How PPP Loan Distribution Became the New Redlining – Mother Jones


A Philadelphia street in May 2020.Matt Rourke / AP

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The Paycheck Protection Program was to help small businesses grappling with the crippling financial fallout of the coronavirus pandemic. But the benefits, as with other governments reactions to the crisis, disproportionately flowed to white communities.

A new research from To reveal, which analyzed the distribution of more than five million PPP loans, found that the program was plagued by widespread racial inequalities. The findings demonstrate a persistence of the type of structural racism – exemplified by the racial covenants and twentieth-century realignment policies – that long ago prevented communities of color from flourishing. To reveal found, for example, that in the “vast majority” of metropolitan regions, businesses in predominantly white neighborhoods received much higher rates on loans than businesses in predominantly Latino, Black, or Asian. According to the research, published in collaboration with the Los Angeles Times:

Los Angeles had some of the worst [disparities] in the nation. Although communities of color were much harder hit by COVID-19, businesses in predominantly white areas received loans at twice the rate received by majority Latinx tracts, 1.5 times the rate of businesses in predominantly black areas and 1.2 times the rate in Asian areas.

The New York metropolitan area, which includes Newark and Jersey City in New Jersey, saw equally striking differences, with white areas receiving loans at twice the rate of Latinx areas, 1.8 times the rate for black areas, and 1.2 times the rate in Asian areas.

In other metropolitan areas, including Dallas, San Francisco, San Diego, Las Vegas and Phoenix, businesses in predominantly white areas also received loans at about twice as much as in Latin American areas.

The first batch of loans, totaling $ 349 billion, went out last spring, days after Congress passed the CARES law. But amid the hasty rollout, a lack of federal guidance meant that, as To reveal said, “any obstacle, such as the lack of paperwork or an existing relationship with a bank, ran the risk of leaving a company last in line.”

In early April, Malik Muhammad, the owner of a Los Angeles bookstore specializing in African American literature, contacted Wells Fargo – a bank that “Effectively starving communities of color from PPP money,” To reveal reports. Mohammed did not hear about his request for a loan for weeks. In early June, he received a form letter, “We cannot confirm that all applications will be submitted and processed by the SBA until the funds are exhausted, and we expect demand to exceed available funding.” He never received follow-up communications from Wells Fargo, although he later managed to get a small loan from Square. “I know we’re not big business, but we deserve a call,” he said.

The CARES Act had mandated the federal Small Business Administration to prioritize “ socially and economically disadvantaged individuals, ” an October 2020 Congressional subcommittee said. report quoted by To reveal. But the SBA, the Treasury Department, and the major banks that manage PPP loans ignored those guidelines. According to the subcommittee, Treasury had even privately encouraged banks to limit their initial loans to existing customers, excluding many minority and women’s businesses.

None of the backers interviewed by the subcommittee recalled any of the Trump administration’s guidelines on how to prioritize underprivileged communities, and several have established credit programs in which major commercial clients enjoyed a “ separate, faster process. ” In some cases, PPP loans for wealthier clients were processed twice as fast as loans for really needy small businesses.

To reveal had reported In April 2020, small business owners in Republican states with no home orders were more likely to get PPP loans than those in Democratic states where COVID first hit hard. In December, the New York Times and Washington Post both reported that most of the PPP money had gone to large corporations, including dozens of national chains, many of which were publicly traded. In the same month, when Congress approved its second COVID aid package, the legislation included a bipartisan provision that helped all PPP recipients but was most beneficial to the companies with the largest loans, resulting in an estimated $ 120 billion tax break for America’s richest entrepreneurs.

The failed rollout of a program supposedly intended to help small businesses and their employees has proven devastating for many, especially black owners, who are much more likely to do so. the only owners. To reveal cites a study by the Federal Reserve Bank of New York, which found it that from February to April 2020, the number of active companies plummeted by 22 percent, but the number of black and Latino companies fell by 41 percent and 32 percent, respectively.

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