Black-owned businesses were significantly more likely than their peers to use online lenders than traditional banks to apply for pandemic relief loans in the United States, according to a study by the Federal Reserve Bank of New York. .

About one in four black homeowners seeking a paycheck protection program loan applied to a financial technology company, more than double the rate for whites, Asians and Hispanics, the New Fed said. York in a blog post, part of his Economic inequality series.

The reasons for these findings are well documented. Minority-owned businesses have historically been underserved by the traditional banking system. Many were excluded from the PPP, especially in its first round at the height of the Covid-19 crisis, as they lacked relationships with the banks.

Fed data shows that 95% of large bank applicants and 83% of small banks applied for their PPP loans from lenders they had previously done business with. These borrowers had more employees, higher credit scores and were more likely to be white, according to Fed research.

Fintechs approved a large majority of their applicants, although most were new clients. They have proven to be a lifeline for business owners who would not have secured loans otherwise. It also means, according to Fed researchers, that inequality in access to credit has been perpetuated with pandemic relief programs.

“Since black homeowners were approved for loans by fintech lenders at a higher rate even before the pandemic, our results suggest that the historical factors that prevent black homeowners from receiving bank credit have continued to work with P3.” , wrote the researchers.

One of the downsides to fintech’s higher propensity to approve loans was that crooks made these companies their lenders of choice, based on an analysis of PPP loans linked to fraud cases last year.

Overall, the PPP program distributed 11.6 million forgivable loans worth $ 796 billion through May 23, according to the Small Business Administration. Its stated goal at the start of the pandemic in March 2020 was to help small businesses keep or rehire employees during shutdowns.

More than three-quarters of companies that have received PPP funds have taken steps to rehire staff, compared with just over half of companies that either did not apply or received none, the researchers found. Fed.

To contact journalists on this story:
Cecile Daurat in Wilmington at [email protected];
Alex tanzi in Washington at [email protected]

To contact the editors responsible for this story:
Margaret collins at [email protected]

Ben Holland

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