Minorities underserved in business relief effort
Southern Bancorp is a lender serving the Arkansas and Mississippi Delta, where poverty rates are among the highest in the United States and decades of redlining shaped neighborhoods with little generational wealth.
When the Paycheck Protection Program for small businesses started in April 2020, so many of Southern Bancorp’s customers did not qualify for the relief money that the Arkansas bank’s chief executive, Darrin Williams, turned to donors to raise money for $1,000 grants so it would not have to turn applicants away empty-handed.
The bank made 128 such grants, giving more than 100 of them to businesses run by women or minority owners. One let a nail salon owner buy Plexiglas so she could reopen. A day care used the money for new sanitizing equipment.
“So many companies will never come back, and disproportionately more of those that will be lost are Black and brown businesses,” Williams said.
Congress created the Paycheck Protection Program in March 2020 as an emergency stopgap for what lawmakers expected to be a few months of sharp economic disruption. But as the pandemic raged on, the program has turned into the largest small-business support program in U.S. history, sending $734 billion in forgivable loans to struggling companies.
The program helped nearly 7 million businesses retain workers. But it has also been plagued by complex, changing rules at every stage of its existence. And one year in, it has become clear that the program’s hasty rollout and design hurt some of the most vulnerable businesses.
A New York Times analysis of data from several sources — including the Small Business Administration, which is managing the loan program — and interviews with dozens of small businesses and bankers show Black and other minority-owned businesses were disproportionately underserved by the relief effort, often because they lacked the connections to get access to the aid or were rejected because of the program’s rules.
After Congress created the program in last year’s CARES Act, President Donald Trump’s administration — especially his treasury secretary, Steven Mnuchin — put a priority on getting money to needy businesses fast. Just seven days after the law was signed, the earliest applicants received their checks.
But the haste meant the rules were mostly written on the fly. Reaching harder-to-serve businesses was an afterthought. Lenders and advocacy groups warned that the relief effort had structural challenges that were likely to inadvertently but disproportionately harm women and minority business owners. Reaching the most vulnerable required determination, they said, and the program gave lenders no incentives to put in effort.
The government relied on banks to make the loans, creating an obstacle for borrowers who did not have established banking relationships. Some banks favored larger and wealthier clients, pushing ordinary customers to the back of the queue. “Mystery shopper” studies found Black applicants were consistently treated worse than white counterparts.
The program also largely locked out sole proprietors and independent contractors — two of the most popular structures for minority-owned businesses. Those companies were not eligible to apply for the program’s first week. When they got access, a rule barring loans to unprofitable solo businesses — a restriction that did not apply to larger companies — prevented many from getting help. Most nonbank lenders, including those that specialize in underserved communities, were shut out for weeks while they waited for the Small Business Administration to approve them.
“The focus at the outset was on speed, and it came at the expense of equity,” said Ashley Harrington, the federal advocacy director at the Center for Responsible Lending.