Racial Disparities in the Paycheck Protection Program

Source: NBER Working Paper (2022)

Researchers Sergey Chernenko and David S. Scharfstein write about the significant racial disparities in borrowing through the Paycheck Protection Program (PPP) using data gathered from a large sample of restaurants in Florida and then investigate the causes of these disparities. They find that- “Black-owned restaurants are 25% less likely to receive PPP loans. Restaurant location explains 5 percentage points of this differential. Restaurant characteristics explain an additional 10 percentage points of the gap in PPP borrowing. On average, prior borrowing relationships do not explain disparities. The remaining 10% disparity is driven by a 17% disparity in PPP borrowing from banks, which is partially offset by greater borrowing from nonbanks, largely fintechs. Disparities in PPP borrowing cannot be attributed to lower awareness of PPP loans or lower demand for PPP loans by minority-owned restaurants. Black-owned restaurants are significantly less likely to receive bank PPP loans in counties with more racial bias. In these counties, Black-owned restaurants are more likely to substitute to nonbank PPP loans. This substitution, however, is not strong enough to eliminate racial disparities in PPP borrowing”.

Posted by at 12:05 PM

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