A year after the Paycheck Protection Program started, studies show how its design hurt Black- and other minority-owned businesses.

Shaundell Newsome of Small Business for America’s Future said changes were needed throughout the banking industry to improve outcomes for Black owners.Credit…Bridget Bennett for The New York Times

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By Stacy Cowley

Southern Bancorp is a lender serving the Arkansas and Mississippi Delta, where poverty rates are among the highest in America and decades of redlining shaped neighborhoods with little generational wealth.

When the Paycheck Protection Program for small businesses started last April, so many of Southern Bancorp’s customers didn’t qualify for the relief money that the Arkansas bank’s chief executive, Darrin Williams, turned to donors to raise money for $1,000 grants so it wouldn’t have to turn applicants away empty-handed.

The bank made 128 such grants, giving more than 100 of them to businesses run by women or minority owners. One let a nail salon owner buy plexiglass so she could reopen. Another allowed a small cafe to buy safety gear for its staff. A day care used the money for the new sanitizing equipment it needed.

“So many companies will never come back, and disproportionately more of those that will be lost are Black and brown businesses,” Mr. Williams said.

Congress created the Paycheck Protection Program in March 2020 as an emergency stopgap for what lawmakers expected to be a few months of sharp economic disruption. But as the pandemic raged on, the program — which made its first loans one year ago this past week — has turned into the largest small-business support program in American history, sending $734 billion in forgivable loans to struggling companies.

The program helped nearly seven million businesses retain workers. But it has also been plagued by complex, changing rules at every stage of its existence. And one year in, it has become clear that the program’s hasty rollout and design hurt some of the most vulnerable businesses.

A New York Times analysis of data from several sources — including the Small Business Administration, which is managing the loan program — and interviews with dozens of small businesses and bankers show that Black- and other minority-owned businesses were disproportionately underserved by the relief effort, often because they lacked the connections to get access to the aid or were rejected because of the program’s rules.

Rollout was speedy

After Congress created the program in last year’s CARES Act, President Donald J. Trump’s administration — especially his Treasury secretary, Steven Mnuchin — put a priority on getting money to needy businesses fast. Just seven days after the law was signed, the earliest applicants received their checks.

But the haste meant the rules were mostly written on the fly. Reaching harder-to-serve businesses was an afterthought. Lenders and advocacy groups warned that the relief effort had structural challenges that were likely to inadvertently but disproportionately harm women and minority business owners. Reaching the most vulnerable businesses required determination, they said, and the program gave lenders no incentives to put in that effort.

The government relied on banks to make the loans, creating an obstacle for borrowers who didn’t have established banking relationships. Some banks favored their larger and wealthier clients, which pushed ordinary customers to the back of the queue. “Mystery shopper” studies found that Black applicants were consistently treated worse than white counterparts.

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