Advocates say that making big banks the gatekeepers for federal PPP loans has hurt Black businesses.
In North Carolina, small Black-owned businesses have been less likely to receive federal aid to weather the COVID-19 pandemic, business advocates charge.
And with another round of federal coronavirus relief legislation expected to begin negotiations this week, potential recipients in NC remain skeptical if aid will come in time if at all.
As a result, more and more small Black businesses are shuttering their doors for good, Charlotte-Mecklenburg Black Chamber of Commerce Chair Shanté Williams told WFAE Monday. The organization represents many small business owners in NC’s largest city.
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“Almost 60% of the contacts now are from businesses that have already closed and are unsure of whether or not they’re going to be able to open up again at all,” Williams said “Our membership base is somewhere around the 30-40% closure.”
Nationally, a recent report by the National Bureau of Economic Research showed that the number of active Black business owners declined by 41% in 2020.
One reason for this may be that loans through the federal Paycheck Protection Program, or PPP, overwhelmingly went to white men, with just 3% of loans worth $150,000 or more going to Black-owned businesses, WCNC reported.
Analyzing data collected by the U.S. Department of the Treasury and Small Business Administration, WCNC determined that while most PPP recipients in North and South Carolina did not identify their race, only 64 of those who did so are Black.
Black Business Owners Face Greater Challenges with PPP
The PPP was launched by the federal Small Business Administration quickly at the beginning of the pandemic to enable small businesses with fewer than 500 workers to apply for forgivable loans to cover payroll and expenses like rent and utilities during the economic slowdown. Since beginning the program, the SBA has approved nearly 5 million loans worth $518 billion.
But those funds have mostly bypassed Black businesses because banks were designated the gatekeepers in the loan approval process, Williams said.
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“A lot of the [Black] companies that went through the PPP process just didn’t have a good enough relationship with their bank,” Williams maintained, pointing out that Black-owned businesses are under-invested compared to their white-owned counterparts, meaning that they come into the loan application process with less savings.
When you look at “who is accessing credit, the outcomes are disparate,” Rochelle Sparko, the director of NC policy at the Durham-based Center for Responsible Lending, told The Raleigh News & Observer.
Citing research from the Federal Reserve Banks, Sparko offered that 46% of white-owned businesses had accessed credit from a bank, while just 23% of Black-owned businesses had done so.
As a result, Black business owners face greater challenges obtaining PPP funding.
Last May, Global Strategies Group conducted a survey of Black and Latino business owners on behalf of the nonprofit Color of Change. They found that 51% of Black and Latino small business owners reported applying for less than $20,000. Only 12% said they received the amount they requested. Forty-one percent were denied assistance.
Small businesses are likely at a disadvantage for obtaining relief because banks prefer to make big loans.
Banks participating in the PPP program are paid an origination fee based on the size of the loan, Ashley Harrington, the federal advocacy director at the Center for Responsible Lending told The News & Observer. Therefore, banks are incentivized to favor large companies over small ones.
“If you ask any lending institution, they’ll tell you it costs the same, if not more, to originate a small loan versus a big loan,” Harrington said. “Originating a big loan leads to a higher fee … The incentive is there for [a bank] to do the bigger loan and not the smaller loan.”
While Williams is anecdotally aware of several Black businesses getting loans of less than $150,000, those funds have not been enough, she said.
“While $10,000 may sound like a lot for a one-or-two-person business to some government officials, it’s not very much when we think about operating a business,” Williams said. “Ten thousand dollars is maybe a month’s worth of overhead.”
Help Is On the Way?
In DC Friday, Treasury Secretary Steven Mnuchin told the House Small Business Committee that the upcoming round of COVID-19 relief legislation this week should amend the PPP to help disproportionately devastated Black and Latino businesses.
Specifically, Mnuchin agreed with House Small Business Chairwoman Nydia M. Velázquez, a Democrat from New York, to set aside PPP funds for minority businesses, Roll Call reported.
One issue that may slow passage of new relief legislation is accountability.
Velázquez has criticized Mnuchin for allowing conflict-of-interest rules to be waived in the first round of PPP legislation. Mnuchin countered that Congress declined to include explicit conflict-of-interest language in the PPP.
“Congress could have those same requirements but decided not to do so,” he said.
Lack of oversight and transparency in a new round of PPP loans is troubling to lawmakers like Velázquez, given the Trump administration’s track record of conflict of interest. As Cardinal & Pine reported, lobbyists with ties to the president secured more than $10 billion in federal coronavirus aid for their clients.
Meanwhile, the Charlotte Mecklenburg Black Chamber of Commerce has turned to other funding sources to aid Black businesses. With help from Mecklenburg County commissioners as well as the Charlotte City Council, the chamber was able to get a $200,000 business support grant to help Black businesses reopen, Williams said.
“Supporting Black businesses is supporting the entire Charlotte community, because that’s our tax base,” she said. “That’s the vibrancy of our community.”
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