Racist bias distorted small business aid loans, the study found

0


But Sergey Chernenko, an associate professor of finance at Purdue University’s Krannert School of Management, who did not attend Dr. Howell’s research said the new paper reflects his own findings on race-based lending gaps in the Paycheck Protection Program. at an economic conference next month he will present a piece of paper It concluded that black-owned companies were disproportionately excluded from the aid program.

“This fits in very well and complements our finding that, because of racial prejudice, minority-owned companies were less likely to get credit from fintechs than from banks,” said Dr. Chernenko.

The government designed the paycheck protection program to be virtually risk-free for lenders: they would advance small businesses up to $ 10 million – the size of the loan was based on the number of employees and the company’s payroll – and the government would then repay the loans in full for business owners who followed the rules. Should the borrower default, the government would still repay the lender. In theory, any lender should be ready to provide credit to any qualified applicant.

It didn’t work out that way. Many banks limited their credit to their existing customers, which posed a hurdle for owners who lacked business checking accounts or credit. But even black owners who had accounts were significantly more likely than other races to get a fintech loan, found Dr. Howell and her co-authors.

The impact was greatest in parts of the country with higher levels of racial hostility, which the study measured using variables such as the extent of local segregation and the prevalence of racially charged Google searches.

The researchers tested – and found little evidence – other popular hypotheses about the differences in lending between the races of the program. Even after checking variables like applicant’s zip code, industry, recent sales, online lender affinity, and loan size and approval date, the gap remained.

This was not the case with the largest banks in the country. After the researchers checked these elements, black-owned companies seemed just as likely as anyone else to get credit from Bank of America, Citibank, JPMorgan Chase, and Wells Fargo.


Share.

Leave A Reply