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Small Business Support Must Extend to Businesses of Color

May 5, 2020
Consumer Finance
Policy & Legislation

The Small Business Administration Paycheck Protection Program (PPP) has failed to fairly serve businesses owned by people of color, causing spill-over harms throughout communities of color, states, and regions. Businesses owned by people color are a substantial source of income and employment—accounting for more than 8.7 million jobs at total annual payroll of $280 billion, and $1.3 trillion in revenue-yet many were excluded from the first round of funding in the PPP.

The scarcity of funding relative to the demand strongly favored relatively well-connected, well-resourced businesses with existing commercial lending relationships with a bank or credit union. These entities were able to get their application accepted and processed quickly to claim their share while the funding lasted. This strongly disfavored businesses owners of color, who generally do not have these relationships and access. Moreover, the program incentivizes lenders to favor larger loans, which yield larger fees, and these require payrolls larger than those of the vast majority of businesses of color. This first-come, first-served model privileges businesses and financial institutions that have more resources and are better prepared to move. Even though some changes were made during the second round of the PPP, much more must be done to ensure essential relief reaches small businesses owned by people of color.

Download the policy recommendations. (PDF)