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PPP Lending Disparities by Race in 2020 and 2021

The Paycheck Protection Program (PPP) was widely criticized, for favoring white-owned businesses over Minority Business Enterprises. (MBE) In the study PPP loans were consolidated using the program Stata using data only for North Carolina and included data sets for loans under and over $150K. In the first round of loans the racial demographics matched the business demographics of the Census for North Carolina, except that Asians were overrepresented and Whites were slightly underrepresented. However, there were extreme disparities in the amounts given to white owned business and some of the MBEs even after considerable controls where introduced. Along with race the study also controlled for the number of jobs a business had, whether they were female-owned, or if they were in a rural area, a non-profit or a specially designated HUBZone set by the SBA (Small Business Administration). The model also tested whether the business owner was Hispanic, as there is some evidence to show that Hispanics were discriminated against in the PPP loan process. However, our model shows that in North Carolina any differences are not statistically significant.

However, the model from Table 1 shows that in 2020 despite having the same number of employees, living in same area, being the same gender, and not living in a designated HUBZone a white owned business would have received an average of $15,000 more than a black-owned business and almost $21,000 more than an Asian-owned business, which are statistically significant at the less than 1% level. The chart and table from 2021 show considerable improvement over loan amount disparities. In the 2021 data white-owned businesses are underrepresented and the other races are overrepresented, which compensates for the disparities in the previous year. According to Table 2, Black-Owned businesses do not receive an average loan that is statistically significantly lower than white-owned businesses and Asian owned business received an average of $7,389 less than white owned business that is still an improvement over the near average $21,000 lower amount they received last year even when taking into consideration loan amounts were about half of what they were last year in N.C. Still much needs to be done to address. racial disparities on all fronts.

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PPP (Paycheck Protection Program) Disparities by Gender in North Carolina by Year

In order to determine whether Paycheck Protection loans in the North Carolina, suffered the same disparities between gender and race, as we found in our previous articles for 2020 PPP data. PPP loans were aggregated to include only North Carolina and included loan over and under 150K. In months that PPP were available in 2020, the disparities were much greater for loans given to male-owned businesses and women-owned businesses and were equivalent to amount of loans given between male and female owned business, however male owned businesses were awarded significantly higher loan amounts than female owned businesses. The demographic count almost doubled for gender between the two years, with the loans given in 2020 had close to 39% of loan applicants responding to the gender question, while 2021 had around to 78% responded as female owned businesses rate. Surprisingly, there were very few disparities between the loans given out in 2020 between male and female owned businesses and female businesses were overrepresented in the 2021 when compared to the overall business demographics of the North Carolina.

According to the most recent Census data that includes both Employer and Employer data statistics. The 2017 Census showed that female owned businesses made up 38.94% and male owned businesses made up 54.70% of Employer and Non-Employer businesses (percents do not add up to 100% because the Census includes equally/male and female owned as a separate category).

Male-owned businesses still received significantly more loans than female owned businesses. According to Model 1 in Table 1 below, male-owned businesses received and average of $6,759.96 more than female owned businesses, which is statistically significant at the five percent level. The model accounts for numerous factors that would affect loan amounts. The first and most important is jobs, the more jobs a business employee the more they will need to protect their employees’ paychecks and borrow more money. As the model shows for each employee a business reports they receive on average of $6,940.99, which is significant at less than the one percent level. Controls for race where also added which have been shown in many studies have shown that race has been shown to affect loan amount. Non-Profits, businesses in rural areas, and areas specifically designated as Historically Underutilized Zone (HUBZone). These controls were added to show that even when we disregarded the number of jobs a business employs, the race of the business owner, whether they are in an urban or rural area, or whether they are in a designated HUBZone female owned businesses still receive significantly less loan amounts than male-owned businesses.

Moreover, while the charts and the tables may show significant improvement in the amount of loans given when we did deeper the picture tells a different story. According to Model 1, in 2020 data male-owned businesses are given and average of $6756.96 more than female-owned businesses, while in the 2021 data male-owned businesses are given an average of $3301.50 more than female-owned businesses. So, male-owned businesses received around 2.05 times more than female-owned businesses when adjusting for controls. However, when looking at the mean amounts of total loans given, we see that in 2020 the average loan was $95,770 and in 2021 the average loan given was $40,266. Therefore, the average loans that were given in 2021 were 42% less than the average loan given in 2021. This means that the disparities between PPP loans given to male owned businesses and female owned businesses were about the same between the two years and may have been worse in 2021.

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Griffin & Strong Find Significant Disparities in N.C. Procurement: Non-Partisan Small Business Reserve Program is one of the Best Remedies for N.C.

