The Small Business Administration has failed to collect demographic data on the roughly $537 billion in loans funded through the first two rounds of the Paycheck Protection Program, making it hard to know just how much of the rescue funds reached struggling businesses owned by minorities and women.
Now, some Democratic lawmakers are demanding that the SBA start collecting information on the race and gender of borrowers who have already received loans and submit weekly reports on this data to the public. The hope is that if a disparity proves drastic, the SBA can find a way to divert funding to underserved groups that so far have missed out on PPP financing.
Sens. Ben Cardin of Maryland and Cory Booker of New Jersey also
Their proposals come amid
“Across the country, small businesses are on the financial brink,” Booker said in a statement Monday. “And while federal assistance has provided emergency relief to some, millions of minority-owned and very small businesses — the beating heart of our rural main streets and urban corridors — find themselves on the outside looking in.”
The SBA was required under the original coronavirus relief package to prioritize PPP funding to rural and underserved markets, but the agency’s inspector general said in
Republicans, though, are pushing back on the idea, out of concern the data gathering would be too taxing for an agency already overwhelmed by demand for the funding.
Sen. Marco Rubio, R-Fla., who chairs the committee on small business and entrepreneurship, said in a May 5 speech on the Senate floor that demographic information would be obtained when borrowers who received funds fill out the documents requesting loan forgiveness. (The loans will be turned into grants if 75% of the funds are used to cover payroll and the rest on interest on mortgages, rent, and utilities. If firms don’t meet the criteria, they will need to pay loans back over a period of two years at an interest rate of 1%.)
“We’re going to find out all this information and we’re going to know it in a timely fashion so we can do something about it,” Rubio said, indicating the possibility of making changes that would direct future funding to minorities and women if a shortfall is discovered.
The inspector general recommended in the report that the SBA issue guidance to lenders to prioritize borrowers in underserved and rural areas on applications for remaining funds. As of midday Monday there was roughly $120 billion left in the $660 billion program.
The inspector general also suggested giving borrowers the option to provide demographic information on forms requesting loan forgiveness, as allowed under the program’s rules, in order to get a clearer picture of how many of these loans went to minorities and women.
Cardin met with SBA Administrator Jovita Carranza privately on May 6 to ask about demographic information within the program, but it remains unclear what the agency will do to collect it. An SBA spokesperson declined to comment on the report.
Democratic lawmakers on the Senate committee on small business and entrepreneurship are requesting a public hearing with SBA officials to urge changes recommended in the inspector general report.
"We're still pushing hard on that front," a Democratic aide on the panel said.
Lenders doled out roughly $349 billion in funding through PPP’s first round in about two weeks starting April 5. Lawmakers designated $30 billion of the $310 billion in the program’s second round for smaller banks, rural lenders and community development financial institutions in the hopes of broadening access to the program.
There is no evidence that lenders have deliberately discriminated against small businesses owned by minorities or women. But because demand in the first round was so high, many very small businesses that did not already have borrowing relationships with banks were unable to obtain loans before funding dried up.
“It’s miserable,” the CEO of the National Black Chamber of Commerce, Harry Alford, said when funding ran out in mid-April. “It’s pathetic.”
The initial $2.2 trillion coronavirus relief package required the SBA to issue guidance to lenders ensuring that rural small businesses and those in underserved markets would be prioritized for PPP loans.
But that guidance was never given, the SBA’s inspector general said in its report.
“Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned businesses may not have received the loans as intended,” according to the IG report. “In addition, because SBA did not require demographic data to identify PPP borrowers in underserved markets, it is unlikely that SBA will be able to determine the loan volume to the intended prioritized markets.”
Darrin Williams, the CEO of the $1.5 billion-asset Southern Bancorp, a CDFI in Arkadelphia, Ark., and a member of President Trump’s committee to reopen the economy, said that the carve-out for for smaller lenders in the second round of PPP has benefited many minority-owned small businesses.
Southern Bancorp made over 1,110 loans through PPP and the diversity numbers “are going up significantly,” Williams said. He that 90% of the loans he has made have gone to African-American business owners.
The SBA provides data on lending through other programs by gender and race. This year, minority small-business owners received less than one-third of the agency’s flagship 7(a) financing as of April 17, according to its latest
Black small-business owners in particular receive about 3% of these loans, the data show.
Darius Davis, president and CEO of the $111 million-asset Tri-State Bank in Memphis, Tenn., another CDFI, said he has not seen evidence of discrimination within the program and noted it would be hard to tell if there was.
“The way the program is structured, it may be difficult to identify discriminatory practices at this time,” Davis said.
