Our analysis of Treasury’s data shows how this precondition systematically delayed access to PPP loans in majority-minority neighborhoods. Prior to the COVID-19 pandemic, the JPMorgan Chase Institute found that businesses in communities of color were the most cash-constrained but the least likely to have existing relationships with large banks. While we do not have data on business owners themselves, neighborhood racial composition can be a useful angle to investigate the PPP’s reach, as previous research finds that the racial and ethnic composition of a neighborhood is related to small businesses’ liquidity and profitability. However, the database does provide the ZIP code, loan approval date, and lender for over 5 million borrowers, creating an comprehensive picture of small business capital access at the neighborhood scale. This disparate access has been hard to measure directly because PPP loan-level data provided by the Treasury Department does not consistently report the race and ethnicity of the loan recipient. The PPP initially relied on traditional banks to deliver loans, which favored existing customers at large banks and disfavored microbusinesses (businesses with fewer than 10 employees), non-employer businesses, and Black- and Latino- or Hispanic-owned businesses (which all tend to be unbanked or underbanked). Neighborhoods of color with the most cash-constrained small businesses received PPP loans last Understanding these shifts in the small business lending landscape is critical to understanding what happened next. At the same time, independent contractors and self-employed individuals (business owners who do not have employees) were not eligible for PPP loans until April 10. But those online lenders were not made eligible to issue PPP loans until April 14, two days before the first round of PPP funds was depleted. Online lenders have stepped up to fill the gap with internet-based technologies that allow for more efficient loan processing and lower transaction costs, albeit with higher interest rates. According to the Institute for Local Self-Reliance, since 2006, communities of color have lost more small community banks than other communities. This has a disparate impact at the neighborhood level. Over the past couple decades, large banks have been less likely to operate in the small-loan space due to low profit margins, and small banks that traditionally served local small businesses have declined due to a wave of bank consolidations since the financial crisis. The PPP also revealed capital access challenges for some small businesses due to broader shifts in the small business lending market. Mooney acknowledged that KeyBank’s initial outreach was to its existing customers, which means that unbanked or underbanked small businesses were not included in that first push. But in the first half of April alone, they issued 37,000 loans. At a Brookings event in April, then KeyBank CEO Beth Mooney characterized the PPP as a “Herculean” public-private response whose “execution was very painful.” She reported that KeyBank, the nation’s ninth-largest SBA lender, typically does about 600 SBA 7(a) loans annually, or about 50 per month. Implementation challenges were immediate. This enabled the financial system to move a historic amount of capital in a very short period. ![]() SBA removed the majority of the 7(a) program’s rules-requiring no fees, no credit scores, and no collateral from applicants. With this urgency, Congress built on the principles of the Small Business Administration’s existing 7(a) loan guarantee program to distribute loans through certified lenders (banks, credit unions, CDFIs, and, eventually, financial technology companies and non-bank lenders). The goal was to avoid a historic wave of small business closures that could tear apart the fabric of the economy. These businesses needed new sources of immediate liquidity, and Congress designed the PPP to cover their labor costs for 10 weeks. Starting in March, millions of small businesses stopped generating revenue, but still had payroll and other fixed costs (utilities, rent, debt payments, etc.). The equation for the COVID-19-induced small business crisis has been troubling but simple. A ‘Herculean’ response with a painful execution Newly released data offers a comprehensive snapshot of how access to PPP loans varied considerably based on neighborhood demographics, with small businesses in majority-white neighborhoods receiving PPP loans more quickly than small businesses in majority-Black and majority-Latino or Hispanic neighborhoods. ![]() That distribution, however, has not been equal. Congress’s major COVID-19 relief program for small businesses, the Paycheck Protection Program (PPP), has so far distributed 5 million loans across the country.
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