The NC Department of Administration’s Historically Underutilized Business Office recently released a disparity study, researched by Griffin & Strong P.C., on the availability and utilization of minority and women business enterprises (MWBE) in government contracting. Researchers used procurement data from FY2014-2015 to look for and examine evidence of discrimination in North Carolina’s procurement practices. 

Griffin & Strong released their data in two reports: one focused on the procurement practices of North Carolina State Agencies, and the other reports on the contracts doled out by North Carolina’s Universities and Community Colleges, in the Industry Categories of Construction, Architecture and Engineering (“A&E”), Professional Services, Other Services, and Goods. The reports show that in nearly all categories1, North Carolina State Agencies, Universities and Community Colleges significantly underutilized minority and women owned businesses in contracts given to firms in all five industry – categories.

In order to reveal disparities researchers at Griffin & Strong P.C., determined the percentage of W/MBE firms in each industry category that are willing and able to do business with North Carolina and compares that with the amount of contract money awarded to firms by North Carolina State Agencies, Universities, and Community Colleges. The reports revealed that disparities were greater in contracts provided by state agencies than the disparities from University and Community College contracts. According to the study, 21.02% of construction firms able to do business with North Carolina are MBEs and 12.55% are WBE, yet MBE Construction firms received only 1.84% of total dollars spent on State Agency Construction projects and WBE received 5.39% of the funds from State Agency Construction contracts. The report on Universities and Community colleges showed that MBEs received 2.86% of construction contracts and WBEs received 9.65% of the construction contract funding.

The disparities for contracts given to MBEs is far greater than the disparities for WBEs in both reports for nearly all categories. Griffin & Strong created a disparity index to show the level of under and overutilization of certain firms in various categories. Scores below 100 represent underutilization, scores over 100 represent overutilization and a score of 100 represents perfect utilization.

Table 1 - Business Ownership Classification by Fiscal Year North Carolina Disparity Study
Table 2 - Business Ownership Classification by Fiscal Year NC-CC/Univ Colleges and Universities Disparity Study

As the graphs above show, MBEs are underutilized at rates far greater than WBEs in all the Industry categories except for goods in the Universities and Community Colleges study. In order to address this, the State should decouple the procurement goals of MBEs and WBEs. North Carolina could look to Ohio which has separated their MBE program from their WBE program and is in the process of creating a hybrid program called the Encouraging Diversity, Growth and Equity (EDGE) Program. Ohio’s MBE program establishes 15% procurement goals for state contracts to be awarded to certified MBEs, along with Financial and Bonding Assistance and Management and Technical Assistance, while it’s WBE program does not allow set aside procurement goals.

In order to address the disparities in North Carolina procurement rates, Griffin & Strong made 12 Policy recommendations North Carolina can make to increase WMBE utilization. In accordance with the legal requirements for MWBE programs set forth in City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), many of the policy recommendations are race neutral. Two of the recommendations are particularly timely in that they will help address North Carolina’s procurement disparities and help bolster small businesses ravaged by the pandemic. The recommendations are:

  • Create a Small Business Reserve Program that allows only small businesses to bid on certain sized contracts.
  • Implement Mandatory Subcontracting goals on large contracts to create more opportunities

These policy recommendations could help revitalize North Carolina’s small businesses that have been hit hard by the pandemic. As the below graphics show, both the number of small businesses open in North Carolina and the revenue that small business has generated is significantly lower than it was in January 2020 before the start of the pandemic. Creating a statewide a small business reserve program, modeled after Maryland’s small business reserve program could keep struggling small businesses from having to shutter their doors. The program would allow firms in the state to register as small businesses, and then compete for set aside projects that can only be awarded certified small businesses.

Figure 1 - Percent Change in Number of Small Businesses Open: In North Carolina, as of May 05 2021, the number of small businesses open decreased by 27.3% compared to January 2020
Figure 2 - Percent Change in Small Business Revenue: In North Carolina, as of May 05 2021, total small business revenue decreased by 18.3% compared to January 2020.
https://tracktherecovery.org/

All small businesses, regardless of their ownership status have been hit hard by the pandemic. Creating a small business reserve program would help create more job opportunities for small businesses hurt by the pandemic. Moreover, since WMBEs tend to be disproportionally smaller with less access to the capital necessary to bid for large contracts, creating a small business reserve program with set-aside procurement goals and creating contracting jobs that require less access to capital would disproportionally help MWBEs, without enacting specific race-based resolutions that are often subject to political controversies and court challenges.  

To help bolster MWBEs and all small businesses across North Carolina. Governor Cooper should establish a Small Business Reserve Program under the Office of Historically Underutilized Businesses, that offers 15% of State Agency procurement projects as set asides for certified small businesses.

