Problems Remain for Minority Businesses after PPP Ends

August 26th, 2021

By Kiyadh Burt, Senior Policy Analyst

Congress created the Paycheck Protection Program (PPP) to provide critical relief for small businesses impacted by the pandemic, but due to program design, pre-existing inequities in banking, and flat-out racial discrimination, the program failed to adequately serve minority-owned businesses. PPP created and incentivized barriers to access for minority-owned and very small businesses as underscored in a recent article by the HOPE Policy Institute.[1] Even though PPP ended in July 2021, challenges for borrowers, particularly those who struggled to gain access in the first place, have not. Specifically, businesses in the Deep South experienced banks freezing PPP funds, closing accounts that received PPP funds and granting only partial loan forgiveness.

Freezing or Closing Accounts
The Small Business Administration (SBA) was responsible for investigating fraud and misconduct in PPP, but some banks have enacted practices such as freezing and closing accounts with the intent to deter misuse of funds. Banks, however, may be administering these practices in a racially disparate manner. Financial Inclusion Officers (FIOs), the front line of HOPE’s PPP process, shared several stories of how PPP borrowers have struggled in accessing their PPP funds from their banks. These stories involved borrowers that were approved for their PPP loan through HOPE but had the money deposited into an account with their primary bank. One FIO shared how the business account of one Black woman was frozen by her bank without justification or warning. When she went to Walmart to purchase items for her business, the bank, without warning, put a hold on the account until she could show that the funds were used for her business. The bank eventually closed her bank account and sent the PPP funds back to HOPE, without telling the borrower.

In another instance, a bank put a freeze on a borrower’s personal account after she, a Black woman, received the PPP loan. The bank did not notify her that they froze her account. She found out via a notification on her phone that a check she used to pay a bill was returned, even though she had money in her account. HOPE was able to assist the borrower in eventually getting the bank to grant her access to her funds. A FIO provided questions to the borrower to ask the bank about why her account was frozen and the bank eventually unfroze her account. In both cases, the borrowers incurred overdraft fees which the banks did not reverse.

Partial Loan Forgiveness
The troubles with PPP continue even after the funds are received and spent. Specifically, some borrowers have had issues getting complete loan forgiveness despite following SBA guidelines. For example, a Black sole proprietor who received a $1,200 PPP loan from his bank in May 2020, received an email from the bank in May 2021 saying that he should have been approved for only $600. As such, only $600 was eligible for forgiveness and that he would need to repay the rest. When he sought clarification from the bank, he was told he could appeal with SBA, and instructed to email the Capital Access Financial System borrower help desk. When he did, the SBA replied that they provide software and technical assistance but are not involved in the loan process and shared that the borrower should contact the lender from whom he received the PPP. The $600 he may or may not have to pay back is the difference between making one month’s rent, or not. The SBA has since created a loan forgiveness portal to address this particular problem,[2] but banks are opting out of participating since they have created their own portals and processes to document forgiveness. For borrowers, it is unclear who determines loan forgiveness. Whichever entity is reducing the forgivable amount, the outcome is the same: businesses are now being directed to pay for relief that was supposed to be covered through the program.

Next Steps for Redress
It is well-documented that minority-owned and small businesses faced challenges accessing PPP relief even from the start of the program. Banks’ race-neutral policies such as prioritizing eligibility based on a pre-existing relationship with the bank or reviewing larger loan requests more promptly due to the PPP fee structure had a disparate and exclusionary impact on minority-owned businesses’ ability to access PPP.[3] According to a report by the Select Subcommittee on the Coronavirus Crisis, banks processed larger loan requests at “twice the speeds” of smaller businesses with smaller loan requests meaning that minority-owned business were less likely to receive access and when they did, it would take longer to receive funds.[4] After struggling to gain access to PPP, businesses owned by people of color then faced additional challenges.[5] Their experiences exemplify a two-tiered banking system still in existence for small, businesses of color.[6]

Now, in a post-PPP world, it is important to understand the reality businesses of color face. This includes the ongoing challenges associated with a lack of access to the $800 billion program and how these challenges actively make it harder for businesses to recover. HOPE found in a survey of its PPP borrowers conducted by 60Decibels that 66% of Black-owned businesses will need additional capital in the next 6-12 months, whereas only 39% of white-owned businesses reported needing additional capital over the same period of time.[7] These businesses and the communities represented need more relief and resources. PPP could have mitigated the pre-existing disparities in banking for minority-owned businesses but instead it very likely widened the gaps. Minority-owned businesses deserve a fair chance at financial stability. Ensuring that all financial institutions employ fair lending practices remains critical to addressing disparities that have existed for far too long.

[1] Kiyadh Burt and Diane Standaert. (2021). “Racial Gulf Created by Economic Recovery Efforts will Echo for Generations”. MLK50. https://mlk50.com/2021/08/11/racial-gulf-created-by-economic-recovery-efforts-will-echo-for-generations/

[2] SBA PPP Direct Forgiveness Portal. https://directforgiveness.sba.gov/requests/borrower/login/?next=/

[3] Claire Kramer Mills and Jessica Battisto. (2020). “Double Jeopardy: Covid-19’s Concentrated Health and Wealth Effects in Black Communities”. Accessed on July 14, 2021. https://www.newyorkfed.org/medialibrary/media/smallbusiness/DoubleJeopardy_COVID19andBlackOwnedBusinesses

[4] Select Committee on the Coronavirus Crisis. (2020). “Underserved and Unprotected: How the Trump Administration Neglected the Neediest Small Businesses in PPP”. Accessed on July 13, 2021.https://coronavirus.house.gov/sites/democrats.coronavirus.house.gov/files/PPP%20Report%20Final%20%283%29.pdf

[5] See, e.g., Bryce Covert. (2021). “Banks are Reversing Course on PPP Loans to Small Business Owners”. The Intercept. https://theintercept.com/2021/07/12/covid-banks-sba-ppp-loans/,

John Matarese. (2020). “Woman’s Bank Account Frozen after She gets PPP Funds”. WCPO Cincinnati. https://www.wcpo.com/money/consumer/dont-waste-your-money/womans-bank-account-frozen-after-she-gets-ppp-funds

Brian New. (2021). “Real North Texas Businesses Have Bank Accounts Frozen in Federal Push to Find Covid-19 Fraudsters). CBD DFW. https://dfw.cbslocal.com/2021/05/27/texas-businesses-bank-accounts-frozen-federal-push-find-covid-19-fraudsters/

[6] Bryce Covert. (2021). “Banks are Reversing Course on PPP Loans to Small Business Owners”. The Intercept. https://theintercept.com/2021/07/12/covid-banks-sba-ppp-loans/

[7] 60Decibels and HOPE Policy Institute. (2020). “Insights for HOPE Credit Union: Understanding the Experiences of PPP Recipients”.