Experts: PPP program shuts out minority-owned businesses

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ST. PETERSBURG, Fla. (WFLA) – According to lending experts, flaws within the federal Paycheck Protection Program are shutting out minority and woman small business owners.

In April, many small business owners began applying for forgiveness loans through the Small Business Administration program. However, research shows that many small businesses were either denied or all of the funds had been exhausted by the time they applied.

“The program has several structural inequities that are causing these problems,” said Yasmin Fahari, Senior Policy Council for the Center for Responsible Lending. The CRL is composed of researchers and lending experts that examines loan programs and combats abusive lending practices.

“We found that up to 90 percent of minority owned businesses either will be or have been denied from the PPP,” Fahari said. “We’re really concerned about the impact this will have on the racial wealth gap.”

Fahari says one of the biggest obstacles for minority businesses trying to get PPP is their relationships with commercial banks.

“The most obvious structural inequity was the banks are incentivized to make larger loans because that means higher fees for them to businesses they already had financial relationships with,” she said. “Businesses owned by people of color are less likely to have those established relationships because of historic inequities and less access to capital.”

That was the case for Three Generations Food Truck located in South St. Petersburug.

Three Generations Food Truck located at 2830 22nd Avenue, St. Petersburg, Fl.

“We reached out to our CPA to apply for these loans and we were denied right away,” said Melissa Gardner, owner of Three Generations food Truck.

Garnder’s business was threatened by COVID-19 back in March. She had to close for weeks; which caused her to have to cut staff, cut hours and lose money. She hoped the PPP program would help.

“We were denied on a few basis, the main one being that we did not have a business loan,” Gardner said. “Of course we are not going out to get business loans, we are on the south side of St. Pete we are building our businesses on our backs and from our pockets.”

The CRL says this issue is happening across the country.

“Roughly 95% of Black-owned businesses, 91% of Latino-owned businesses, 91% of Native Hawaiian or Pacific Islander-owned businesses, and 75% of Asian-owned businesses stand close to no chance of receiving a PPP loan through a mainstream bank or credit union,” according to the CRL’s report.

The CRL believes the PPP program was flawed from the beginning. In April, the PPP program ran out of money within the first two weeks of issuing loans. The CRL says in those first two weeks, the SBA and Treasury Department gave millions of dollars to large businesses.

“We know that the fact that is was larger loan sizes in round one, means there was a disproportionate impact in terms of who those funds were going to,” Fahari said.

In round two, the SBA and Treasury department did make modifications to lower the loan amounts to include smaller businesses, but the CRL says that may have been too late.

“The damage may have already been doing,” Fahari said. “Businesses may have already been late on rent, may have already shut down.”

In response to this research, the SBA and Treasury departments announced they will release data about the PPP program to be transparent.

According to the CRL, research shows that a large amount of minority businesses shut out of the PPP program have shut down indefinitely compared to white-owned businesses.

“The University of California Santa-Cruz did research which shows a 41% drop in black-owned businesses between February and April as opposed to 17% of white-owned businesses,” Fahari said.

Gardner did everything she could to make sure her business was not in that number, despite being denied PPP.

“We relied on our saving and on the community,” Gardner said. “Instead of having people come to us, we went to the people. We also got a grant from the city of St. Petersburg which helped a lot.”

Even in the midst of chaos, Garnder partnered with other business owners and hosted a Black Expo on Juneteenth to highlight other minority businesses in the area.

“We have been able to give back to the community with the small things that we have, give away food, have events because we are trying to create that exposure for other black businesses,” Gardner said.

Gardner hopes a system will one day support businesses like hers, but in the mean time she will continue to stay strong and fight to protect and save her business.

Now that the PPP program has been extended to August 8th and billions of dollars remain unused, the CRL hopes the program rids the structural inequities and gives back to minority businesses.

The Hillsborough County Economic Development Department is currently giving out relief money to small businesses. A total $125 million will be given out and right now they are focusing on getting that money to minority businesses. Click here for more details.

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