Skip to main content

Search form

The Paycheck Protection Program Continues to be Disadvantageous to Smaller Businesses, Especially Businesses Owned by People of Color and the Self-Employed

May 27, 2020
Consumer Finance
Policy & Legislation

The Paycheck Protection Program (PPP) is a revenue replacement program designed to sustain small business jobs during the ongoing public health and economic crisis. The effect of the crisis on small businesses has been profound—over half of small businesses said the crisis has had a large negative effect on their businesses and 74% of small businesses said they have had a decrease in operating revenues. Temporary closings have impacted 41.5% of small businesses, and 11.5% of small businesses said they had missed a loan payment since the beginning of the crisis. These impacts were far worse for some hardest hit sectors, including education, food service and accommodations and recreation. To help address these hardships, 74.9% of small businesses with employees have requested financial assistance from the PPP and 38.1% have received assistance. According to the Small Business Administration (SBA), as of May 12, 2020, the program has dispersed 4.3 million loans totaling nearly $534 billion.

At the outset of the program and during the first round of funding from April 3 to April 16, 2020, it was clear that structural inequities were built-in to the administration of the program, the application process, and the fee structure. These structural inequities made it extremely difficult for small businesses—and particularly businesses owned by people of color--to qualify for assistance or receive it in time to save their businesses and the jobs of the employees that depend on them.

Executive Summary

  • The Paycheck Protection Program continues to be disadvantageous to smaller businesses, businesses owned by people of color, and businesses without employees. PPP loans can be forgiven if the business is able to use the funds for eligible expenses within eight weeks of receiving the loan. This requirement makes it challenging, particularly for very small businesses, to ensure loans are forgiven rather than converted into long-term debt. The PPP fee structure also heavily incentivizes loans to larger firms that can garner higher fees. By distributing PPP funds through existing eligible SBA approved lenders, banks, and credit unions, the program ensures that businesses of color that have historically lacked access to credit are likely to face barriers in accessing critical PPP loans. Long delays in the distribution of funding and the prioritization of larger firms mean that small businesses and businesses owned by people of color had to wait to receive critical PPP loans to retain their employees and stabilize their businesses.
  • Small businesses of color were hardest hit by the structural limitations built into the PPP. Businesses owned by people of color are likely to have fewer employees and less revenue than white-owned businesses. As a result, they were less likely to qualify for larger loans that would yield the higher fees that would make them a priority for lenders at the outset of the program. Businesses owned by people of color are even more likely to have no employees, putting them at an even greater disadvantage to larger businesses that could garner higher fees. Further, the program out-right excludes criminal legal system-involved business owners, including people who have been charged, but not tried or convicted of a crime.