For many Black-owned businesses, relief funds came too late or not at all
When Aisha Flood walks into her dance studio off Capital Boulevard in Raleigh, the empty rooms where people used to dance bring her to tears.
Before the coronavirus pandemic, more than 100 people would come to her dance-and-yoga studio, My Pink Cherry Pole Studio, every week to exercise and socialize. But with gyms ordered closed, the studio can’t bring in any revenue and is on the verge of closing for good.
“I am in big trouble. We might have to pack everything up and put it in storage,” Flood said in a phone interview. “We are hopeful that change will happen but it is up in the air. Right now, it is a lot of sleepless nights.”
In April, she thought the new Paycheck Protection Program might be able to save her business, so she applied for a loan through her bank.
The program was designed by the federal Small Business Administration quickly at the beginning of the pandemic. It was pitched as a lifeline for small businesses, allowing companies and nonprofits with fewer than 500 workers to get a low-interest loan to cover up to two months of payroll and expenses like rent and utilities. On top of that, the loan was forgivable as well, if companies followed certain guidelines.
But now, three months later, Flood, who is Black, has yet to be approved for a loan and the process has left her frustrated. She said she received no help with her application, which she described as confusing, and wait times to speak with someone at the bank could take up an entire day.
She said she only recently found out she couldn’t claim the 15 contractors who work in her studio as employees on the PPP application, which she thinks may have stalled it. But, she said, there’s been no feedback from her bank about why it wasn’t approved. She said she wishes the system had been “designed more to help,” and she’s suspicious that banks have favored larger or more established clients.
“We had to reapply,” she said. “We are just waiting now to see if we can get something.”
The SBA released a database of information on PPP loan recipients after being sued by five news organizations, including The Washington Post and ProPublica. The database does not include the names of businesses that received loans for under $150,000, making it impossible to know whether banks did indeed give preference to certain types of clients.
Banks are ‘gatekeepers’
But Rochelle Sparko, the director of NC policy at the Durham-based Center for Responsible Lending, said Flood’s situation fits into a larger pattern.
Making banks “gatekeepers” of the loans led to unbalanced results because when you look at “who is accessing credit, the outcomes are disparate,” Sparko said in an interview in May, noting the country’s history of lending discrimination.
In the past five years, for example, 46% of white-owned businesses had accessed credit from a bank, while just 23% of Black-owned businesses and 34% of Latino-owned firms had done so, Sparko said, citing research from the Federal Reserve Banks.
Tracy Ward, director of Self-Help Credit Union’s small business loan program, said that without institutional support, the PPP application turned out to be far too cumbersome, especially for the smallest businesses.
“The process for applying was incredibly complicated, and a lot of businesses are feeling like they will have to hire an accountant to help them figure out how to apply,” Ward said. “It adds cost and a huge amount of time that was never intended ... so that’s a real challenge for smaller businesses.”
For Flood personally, the protests against police brutality in the wake of George Floyd’s killing have added an emotional burden. She started her studio three years ago after police killed her two brothers, Jaqwan Terry and Maurice Harden. Terry was shot to death by police officers — the State Bureau of Investigation said the officers’ actions were justified — and Harden died after a police officer struck his scooter with a car during a high-speed chase. With the recent protests, their deaths have dominated Flood’s thoughts again.
“I am fighting for them both,” she said, “and to save my business at the same time.”
41% drop in Black-owned businesses
Across the country, Black business owners have been hit hard by the pandemic. According to a recent study of census data by Stanford University, the number of active Black business owners declined by 41% from February to April 2020. Active white business owners declined by 17%. Research by the JPMorgan Chase Institute showed cash balances for Black businesses were down by 26% at the end of March from a year earlier, compared with a 12% decline for all firms.
In many cases, the federal relief funds, theoretically designed to save these businesses, came too late, or not at all.
Research has shown that Black business owners faced disproportionate challenges when trying to obtain PPP funding. In a survey conducted in mid-May by Global Strategies Group on behalf of the nonprofit Color of Change, 51% of Black and Latinx small business owners reported applying for less than $20,000. Only 12% said they received the amount they requested. More than three times that number — 41% — reported being denied assistance, while 21% said in mid-May they were still waiting for a response.
A Goldman Sachs study found that in the first round of funding, while 91% of all firms in the survey applied for funding, just 79% of Black-owned firms applied. Of those that applied, 40% of Black-owned firms were approved for funding, while 52% of all firms were approved.
The SBA did not require lending institutions to keep track of the race or gender of applicants or recipients, making it nearly impossible to know what percentage of the $12.4 billion in loans received by North Carolina business owners went to Black business owners. The N&O requested demographic data on PPP lending from nine banks in North Carolina. Two did not respond and seven replied that they did not collect this information as they were not required to by the SBA.
A report from the SBA’s inspector general in May found that the agency failed to follow several congressional mandates, including giving guidance to lenders to prioritize underserved communities. It added that since the SBA did not track demographic data, it is unlikely that it will be able to successfully track its implementation.
“Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets … rural, minority and women-owned businesses may not have received the loans as intended,” the report says.
Bank relationships
Experts attribute this in large part to disparities in relationships with some of the state’s larger banks.
“One thing that we know empirically is that businesses that wanted to access PPP loans had to have an existing relationship with a bank,” said Kevin Dick, CEO of Carolina Small Business Development Fund. “That presents a problem for businesses that might be in underserved communities who don’t necessarily always have the robust banking relationships that businesses in other communities do.”
A 2017 report from the U.S. Federal Reserve found that Black-owned businesses have been turned down for loans at a rate twice as high as white-owned businesses.
According to data released by the SBA, just three banks made a quarter of the loans under $150,000 in North Carolina.
An analysis from the Center for Responsible Lending found that the PPP structure also discouraged smaller loans. Nearly 95% of Black-owned firms are sole proprietorships, meaning they have one employee, according to the Census Bureau’s Survey of Business Owners; 91% of Latino-owned firms are sole proprietorships and 78% of white firms are.
Banks that participate in the PPP program are paid an origination fee based on the size of the loan. Ashley Harrington, the federal advocacy director at the Center for Responsible Lending, said this structure incentivized banks to favor larger companies over smaller ones.
“If you ask any lending institution, they’ll tell you it costs the same, if not more, to originate a small loan versus a big loan,” Harrington said. “And if originating a big loan leads to a higher fee ... and actually allow(s) you to make a profit, then the incentive is there for you to do the bigger loan and not the smaller loan.”
Leonardo Williams, owner of Zweli’s restaurant in Durham, applied for a PPP loan the day the program opened, April 3. He never heard back. When he called his bank, they gave no explanation for why he hadn’t received a loan, he said. A representative just apologized and said there was nothing they could do about the status of his application.
“We can’t rely on the banks. The banks have not been as responsive to the current state of things,” he said.
He learned from talking to other business owners in Durham that many other restaurants had received funding. He noticed that business owners who had applied later in the first round seemed to get funding. But he also noticed that downtown restaurants, and restaurants owned by white people, seemed to have had more success getting funding.
“It appeared that you were prioritized based on the amount of money that you contribute into the economy — along with, they were just consistently white, as well,” he said. “We, through PPP were able to in a firsthand manner experience how racism can affect us in a very official and legitimate way. There was nothing illegal about it.”
Williams did ultimately receive the amount he’d applied for in the first round, $17,000, a little over a week after the second round of funding opened on April 27. In the meantime, the restaurant was forced to reduce all employees’ hours to half. That $17,000 has already run out and now Williams owes back-rent, too.
“I don’t know what we’re going to do. We’re just going month by month right now,” he said.
‘All about who you knew’
Other Black business owners had similar experiences. “It was all about who you knew — whether you could get funding or get your application in or not. Because no one was really willing to help you do it,” said Cheryl Lakes, who runs Blooming Baby 4D Imaging Studio, an ultrasound clinic.
Lakes said she reached out to her bank multiple times about applying for a PPP loan. When she finally heard back, the bank manager discouraged her from applying, saying that she had thousands of applicants in the queue.
“She said, ‘Feel free to fill out the application and send all these things to me but you’ll pretty much be wasting your time because you probably won’t get any money,’” Lakes recalled. She said several other Black business owners she spoke with were told the same thing. Through a friend, she heard about BlueVine, an online lender geared toward small businesses. She applied and was approved within a few days for a $20,000 loan.
Eboné Graham, who advises Black business owners in growing their businesses through a city-sponsored program, Opportunity Asheville, said many owners faced similar challenges.
“If you don’t have the background to be comfortable with business, you’re just going to be overwhelmed. And if you don’t know who to go to talk to, or if you try to talk to someone and they can’t reach you where you are, you’re just going to be turned away and not even try. I feel like a lot of people probably went through that,” she said.
She said many business owners were deterred from applying by the messiness of the program’s roll-out: In the first round, the program ran out of money within two weeks, and the SBA revised the guidelines multiple times. Particularly for Black business owners, she said, these issues generated a lack of trust. “There is a history of neglect in Asheville that makes Black people very suspect and paranoid about whether opportunities are real, whether people actually want to help.”
Even with its rough roll-out, the PPP program still has around $100 billion left to dole out, though the program expires on Aug. 8, after it was extended past July.
Flood, the dance studio owner, said she is still hoping to get a PPP loan, but admitted she’s tired of trying to navigate the process.
At this point, she added, “I’m just hoping we are allowed to reopen soon.” But she’s afraid that her clients and employees will be too scared to come back or won’t be in the financial position to do so.
“We may be able to reopen but we’ve been down five months (and) I’ve lost over 120 clients,” she said in a text message. “You know how hard that is to rebuild?”
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This story was originally published July 11, 2020 at 1:00 PM with the headline "For many Black-owned businesses, relief funds came too late or not at all."
