Treasury Secretary Steven Mnuchin said on Friday that loan programs likely to be included in the next coronavirus relief package should have a set-aside for minority-owned businesses.
“There should be a set-aside for small, minority businesses,” he said while testifying before the House Small Business Committee.
Committee Chairwoman Nydia Velazquez, a Democrat from New York, prompted the secretary’s response.
She asked if a set-aside is needed in the next round of loans because several minority-owned businesses could not access the loans that are currently available, which forced them to close permanently.
“The pandemic has cost black-owned businesses to drop 41%, and the rate for Latino-owned businesses is 32%. These numbers are only going to get worse,” she said.
The House committee examined the effectiveness of recently enacted federal loan programs aimed at helping businesses survive the pandemic. It comes as a new study shows that white applicants for government-backed small-business relief loans were treated better when compared to black applicants.
The study, conducted by the National Community Reinvestment Coalition, found that when black and white applicants with similar credit characteristics applied to a lender, 43% of white applicants were treated more favorably than their black counterparts.
It also found that lenders not only discouraged the black applicants from applying for a loan but also encouraged white applicants to apply for one or more loan products.
“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.
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.
The NCRC study was small and not peer-reviewed. It 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.
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.
