State and federal COVID-19 relief programs for small businesses, including the Paycheck Protection Program, have so far distributed 5 million loans across the country. That distribution, however, has not been equal.
According to a survey by the Federal Reserve, 95 percent said their business was impacted by the pandemic. Some 78 percent reported a decline in revenue and 46 percent said they had to shrink their staff.
Nearly 90 percent of small businesses said sales had not returned to pre-pandemic levels by the time of the survey. Of those companies, about a third said it would be unlikely that the business would survive until sales recovered without more government help. Some 53 percent of businesses expected their total sales revenue to drop by more than 25 percent in 2020.
Outcomes varied widely by race and ethnicity. Some 54 percent of white-owned firms described their financial condition as “fair” or “poor.” But that share rose to 79 percent for Asian-owned businesses, to 77 percent for Black-owned firms and to 66 percent for Hispanic-owned businesses.
Local government leaders and small businesses owners discussed the challenges minority owned businesses faced during the pandemic at the National Asian American & Pacific Islander Small Business Roundtable in April. The consensus was that the minority owned businesses did not receive the adequate relief compared to their counterparts.
“One thing we noticed was that there was a discrepancy in financial literacy with the minority business owners,” said Supervisor Terry Withrow. “That was one of the things we really worked on, helping these community members get the help they are due.”
Newly released data from the federal reserve 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.
Congress built on the principles of the Small Business Administration’s existing loan guarantee program to distribute loans through certified lenders (banks, credit unions, CDFIs, and, eventually, financial technology companies and non-bank lenders). SBA removed the majority of the program’s rules; requiring no fees, no credit scores and no collateral from applicants. This enabled the financial system to move a historic amount of capital in a very short period.
Implementation challenges were immediate. At a Brookings event last 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 loans annually, or about 50 per month. But in the first half of April alone, they issued 37,000 loans. 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.
The PPP also revealed capital access challenges for some small businesses due to broader shifts in the small business lending market. 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.
“We started building in the middle of 2020 and one thing we experienced was supply chain issues,” said owner of the Asian Market Trong Vuong. “We are getting stuff faster now, but it was a challenge when we first opened.”