White-owned small businesses are twice as likely to get financing as Black- and Latino-owned firms, Fed survey finds

black owned business sign
  • A Fed survey found white-owned small businesses were twice as likely to get non-emergency financing as Black-owned ones.
  • It also found that 46% of Black-owned firms that applied for financing didn’t get anything.
  • Black-owned businesses also experienced delays in receiving Paycheck Protection Program loans.
  • See more stories on Insider’s business page.

Small businesses have been hit hard financially by COVID-19, and government aid from President Joe Biden’s $1.9 trillion stimulus package, along with regular, non-emergency financing from banks, has helped those businesses stay afloat.

But access to funding – or lack thereof – still often breaks down along racial lines, according to a new survey conducted by 12 Federal Reserve Banks.

The survey, conducted in September and October 2020, yielded 9,693 responses from a small businesses with between one to 499 employees, and another 4,531 responses from non-employer firms, with responses corresponding to the prior 12 months. It found that aid from banks, along with Paycheck Protection Program (PPP) funding, has disproportionately gone to white-owned businesses, and firms owned by people of color have in many cases gone without the help they need.

According to the credit survey released on Thursday, white-owned small businesses were twice as likely to be fully approved for financing as Black- and Latino-owned businesses last year. Among Latino-owned firms with low-credit risk, 25% received requested non-emergency financing, while 48% of white-owned firms received all requested financing. The survey also found that Black- and Latino-owned business with low credit risk were approved for full financing at nearly the same rate as white-owned businesses with medium to high credit risk.

Here are the other key findings of the survey:

  • Businesses owned by people of color were more likely than white-owned businesses to report reduced operations or temporary closure during the pandemic;
  • 13% of Black-owned firms received all the financing they sought during the pandemic, compared to the 40% of white-owned firms;
  • 46% of Black-owned firms that applied for financing received nothing;
  • And among non-employer firms, those with white owners were twice as likely as those with Black owners to receive all the PPP funding they sought.

Insider reported on March 16 that the PPP has factored into small businesses maintaining strong credit standings due to aid provided since the start of the pandemic, but experts said the government needs to provide more targeted aid beyond the pandemic to ensure equitable distribution.

“Let’s find those businesses that really need the help,” Brett Theodos, a senior fellow at the Urban Institute, told Insider last month. “Let’s support entrepreneurial ecosystems where they’re not well developed, let’s help de-risk loans that really are high risk, let’s overcome the race equity gap that exists and business ownership in this country, and let’s be more intentional around our targeting.”

On March 30, Biden signed the PPP extension into law, which allows small businesses to receive aid from the program through May 31, and he also included $50 billion in small business aid in his $1.9 trillion stimulus package.

But since the program was established under the CARES Act in March, it has run into a host of problems that prohibited eligible businesses from receiving aid. For example, although loans within the program are intended for businesses with 500 or fewer employees, some large companies got them, such as fast-food chain Shake Shack getting $10 million, which it later returned.

And Brookings data from last year found that businesses in communities of color were least likely to have existing relationships with large banks, causing an average 31-day delay for small businesses in majority-Black zip codes to receive their PPP loans.

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