As minority business owners applied for loans through the Small Business Administration’s Paycheck Protection Program, participating banks prioritized loans to existing clients to speed up the approval process, CBS reported. Businesses owned by people of color were less likely to have these commercial banking relationships, and as a result, their applications were either shuffled to the bottom of the deck or not processed in time.
The PPP fund ran out of money within two weeks of the first round of funding under the $2.2 trillion CARES Act, leaving many minority businesses empty-handed.
Bank of America, JPMorgan Chase and Wells Fargo are now accused of prioritizing larger loan applications in order to maximize loan origination fees and their own profits, according to several class-action lawsuits filed on behalf of small companies that are still awaiting funding.
Last week, Ruth’s Chris Steak House said it would return the $20 million loan it received from the government’s initial $350 billion program, which was specifically meant for small businesses struggling during the ongoing economic crisis.
Ruth’s Hospitality Group, which owns and operates more than 100 of the steakhouses across the United States, Canada and Mexico, got two $10 million loans, one for each of its subsidiaries despite being a multimillion-dollar corporation.
The company’s announcement came at about the same time Thursday that the Small Business Administration issued a warning to big-chain companies to prove they were indeed eligible to receive the funds in the first place or repay millions to the government by May 7.
Research by the Brookings Institution, a liberal-leaning think tank, suggests the PPP favored larger, and mostly white-owned, small businesses, even as the value of the loans being sought by minority and women-owned businesses would have been smaller than their counterparts, CBS reported.
“In order to achieve scale and rapidity, they did it through lenders, and lenders rationally said, ‘We’ll start with our existing customers first because we have all of their info,’ and those tended to be larger small businesses,” said Joseph Parilla, fellow at the Metropolitan Policy Program at Brookings. “It stands to reason that the way the PPP was structured, approved loans tended to skew toward white-owned small businesses.”
“Based on how the program is structured, we estimate that upward of 90% of businesses owned by people of color have been, or will likely be, shut out of the Paycheck Protection Program,” said Ashley Harrington, director of federal advocacy and senior counsel for the Center for Responsible Lending, a non-profit group that combats abusive lending practices and recently examined the loan program’s parameters, according to CBS.
“[If] participating banks are requiring that applicants have a credit relationship — to already have some type of loan out — that already cuts many of these businesses out,” Harrington said.
Last week, Congress replenished the fund with an additional $310 billion in forgivable PPP business loans, which President Donald Trump immediately signed into law.
The new round of funding went into effect Monday and is projected to only last four to six days.
A huge backlog in applications was already being reported Monday along with technical difficulties on the website where companies submit applications. An estimated 1 million applications were already in line for the new emergency funding. About 1.66 million applications were approved in the first round.