Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?

49 Pages Posted: 22 Nov 2022 Last revised: 8 May 2023

See all articles by Sergey Chernenko

Sergey Chernenko

Purdue University - Department of Management

Nathan Kaplan

Harvard University Department of Economics

Asani Sarkar

Federal Reserve Bank of New York

David S. Scharfstein

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 20, 2022

Abstract

We use the 2020 Small Business Credit Survey to study the sources of racial disparities in use of the Paycheck Protection Program (PPP). Black-owned firms are 8.9 percentage points less likely than observably similar white-owned firms to receive PPP loans. About 55% of this take-up disparity is attributable to a disparity in application propensity, while the remainder is attributable to a disparity in approval rates. The finding in prior research that Black-owned PPP recipients are less likely than white-owned recipients to borrow from banks and more likely to borrow from fintech lenders is driven entirely by application behavior. Conditional on applying for a PPP loan, Black-owned firms are 9.9 percentage points less likely than white-owned firms to apply to banks and 7.8 percentage points more likely to apply to fintechs. However, they face similar average approval disparities at banks (7.4 percentage points) and fintechs (8.4 percentage points). Sorting by Black-owned firms away from banks and towards fintechs is significantly stronger in more racially biased counties, and the bank approval disparity is also larger in more racially biased counties. We conclude that insofar as automation by fintechs reduces racial disparities in PPP take-up, it does so by mitigating disparities in loan application rates, not loan approval rates.

Keywords: discrimination, racial disparities, Paycheck Protection Program, bank lending, fintech lending, administrative burden

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

Suggested Citation

Chernenko, Sergey and Kaplan, Nathan and Sarkar, Asani and Scharfstein, David S., Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program? (November 20, 2022). Available at SSRN: https://ssrn.com/abstract=4281960 or http://dx.doi.org/10.2139/ssrn.4281960

Sergey Chernenko (Contact Author)

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://www.sergeychernenko.com

Nathan Kaplan

Harvard University Department of Economics ( email )

Cambridge
United States

Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

David S. Scharfstein

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-496-5067 (Phone)
617-496-8443 (Fax)

HOME PAGE: http://www.people.hbs.edu/dscharfstein/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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