Accessing the PPP: How Equitable Was the Paycheck Protection Program?

By Tyler Mondres
ABA Viewpoint

While the COVID-19 pandemic had a dramatic effect on the global and U.S. economies, communities of color and underserved communities were hit hardest by both the virus itself and the associated economic fallout. For example, Robert Fairlie of the University of California, Santa Cruz, found that small businesses owned by people of color were more likely to close down operations than white-owned small businesses at the outset of the pandemic when stay-at-home orders were most widespread.

The Paycheck Protection Program was one tool designed by the federal government to help struggling small businesses and their employees survive the COVID-19 pandemic. Banks are proud of the role they played in support of PPP, which served as a financial lifeline that kept many small businesses afloat at a time of unprecedented uncertainty. According to the Small Business Administration, more than 67.1 million jobs were supported by the PPP through first-draw loans, and banks served as the delivery mechanism for loans supporting 91.5 percent of those positions. In the end, PPP helped nearly 9 million businesses weather the worst of the pandemic. Despite that success, questions have been raised about access to PPP funds and whether some small businesses that needed the help were left out.

This post, including a new analysis based on census tract information, examines the available data on access to PPP funds in communities of color and what, if any, policy changes could have made a difference in providing emergency support to minority-owned small businesses.

Key Findings

  • Data to evaluate access to PPP loans is limited.
  • 3.4 million PPP loans worth $225 billion went to small businesses in majority-minority census tracts through April 30, 2021.
  • Banks accounted for 60.6% of those PPP loans and 87.4% of those loan dollars.
  • 34.1% of all small businesses in majority-minority census tracts received PPP loans
  • 49.8% of all small businesses in majority-Black census tracts received PPP loans
  • The initial design and implementation of the PPP made it harder for small businesses in communities of color to access PPP funds.

PPP overview

Banks provided critical support to their customers and communities throughout the pandemic. Banks of all sizes stepped up in remarkable numbers to help America’s small businesses survive the financial disruption from COVID-19 and save millions of jobs. While facing their own pandemic-related challenges, banks chose to participate in the PPP despite lacking full information about the rules, the risks, or the obstacles ahead. As of the end of May 2021, banks originated 69.5 percent of the 11.8 million PPP loans, issuing an incredible 89.8 percent of the nearly $800 billion in PPP funds. SBA-approved nonbank community development financial institution funds, certified development companies, credit unions, farm credit lenders, small business lending companies, microlenders, as well as fintech and other state regulated firms were also eligible to originate PPP loans.
The range of available data on the program includes the state-by-state distribution of PPP loans, specific loan amounts and the number of employees at each small business helped by the PPP. Data on the race and ethnicity of PPP applicants is limited, however, because the SBA did not initially ask small business applicants to provide that information. Even when the SBA did ask in the later rounds, providing that information was voluntary. Only three in 10 PPP loan records, as of May 29, 2021, contain any data about the race or ethnicity of the borrower. Therefore, any analysis of the distribution of PPP loans must use less precise tools to determine whether businesses owned by people of color had the same access as white-owned businesses. Analysis is also hampered by a lack of SBA data on applications received that were not funded and the reasons for that outcome.

