Dave Shideler and Jonas Crews
Note to reader: Over the next several weeks, Heartland Forward will be analyzing the types of businesses and races of business owners that received PPP loans through June 30, 2020.
It is worth noting at the outset that an overwhelming majority of applications did not identify race or ethnicity. In the Heartland1, the non-response rate to the race or ethnicity questions reporting varies by state, ranging from 68 percent in North Dakota to 92 percent in Tennessee. Given the limited number of responses, we aggregate and report the data at the state level.
You can preview the visualizations referenced below here:
(For mobile viewers, we recommend landscape orientation.)
Exploring the Share of Loans by Race/Ethnicity chart, one can quickly observe that white-owned businesses dominate the PPP loan portfolio in every state in the Heartland. (NOTE: You can view any state in the Heartland by selecting it from the drop-down menu.) Additionally, Black- and Hispanic-owned businesses represent small shares of loans in every state of the Heartland.
The number of minority-owned businesses vary in each state, so we provide two measures to compare the share of PPP loans to either Black- or Hispanic-owned businesses:
• the share of all employer firms that are Black- or Hispanic-owned (probably the closest number to the population of businesses applying for PPP), or
• the share of all firms (including self-employed and non-employer firms) that are Black- or Hispanic-owned.
The first two columns in each side of the chart represent the benchmark values: share of employer firms and share of all firms, respectively. The third column presents the share of loans going to either Black- or Hispanic-owned businesses. If this right-most column is higher than those to the left, then this indicates that the minority group received a greater share of loans than one would expect based on the group’s share of firms.
• Except for Missouri, Black-owned businesses in the Heartland appear more likely to be non-employer or self-employed businesses than businesses owned by other races; note that Black-owned businesses tend to encompass a much higher share of all firms than employer firms.
• In 14 of the 20 Heartland states, Black-owned employer firms received a greater proportion of loans than would have been expected based upon their share of employer firms in the state.
• In Iowa, Kansas, Missouri, Nebraska, North Dakota, and Wisconsin, Black-owned employer firms received fewer loans than their share of employer firms would suggest.
• In no Heartland states did Black-owned businesses receive a greater proportion of loans than would have been expected based upon their share of all firms.
• Illinois was the only state in which the Hispanic-owned firms did not receive loans in proportion to or greater than their share of employer firms.
• In 10 states (Alabama, Kansas, Kentucky, Michigan, Mississippi, Missouri, North Dakota, Ohio, South Dakota, and Wisconsin), more Hispanic-owned businesses received loans than would be expected based upon the share of all firms.
Payroll Protection Program (PPP) represents a unique stimulus program designed to encourage businesses to maintain payroll levels despite pandemic-related interruptions by authorizing local financial institutions to extend potentially forgivable loans at favorable terms. The program provided one-percent loans to qualifying businesses, though the loan would be forgiven if certain requirements were met by the business.2
While designed for expediency, the PPP sought to leverage existing financial institutions to distribute the loans rather than create tedious qualification rules and bureaucracy, which would have required both time and resources. However, expediency is not without cost – specifically, leveraging existing financial institutions may limit access to the PPP for minority business owners.
First, minorities are grossly un- or underbanked. Fifty-seven and three-tenths (57.3) percent of Black households nationally are classified as either unbanked or underbanked. More Hispanic households have bank accounts, though 42.9 percent of Hispanic households are considered under- or un-banked.3 Without prior relationships with a banking institution, Black and Hispanic business owners may not have had adequate access to PPP funding.
Second, minority-owned businesses tend to be small and, overwhelmingly, do not have employees. National data suggests that Black- and Hispanic- owned businesses are 22 and 10 times, respectively, more likely to be non-employer businesses than employer firms; white business owners are only three times more likely.4 While this fact does not prohibit participation in PPP, nor does it preclude loan forgiveness (under the current guidance), these businesses typically do not have access to accountants, lawyers and/or suitable records to assist with the loan application and to validate the terms of loan forgiveness (e.g., 60 or 75 percent of funds allocated to labor payments).
So, what does this all mean? In short, it means that the Heartland’s Black- and Hispanic-owned employer firms likely received their fair share of loans, but also that the complexities of the program for very small businesses and the high shares of Black- and Hispanic-owned businesses that are nonemployers resulted in Black- and Hispanic-owned businesses not receiving their fair share of loans overall. While we know the program created barriers to participation for minority business owners, we also know our country has been built on the “American Dream, ” of which owning your own business, being an entrepreneur, is a part. And while entrepreneurship is not the single driver of our economy, it is an important one as noted in Heartland Forward’s previous report, “Young Firms and Regional Economic Growth.”5 Knowing this, we need to work collectively to remove the inequality of economic opportunity to help people sustain their businesses especially during such unprecedented times.
Below is the schedule of posts in this series:
• Week 1: Black and Hispanic Business Owners
• Week 2: American Indian, Pacific Islander and Asian owned businesses
• Week 3: Loan Recipients by Gender
• Week 4: Accommodations and Food Services & Arts, Entertainment, Recreation Businesses
• Week 5: Manufacturing
• Week 6: Retail & Other Services
Data on Payroll Protection Program loans are from the U.S. Treasury. These are loan-level data based on individual loan applications. We aggregated loan-level data to the state level in order to capture the state-level distribution of loans across races and ethnicities.
Data on owners of employer firms are from the U.S. Census Bureau’s 2017 Annual Business Survey.
Data on owners of all firms (both employers and nonemployers) are from the U.S. Census Bureau’s 2012 Survey of Business Owners. Use of these data are necessary due to the lack of publicly available information on nonemployer firms from the 2017 Annual Business Survey.
In the Payroll Protection Program loan data, there is a single characteristic variable combining business owner race and ethnicity instead of separate race and ethnicity variables. Thus, owners are classified by the single race or ethnicity that they believe best describes them, as opposed to being able to indicate, for example, that they are Hispanic and Black. Applicants were given the option to select “Multi-Group” in their application, but the Heartland only had one approved loan where the applicant selected the option. Meanwhile, the Census Bureau’s survey data allowed respondents to choose both a race and an ethnicity. To overcome this incompatibility, we consider any respondents who selected Hispanic for their ethnicity to be Hispanic only, respondents who selected non-Hispanic for ethnicity and Black for race to be Black, and respondents who selected non-Hispanic for ethnicity and white for race to be white.
- The Heartland region consists of these states: Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas and Wisconsin.
- Complete details about the SBA’s Payroll Protection Program, including qualifying businesses and loan forgiveness criteria, can be found here: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
- Calculations made by the author using Federal Deposit Insurance Corporation’s 2017 National Survey of Unbanked and Underbanked Households. Available at https://www.economicinclusion.gov. Unbanked households have no accounts at an insured financial institution, while underbanked households have a savings or checking account but solicit alternative financial services (e.g., check-cashing firm or payday lender) for other transactions.
- In 2012, based upon the Census Bureau’s Survey of Business Owners, Blacks and Hispanics nationally were 22 and 10 times, respectively, more likely to own firms without employees than firms with employees. White business owners were only 3 times more likely.
- Crews, J., DeVol, R., Florida, R., and Shideler, D. (May, 2020). “Young Firms and Regional Economic Growth: Knowledge-Intensive Entrepreneurs Critical.” Bentonville, AR: Heartland Forward. Available here: https://heartlandforward.org/media/pages/young-firms-and-regional-economic-growth/2863128872-1588779952/young-firms_full-report-launch.pdf