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Did "underserved communities" get a fair share of forgivable COVID-19 loans? Hard to tell

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Tomasz Zajda
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Understanding whether businesses owned by people of color were able to access the PPP depends on borrowers submitting voluntary data about race and ethnicity. The overwhelming majority of PPP borrowers didn't report it.

Nearly nine in ten of the more than 121,000 Michigan businesses that have received forgivable loans through the Paycheck Protection Program did not answer voluntary questions about race and ethnicity.

The paucity of demographic information about PPP borrowers included in loan disclosure data made public this week makes it difficult to assess the impact and fairness of the nearly $600 billion federal program. In a May report, the Inspector General of the Small Business Administration found there was “no evidence” the agency worked to prioritize small businesses in “underserved communities," as required by the CARES Act.

Michigan Democratic Congressman Dan Kildee said the intent of the PPP is “good” but described the lack of demographic data about PPP borrowers as “a serious problem."

“The obvious purpose (of the PPP) was to make sure that those businesses that are the least capable of getting through a few months of stress would get the resources,” Kildee said. “The only way Congress will know if its intent is being met is if we get a much more complete picture about who’s getting these loans.”

Kildee said businesses owned by people of color, women, as well as newer businesses and smaller businesses are the most likely to lack access to capital in the form of credit or cash reserves, leaving those businesses more vulnerable to an economic recession. The SBA Inspector General’s definition of “underserved communities” also includes veteran-owned businesses, businesses in rural markets and businesses in operation for less than two years.  

Andrea Roebker, a spokesperson for the Small Business Administration Great Lakes Region, said determining the amount of PPP loan funding that went to businesses in those categories will depend on the voluntary disclosure of demographic information by PPP borrowing businesses.

88% of the 121,137 Michigan businesses with PPP loans did not answer voluntary questions about their race and ethnicity, as of July 6.

Lisa Cook, an economist at Michigan State University, said the PPP likely prevented a wave of foreclosures by giving forgivable loans to businesses that might have otherwise closed. Yet she says there’s already a huge disparity in the number of minority-owned businesses compared to white-owned businesses, contributing to a racial wealth-gap in the United States.

“What we don’t want to do is exacerbate this problem,” Cook said. “But by making the demographic information voluntary we can’t tell if we targeted those businesses that were at greatest risk (of going bankrupt).”

Peters and Cook say the SBA should be able to require PPP borrowers to report more demographic data for the SBA to publish.

However, Roebker at the SBA Great Lakes Region, says federal fair lending laws have generally prohibited lenders from seeking demographic information from loans.

“This why it is voluntary for the borrower to provide this information,” Roebker said.

The Home Mortgage Disclosure Act requires lenders to collect and report data about borrowers’ race or ethnicity, gender and age.

Kildee and Cook say there are ways the SBA could figure out how to get similar data from more PPP borrowers.

“That’s up to the SBA, (but) I think there are plenty of ways to get at least a better sampling of the entities that have received the loans,” Kildee said.

A survey, by Global Strategy Group titled “Federal Stimulus Survey Findings” surveyed 500 Black or Hispanic small business owners and 1,219 Black or Hispanic workers across the U.S. between April 30 to May 12. It found 41% of Black or Hispanic businesses owners surveyed whom had applied for federal government relief programs did not receive relief or assistance.  

In a summer when protestors across the country are demonstrating against systemic racism, Cook says its “imperative” for the federal government to collect more of its own demographic data to get a better sense of whether business owners of color and other businesses in underserved communities have been able to get equitable access to PPP loans.

“[The lack of demographic data] is exactly the kind of systemic racism and laxity that the folks on the street are talking about,” Cook said. “It’s just not even paying attention to how the deck is being stacked.”

Jagadeesh Sivadasan, a Professor of Business Economics and Public Policy at the University of Michigan Ross School of Business, says collecting comprehensive direct data about PPP borrowers’ race or ethnicity could be difficult if, for example, there are several co-owners of a PPP borrowing company from different families with different ethnic backgrounds.

Sivadasan points out the publicly released PPP loan disclosure data does include the zip codes of every business to receive a PPP loan. He says focusing on zip codes could allow researchers to understand allocations to businesses located in underserved communities.

Tyler Scott is the weekend afternoon host at Michigan Public, though you can often hear him filling in at other times during the week. Tyler started in radio at age 18, as a board operator at WMLM 1520AM in Alma, Michigan, where he later became host of The Morning Show.
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