PPP lending to small businesses in communities of color

According to an analysis of PPP data through April 30, 2021, by Asurity, a leading mortgage and regulatory compliance firm, nearly a third of total PPP loans went to small businesses in communities of color. More than 3.4 million PPP loans worth over $225 billion were made in majority-minority census tracts. As stated earlier, banks were by far the biggest providers of these PPP loans and funded more small businesses than credit unions, fintech firms, and other lenders combined.
Further analysis by Asurity shows that, when controlling for the total number of small businesses (defined as those with annual revenues of $1 million or less) located in a particular census tract as reported by Dun and Bradstreet, banks reached a similar percentage of businesses across all communities. In majority-Asian census tracts, 20.9 percent of small businesses received PPP loans, compared to 21.2 percent for firms in majority-white census tracts, 20.9 percent in majority-Hispanic census tracts, 20.0 percent in majority-Black census tracts and 19.9 percent in majority-minority census tracts.
The Asurity analysis also shows that small businesses in majority-Black census tracts applied for PPP loans from non-depository lenders like fintech companies at a higher rate than other groups. This aligns with recent analysis of survey data by economists at the New York Fed that found “Black-owned firms applied to fintech lenders [at]more than twice the rate of White-, Asian-, and Hispanic-owned firms.” In fact, the combined lending activity of all lenders, according to Asurity, reached an estimated 49.8 percent of all small businesses reported in majority-Black census tracts, 31.3 percent of businesses in majority-Hispanic census tracts, 25.8 percent in majority-Asian census tracts, 26.1 percent in majority-white census tracts, and 34.1 percent of all businesses in majority-minority census tracts. (When including businesses that do not report annual revenue, combined PPP lending reached 45.8 percent of firms in majority-Black census tracts; 28.8 percent in majority-Hispanic tracts; 24.2 percent in majority-Asian tracts; 23.9 percent in majority-white tracts; and 31.3 percent of businesses in majority-minority census tracts.)
This analysis suggests that a significant number of small businesses in communities of color that needed financial help were able to access PPP funds. However, due to the limitations of the data, the analysis does not account for borrowers whose race or ethnicity did not match the demographics of their reported census tract, the number of small businesses owned by people of color that applied for a loan, or how long it took an applicant to receive a loan.

PPP round 1: Mixed messaging, frequently changing guidance and portal design flaws

The initial round of PPP lending in April 2020 triggered criticism from both small business owners desperate for help and many of the lenders looking to assist them. Confusion from conflicting or inconsistent SBA rules and technical problems kept many businesses from successfully accessing PPP funds in the first round. Business owners of color faced particular challenges because of government customer due diligence requirements and the initial rules (subsequently modified but too late for many) regarding sole proprietorships.

Launch problems

With the economy quickly shutting down in the face of the growing global pandemic, Congress passed the CARES Act in March 2020. It was the biggest economic rescue package in U.S. history, and the PPP was its centerpiece. It was supposed to provide a critical financial lifeline to small businesses across the country, but the SBA was still building the airplane as PPP was trying to take off.
Initially, the SBA web portal could not handle the massive volume of users and flood of loan applications. Even those who could access the system were still trying to figure out the ground rules, which Congress largely left to the SBA. Just 24 hours before the program launched, SBA published bare-bones guidance to lenders—guidance which changed frequently and without notice over the next several weeks.  These early issues affected small businesses and lenders alike, but they took a particular toll on small businesses in underserved communities that did not have existing bank relationships. In addition, uncertainty about whether PPP dollars would run out—on top of the acute global health concerns—contributed to the sense of urgency.

Customer due diligence rules affected access to initial PPP loans

A key factor that affected initial access to PPP loans was the program’s de facto prioritization of existing customers over new customers. This created another hurdle for small business owners of color, who are less likely to have a banking relationship than are white small business owners, according to the Federal Reserve’s 2021 Small Business Credit Survey.
In April 2020, the government encouraged lenders to get PPP funds flowing as quickly as possible; however, regulators did not exempt PPP loans from strict anti-money laundering rules, as some had advocated.  These customer due diligence rules required the collection and verification of customer identification information for new accounts.
Instead, the government issued guidance saying banks could rely on previous due diligence for existing customers, rather than starting the process anew, which gave existing business customers an advantage over business applicants without accounts at a bank. New customers were expected to undergo standard CDD procedures, including collecting beneficial ownership information and verifying the identity of beneficial owners. The steps needed for onboarding new customers were further slowed because bank branches were closed, and many employees were working in their basements and at kitchen tables rather than at the bank, which hindered access to needed documentation.
Former Treasury Secretary Jack Lew was among those who spotted this issue early on, telling Bloomberg that “it’s also going to require that we find more ways to get flexibility into the program so that we lend to businesses that have not traditionally borrowed money from banks. That is very hard to do if you hold the banks to standards that apply in normal times, but these are not normal times.”
As noted, because businesses owned by people of color are comparatively less likely to have bank accounts than white-owned businesses, the government’s requirements for customer due diligence made it harder initially for people of color seeking PPP funds.

