The Small Business Administration’s latest Flash Report states that SBA has failed to prioritize “underserved and rural markets” and that its PPP requirements “could result in an unintended burden to the borrowers.”[1]

The report states that, because “SBA did not provide guidance to lenders about prioritizing borrowers… including rural, minority and women-owned businesses, [these borrowers] may not have received the loans as intended.”[2] According to the Center for Responsible Lending, “upwards of 90% of businesses owned by people of color have been, or will be, shut out of the Paycheck Protection Program,” in part because minority business owners are less likely to have existing relationships with major banks.[3] The center has further determined that “[r]oughly 95% of Black-owned businesses, 91% of Latino-owned businesses, 91% of Native Hawaiian or Pacific Islander-owned businesses, and 75% of Asian-owned businesses stand close to no chance of receiving a PPP loan through a mainstream bank or credit union.”

Banks tend to prioritize larger loan applications, which presents yet another hurdle for smaller minority and women-owned businesses. CBS News reports that, on average, “minority and women-owned businesses have 30% fewer employees compared to male- or white-owned businesses,” which means the value of the loans they are seeking—which are based on a business’s average monthly payroll—are likely smaller.[4]

Moreover, the PPP’s forgivable loans could end up leaving many small businesses with more debt. To have their loans fully forgiven under the PPP, business owners must allocate at least 75 percent of the funds toward payroll costs. However, SBA’s newest report found that “tens of thousands of borrowers” have used more than 25 percent of the funds to cover costs such as rent and utilities, meaning they are likely to be stuck with new debt.[5] This debt—the amount of nonpayroll costs in excess of 25 percent—must be paid back within two years.

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[1] U.S. Small Business Administration. Flash Report: Small Business Administration Implementation of the Paycheck Protection Program Requirements (May 8, 2020), https://www.sba.gov/sites/default/files/2020-05/SBA_OIG_Report_20-14_508.pdf.

[2] Id.

[3] CBS News. “Up to 90% of minority and women owners shut out of Paycheck Protection Program, experts fear” (Apr. 22, 2020), https://www.cbsnews.com/news/women-minority-business-owners-paycheck-protection-program-loans/.

[4] Id.

[5] See supra note 1.