Numerous studies of the Paycheck Protection Program (PPP), which provided loans to small businesses during the COVID-19 pandemic, have documented racial disparities in the program. Because publicly available PPP data only include information on approved loans, prior work has largely been unable to assess whether these disparities were driven by borrower application behavior or by lender approval decisions. In this post, which is based on a related Staff Report and NBER working paper, we use the Federal Reserve’s 2020 Small Business Credit Survey to examine PPP application behavior and approval decisions and to study the strengths and limitations of fintech lenders in enhancing access to credit for Black-owned businesses.
Prior research has shown that many small and minority-owned businesses failed to receive Paycheck Protection Program (PPP) loans in 2020. To increase program uptake to underserved firms, several changes were made to the PPP in 2021. Using data from the Federal Reserve Banks’ 2021 Small Business Credit Survey, we argue that these changes were effective in improving program access for nonemployer firms (that is, businesses with no employees other than the owner(s)). The changes may also have encouraged more applications from minority-owned firms, but they do not appear to have reduced disparities in approval rates between white- and minority-owned firms.
In the previous post, we discussed inequalities in access to credit from the Paycheck Protection Program (PPP), showing that, although fintech lenders had a small share of total PPP loan volumes, they provided important support for underserved borrowers. In this post, we ask whether smaller firms received the amount of PPP credit that they requested, and whether loans went to the hardest-hit areas and mitigated job losses. Our results indicate that fintech providers were a key channel in reaching minority-owned firms, the smallest of small businesses, and borrowers most affected by the coronavirus pandemic.
The Paycheck Protection Program (PPP) is a central piece of the CARES Act. In the program’s first round, $349 billion in forgivable government-guaranteed loans were extended to small businesses to cover costs related to payroll and utilities, as well as mortgage and rent payments. The program opened for applications on April 3 and was oversubscribed by April 16. Because of its popularity, lawmakers passed a new bill replenishing the fund with another $310 billion and the Small Business Administration (SBA) started approving loans again on April 27. With a new round of PPP lending underway, it is natural to examine the allocation of credit in the first round and ask: Have PPP loans gone to the areas of the country and sectors of the economy hardest hit by COVID-19?