Rampant racial disparities plagued PPP loan distribution

Like other Black entrepreneurs in her Inglewood neighborhood, Annie Graham has struggled to keep her business afloat during the pandemic.

At Ms. Ann’s clothing boutique on Manchester Boulevard, the Easter finery Graham stocked last spring remains on the racks. Also untouched are many of the exclusively white outfits for weddings and parties that she sells at her storefront next door, the White House. Customers, she said, mostly buy dresses now for funerals.

So last year, as she fell behind on rent at her storefronts and at home, Graham had to let go of her team of six, all independent contractors and most of them family. She also turned to the Paycheck Protection Program, a federal government initiative that promised to help businesses like hers by providing one of the largest financial bailouts since the Great Depression.

In signing the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, then-President Trump announced that PPP loans would provide “unprecedented support to small businesses” in order “to keep our small businesses strong.” The program has injected more than $770 billion into businesses, including Reveal from the Center for Investigative Reporting and the Los Angeles Times, since last April.

But after submitting her application, Graham was notified that her request was rejected. In her corner of Inglewood, only 32% of businesses received PPP loans.

“For me not to be able to get any help, it’s hurtful, that’s all I can say,” she said.

Through the CARES Act, Congress ordered the Small Business Administration and the Treasury Department to issue guidance to lenders to ensure that the loan program “prioritizes small business concerns and entities in underserved and rural markets.”

Yet a Reveal analysis of more than 5 million PPP loans found widespread racial disparities in how those loans were distributed. In the vast majority of metro areas with a population of 1 million or more, the rate of lending to majority white areas was higher than the rates for any majority Latino, Black or Asian areas.

Los Angeles had some of the worst in the nation. Although communities of color were hit far harder by COVID-19, businesses in majority white neighborhoods received loans at twice the rate that majority Latino census tracts received, one and a half times the rate of businesses in majority Black areas and 1.2 times the rate in Asian areas.

Shannon Giles, a spokesperson for the Small Business Administration, said that the agency does not comment on third party analyses of its data.

The analysis, based on records released after Reveal and 10 other news organizations sued the Small Business Administration for access to PPP loan data, is the first look at how the federal program’s loans were distributed at the census tract level.

Because the Treasury and SBA initially excluded a standard demographic questionnaire from the PPP application, banks did not routinely collect information on the race or gender of borrowers. So Reveal looked at loan totals and business data according to the racial makeup of each tract.

A variety of factors contributed to the disparities, including failures by both banks and the government to adequately ensure fairness in the program, according to federal records and lending experts.

PPP rules disfavored businesses without employees and required Social Security numbers and other records that some small…