The PPP’s initial design created obstacles for sole proprietors

Black- and Hispanic-owned businesses are more likely to be sole proprietorships than are other businesses, and sole proprietors tend to have few, if any, employees. However, SBA’s initial PPP rules required business applicants to document their payroll needs. Thus, Black- and Hispanic-owned businesses were less likely to qualify for PPP loans at the start of the program. In addition, SBA’s rules were not clear on whether business applicants had to demonstrate a profit in the previous year, something many sole proprietors could not do. Unfortunately, SBA did not release the rules or materials for sole-proprietor applications, nor did SBA allow banks to submit these types of applications, until two days before the $349 billion in first-round PPP funding was exhausted. Poor experiences with the first round of the PPP may have discouraged some sole proprietors from applying when the second tranche of funding opened.
The economics for sole proprietors considering a PPP loan also changed significantly between the first two rounds of the program and the third round. In the initial rounds, a sole proprietor was able to receive a loan for an amount equal to gross income. SBA later changed the PPP loan calculation to allow for sole proprietors to get a loan equal to the amount of gross revenue, which made the loan much more attractive—so much so that Congress considered applying the calculation retroactively. However, these changes did not occur until 2021—when the third round was already underway—and Congress never passed legislation to allow for the calculation to apply retroactively.

PPP application rates likely varied by race and ethnicity

SBA’s public data does not include information on how many applications were submitted to participating financial institutions or the race and ethnicity of the applicants—it only reflects loans that were funded. Nearly 5,500 lenders participated in the program, and many borrowers received a PPP loan from a lender after submitting multiple applications with other lenders that were never completed.
Therefore, while some communities may have received more PPP loans than others, it’s hard to tell which businesses applied for a loan and which did not. According to the Fed’s 2021 Small Business Credit Survey, however, Asian and white business owners said they were more likely to apply for a loan than Black and Hispanic business owners.
According to the same survey, businesses owned by people of color offered multiple reasons for applying for PPP loans at lower rates. These included being confused or unaware of the program, not being able to qualify—or assuming they wouldn’t qualify—or not being able to find a lender to accept their application.

Communication efforts and support for CDFIs and MDIs

Policymakers made several efforts in the second and third rounds of the PPP to address some of these design flaws. Funds were set aside exclusively for minority depository institutions and community development financial institutions to expand access for small businesses in underrepresented communities. Many of those participating MDIs and CDFIs are ABA members.
Other banks contributed to this effort by partnering with and supporting CDFIs and MDIs in their efforts to help small businesses. Several large banks together committed more than $1 billion in capital contributions and other support to CDFIs and MDIs for purposes of PPP lending. Many banks also made substantial grant commitments to businesses owned by people of color.
Policymakers and bank trade groups also sought to raise awareness and encourage businesses in underserved communities to apply for PPP loans. Between February 24 and March 9, 2021, only businesses with fewer than 20 employees could apply for a PPP loan. During that period, ABA launched a radio ad campaign in partnership with state bankers associations in 14 states and the District of Columbia to help eligible small business owners find a PPP lender in their area.


Based on the available data it is difficult to draw definitive conclusions about whether small businesses across the country had proportional access to PPP funds when considering the entire life of the federal program. We do know that nearly 9 million small businesses received PPP funds, and banks played a vital role in getting those funds into the hands of small businesses across the country, including more than 2.6 million small businesses in communities of color. An analysis by Asurity finds that over a third of all small businesses in majority-minority census tracts received a PPP loan, compared to 26 percent in majority-white census tracts. Some of those small businesses established banking relationships for the first time to obtain their PPP loan, a positive outcome that we believe will lead to a brighter financial future for those businesses and communities.
We also know, however, that not every business that wanted or needed a PPP loan received one. One clear lesson is the importance of being banked—having a banking relationship. ABA will continue its efforts to build trust and invite those outside the banking system to establish a banking relationship at an FDIC-insured institution. ABA will also continue to work with its members, policymakers and other stakeholders to consider what else can and should be done to expand access to credit for small businesses in underserved communities. The lessons from PPP, as challenging as the experience has been, can help all of us in that process.

ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.


About Author

Tyler Mondres is director of economic research at ABA and a frequent contributor on economic and fintech topics to the ABA Banking Journal.