Payroll protection loan discrimination

The coronavirus didn’t create the racial wealth gap, but it’s doing an excellent job of making it worse.

Advocates fear the economic shock waves from the novel coronavirus will be devastating for small-business owners of color and that relief will not be equitably distributed.

Even before the pandemic, small businesses owned by people of color reflected deep racial inequities in access to wealth and capital. Historically, banks in the United States have been twice as likely to approve loans for white business owners than for black business owners. That’s one factor contributing to a wealth gap that has left Latinos and African Americans with one-tenth the net worth of white Americans.

Small businesses owned by people of color and women are actually small. Not LA Lakers or Ruth’s Chris Steakhouse “small,” two businesses that initially received federal payroll loans. The average business owned by women and people of color has eight employees, according to the Brookings Institution.

Amanda Ballantyne is the Seattle-based executive director of the Main Street Alliance, which advocates for small businesses — there are 30 million of them in the nation. Ballantyne said the economic toll has created a catastrophic crisis for millions of small, under-resourced and at-risk businesses, and that programs designed to help are giving better funded, white-owned businesses an advantage.

Businesses owned by people of color, women and those in rural areas “are at the back of the line for government aid and sometimes not even able to get in the line,” Ballantyne said.

That’s because the primary source of aid for small businesses, the Paycheck Protection Program, is administered not by the government but by banks and lenders — the very same banks that historically have more established relationships with white business owners than with business owners of color. The program had a rocky rollout on April 3 and was harshly criticized for allowing $1 billion in aid to go out to publicly traded companies, including businesses like Shake Shack, which has now returned the funds.

A California lawsuit filed by small-business owners against four big banks in April argued the lenders favored businesses seeking higher loan amounts so they could make more money.

In the first round of funding, which ran out in 13 days, historic inequities played out in real time. An April 21 survey by Goldman Sachs showed 40% of black small-business owners reported getting PPP funds from the first round, compared with 52% overall.

The second round of funding, again launched amid technical difficulties, put $310 billion back on the table for applicants, with pathways added to make the program somewhat more accessible for small, women and POC-owned businesses. But even before the portal opened for applicants, the five largest banks had $100 billion in loan applications ready to go, all a backlog from the previous round.

The Center for Responsible Lending said it feared these barriers were effectively shutting out people of color. CRL and Main Street Alliance joined a coalition of civil rights, faith and community development organizations in drafting an April 26 letter to Treasury Secretary Steve Mnuchin to advocate for $10 billion of the fund to be designated for Community Financial Institutions that work specifically with communities of color. They also asked that lenders collect racial data from borrowers, which is currently not happening, so there is transparency in where the money is going.

Ellen Harnick, an executive vice president at CRL, said the racial wealth and income gaps are entrenched already. With the pandemic and the way the aid is being distributed, she said, “We’re going to see those gaps widen right now. … We’re looking at the policies that are causing the widening of the racial wealth gap. Businessmen and women of color have not gotten their fair share out of this program by any stretch of the imagination.”

Urgency is needed in our aid for small business, but urgency should not be an excuse for policies that seem designed to guarantee inequity, as Harnick put it. It is possible to both act quickly and act fairly and we must do so now.

Naomi Ishisaka is a columnist for The Seattle Times.