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Disparities in PPP Lending by Gender

The Paycheck Protection Program (PPP) was Congress’s main effort to ameliorate the pandemic’s effects on small businesses. As of January 31, 2021, the Treasury Department doled out over 6 million loans totaling nearly 600 billion dollars with an average loan amount of $98,560. The initial rollout of the program has been criticized for favoring larger businesses seeking higher loan amounts and effectively shutting out smaller minority and women owned businesses most likely to shutter their doors without immediate financial relief. (https://www.bloomberg.com/graphics/2020-ppp-racial-disparity/; https://www.prnewswire.com/news-releases/new-study-finds-women-owned-businesses-were-passed-over-in-the-ppp-loan-process-301046329.html)

The data from the Treasury department shows that loan averages for the first window of PPP loans, between April 3rd and April 16th, before the money ran out were much higher than the loans paid out the months following. All of the PPP loan data shows that male owned businesses received a larger loan amounts than female owned businesses and at a higher rate compared to the number of male owned businesses in the nation. According to 2017 Census data, women owned businesses made up 39% of employer and non-employer firms in the United States (https://data.census.gov/cedsci/all?q=AB1700CSA01; https://www.census.gov/programs-surveys/abs/data/nesd.html). In the first window of the PPP program women owned businesses made up only 22% of the firms that responded to the gender demographic question for PPP loans. From April 27th 2020 to January 31st, 2021 women owned businesses made up 27% of the firms that responded to the gender demographic question for PPP loans.  Therefore, women owned businesses received loans at a rate between 12-18% less than there overall make up as business owners in the nation.

There is also evidence for both periods PPP loans were made available the percentage of women owned businesses receiving loans and the average amount they received is even lower than the data indicates. For both time periods female owned businesses received lower average loan amounts than male owned businesses and loan applicants that did not respond to the gender question on the application.  

Simple regressions which omitted unanswered responses, and controlled for the number of employees a business, whether the loan was made to a rural or urban business, whether the firm was a nonprofit and whether the business was located in an area defined by the SBA as a Historically Underutilized Business Zone (HUBZone) showed that women owned businesses received significantly lower loan amounts than male owned businesses (P-Values less than .1%) for the time periods represented in the charts below. From April 3rd to April 27th 2020, women owned businesses received an average of $21,848 dollars less than male owned businesses. From April 27th 2020 to January 31st 2021, women owned businesses received an average of $11,215 dollars less than male owned businesses.

In the first period that PPP loans were available, businesses that did not respond to the gender demographic question in their loan application received higher average loan amounts than the respondents that did respond to the gender demographic question. Given that women owned businesses received significantly lower loan amounts than male owned businesses in both time periods the unanswered loan amount category should fall in the upper-middle range of the average loan amounts for male and female owned businesses if it comprises the same ratio of male to female owned businesses as the firms that responded to the demographic question on their loan applications. The higher loan averages for the unanswered category between April 3rd to the 16th suggests two things.

  1. Female business owners were likely even more underrepresented than the data suggests.
  2. The discrepancy of average loan amounts between male and female owners is even higher than the data suggests for the first time period PPP loans were given.
Chart: PPP Loans by Gender from April 3rd to 16th 2020
Table 1: Average Loan Amounts by Gender from April 3rd to 16th, 2020
Table 2: Average PPP Loan Amounts by Gender from April 3rd to 16th, 2020
Chart 2: PPP Loans by Gender from April 27, 2020 through January 31, 2021
Table 3: Average Loan Amounts by Gender from April 27th, 2020 to January 31st, 2021
Table 4: Average Loan Amounts by Gender from April 3rd to 16th, 2020
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Disparities in PPP Lending by Race

PPP loan data on race reveals disparities in the number of loans for the first time period PPP loans were given and amount of loans given to minority and non-minority owned businesses for both time periods. According to 2017 Census data minority owned businesses made up 31% of employer and non-employer firms, non-minority owned businesses made up 68% of total businesses in the U.S., and businesses equally minority and non-minority owned made up less than 1%. According to loan data in which respondents answered the demographic question on race, non-minority applicants received 83% of loans and minority businesses only received 17% of loans for the first period PPP loans were available. Black owned businesses fared the worst compared to their overall make-up of businesses owners in the first window of opportunity. Black owned businesses only received 1.6% of loans when they made up 10% of U.S. businesses owners according to U.S. Census data.

Chart 1: PPP Loans by Race from April 3rd through 16th, 2020
Table 1: Average Loan Amounts by Race Compared to White Owned Businesses from April 3rd, 2020 to January 31, 2021
Chart 2: PPP Loans by Race from April 27, 2020 through January 31, 2021
Table 2: Average Loan Amounts by Race Compared to White Owned Businesses from April 27th, 2020 to January 31st, 2021
Table 3: Average Loan Amounts by Race Compared to White Owned Businesses from April 27th, 2020 to January 31st, 2021