White applicants for government-backed small business relief loans were treated better compared to black applicants, according to a study by a group that fights discrimination.
The National Community Reinvestment Coalition sent black and white applicants with nearly identical business profiles and strong credit histories to talk to banks about securing small business relief loans to help their small businesses remain open during the coronavirus crisis. In 27 of the 63 cases, 43% of the time, white business owners received more favorable treatment than black business owners.
The study released earlier this week found “different levels of encouragement to apply for loans, different products offered and different information provided by bank representatives.”
The study, which was small and not peer-reviewed, was conducted between April 27 and May 29 with 17 banks in the Washington, D.C., area. At 13 of those banks, there was at least one case in which white and black applicants were not treated the same. The results are in line with patterns of disparities in lending practices before the coronavirus-induced recession hit.
The study illustrated one example of such discrimination in which a bank representative was rejected because he did not have an account with that bank. However, a representative from the same bank pushed a white applicant in the same situation to open a new bank account and offered to send him the loan materials.
“The tests show that old patterns of systemic discrimination in lending didn’t magically disappear when banks made PPP loans,” said Jesse Van Tol, CEO of NCRC.
“Banks still have a long way to go to root out discrimination, and clearly, they need better training for their employees and more testing to create internal checks and internal pressure to drive out racist practices,” Van Tol added.
The bank loans are backed by the Small Business Administration’s relief program, called the Paycheck Protection Program, which provides forgivable loans through lending institutions to small businesses that were hurt by the pandemic as long as they maintain payrolls. The program was initially funded with $350 billion as part of the massive $2.3 trillion CARES Act relief package. The program was given an additional $321 billion in April after the initial $350 billion ran out in just two weeks.
Congress is currently negotiating the next small-business relief package and is facing growing pressures to direct more aid to vulnerable and minority businesses that are hurting the most during the crisis but have had difficulty accessing the loans.
