Racial Disparities in the Paycheck Protection Program

Abstract

We document significant racial disparities in borrowing through the Paycheck Protection Program (PPP) and investigate the causes of these disparities. In a large sample of Florida restaurants, Black-owned restaurants are 25.5 percentage points less likely to receive PPP loans. Restaurant location explains 6.5 percentage points of this differential. Restaurant characteristics explain an additional 9.8 percentage points of the gap in PPP borrowing. The remaining 9.2 percentage points disparity is driven by a 16.8 percentage points 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. We use a broader sample of firms that were likely eligible for PPP loans to show that our findings apply more broadly across industries and are not limited to Florida. In counties with more racial bias, Black-owned firms are significantly less likely to receive bank PPP loans and to substitute to nonbank PPP loans. This substitution, however, is not strong enough to eliminate racial disparities in PPP borrowing.

Keywords: discrimination, Paycheck Protection Program, Economic Injury Disaster Loans, bank lending, nonbank lending

JEL Classification: G21, G23, G28, H84, H81