP.
Thousands of minority-owned small businesses were at the back of the line in the government’s coronavirus relief program as many struggled to find banks that would accept their applications or were disadvantaged by the terms of the program.
Data from the Paycheck Protection Program, released Dec. 1 and analyzed by The Associated Press, shows that many minority owners desperate for a relief loan only received one in the final weeks of the PPP, while many more white business owners got one earlier Loans could get the program
The program, which began April 3 and ended Aug. 8, and made 5.2 million loans worth $525 billion, helped many businesses stay on their feet at a time when government action to combat the virus Coronavirus forced many to close or work at reduced capacity. But it has struggled to fulfill its promise to help communities that historically have not gotten the help they need.
Congress has approved a third round of $284 billion in PPP loans. While businesses that were previously denied loans have another chance at help, businesses hit hard by the virus outbreak are entitled to a second loan, according to a draft law.
The first round of the program saw overwhelming demand, and the Small Business Administration approved $349 billion in loans in just two weeks. But many minority-owned companies applied to multiple banks early in the program and were rejected, while others could not get the banks to respond to their applications and inquiries.
“Many of our companies were rejected in first and second rounds of funding. This created fatigue and frustration when applying,” said Ron Busby, president of the US Black Chambers, a national chamber of commerce.
Loan data analyzed by zip code found that this first round of funding approved six loans for every 1,000 people living in the 20% of zip codes with the largest proportion of white residents, nearly double the amount for loans for people who there live in the 20% of postcodes with the lowest percentage of white people.
This pattern reversed in the final four weeks of the second round, in part as banks responded to the criticism by making loan applications easier. Over the course of the program, the number of loans approved grew, leveling out at 14 loans per 1,000 people in most zip codes with the most and fewest white-owned businesses.
Still, minority owners had to wait while their businesses were in jeopardy.
“A lot of people are hanging by their teeth. Most work in professional services, small retail stores, restaurants, barber shops,” said Ramiro Cavazos, president of the United States Hispanic Chamber of Commerce.
The latest data from the SBA provided a more in-depth look at companies receiving loans than data released on July 6th. The earlier data provided limited details on loans below $150,000; The government initially refused to release any further information about these borrowers, citing privacy concerns. The AP and other news organizations successfully sued under the Freedom of Information Act to release data on all PPP loans, leading to the latest release.
The SBA did not elaborate on the timing of the loans to minority-owned companies when asked for comment by the AP. However, spokeswoman Shannon Giles said in an email that $133 billion, or 25% of the PPP funding, went to companies in economically disadvantaged areas known as historically underutilized business zones, and 27% went to low-income neighborhoods and middle income.
The bill, which President Donald Trump signed into law on Sunday, would provide $15 billion for community banks, minority-owned financial institutions and community development financial institutions, non-banks that aim to raise finance for underserved communities, to be provided.
The AP analysis shows restaurants hit by the virus outbreak got the most loans in the first round, followed by businesses in two high-income professions: law firms and medical offices. When the first round ended, millions of small businesses had to wait.
The program’s differences were obvious from the start. An AP analysis of the first data release found that some of the country’s largest banks had processed larger loans first. This included loans to well-known and well-funded companies such as Shake Shack, Ruth’s Chris Steakhouse and the Los Angeles Lakers. Many returned the money.
In addition, the terms of the program helped exclude minority-owned businesses. A key objective of the loans was to enable owners to continue paying employees who would otherwise become unemployed. Companies that are not employers, or companies that have owners but no other employees, were therefore only allowed to apply one week after the start of the program.
That discouraged many minority owners, Busby says.
“This program was made available for payroll, and so many companies didn’t have payroll and didn’t apply,” he says.
Minority firms and other very small businesses were also initially left out because some banks refused to process applications that did not come from established multi-account customers. Many of these banks stopped this practice after being publicly criticized. The SBA, which originally had more than 3,000 lenders in the program, eventually added 2,000 more banks, non-bank lenders and online lenders, which helped more minority applications to be approved over the course of the PPP.
“Many of our Hispanic-owned companies in the first round have never heard a response from their banks or have been rejected. They had to wait until the second round, and many had to leave their banks and go to a community lender or minority nonprofit. agency,” says Cavazos.
Lisa Marsh tried unsuccessfully to get banks to process her application. She submitted her first application in June but received no replies on her status from her bank, a subsidiary of a major national bank. She didn’t get any further with smaller community banks either.
Marsh, owner of MsPsGFree, a Chicago-based gluten-free bakery business, finally applied through an online lender in late July and received her loan a few days before the end of the PPP.
“I was very frustrated and almost gave up,” she says.
The lack of a banking relationship was one of the reasons the New York Federal Reserve Bank cited for differences in approving PPP lending to black and white-owned companies. The study, based on the first SBA data release, found that in parts of the country where there was a concentration of black-owned businesses, the percentage of loans was well below the national average. For example, only 7% of companies in New York’s Bronx and 11.6% of companies in Wayne County, Michigan, where Detroit is located, received PPP loans, compared to nearly 18% of companies nationwide.
Public relations helped turn the tide. Community development financial institutions that are linked to local minority-owned businesses and have helped them apply in the second round, says Claire Kramer Mills, co-author of the NY Fed study.
“The differences we saw before were really startling,” says Mills.
The outreach brought in thousands of last-minute applications, SBA data shows.
MBE Capital, a lender focused on minority-owned companies, received a commitment from NBA Hall of Famer Magic Johnson in mid-May to fund $100 million in PPP loans.
According to the AP analysis, MBE loans accounted for nearly a quarter of the approvals on the final day of the PPP. More than half of the company’s loan approvals came in the final three weeks of the program. MBE did not respond to requests for comment.
Busby noted that the PPP should help underserved communities.
“We know that didn’t happen,” he says.
AP Data journalist Justin Myers reported from Chicago
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