Invest in You: Ready. Set. Grow.

Black-owned businesses hope this round of PPP won’t fail them

Adrienne Parker, who owns a consulting firm, has applied for a second round of PPP.
Source: Adrienne Parker

Adrienne Parker knows what it is like to struggle as a Black small business owner during the pandemic.

The sole proprietor of Peace of Mind Consulting, a management and bookkeeping consulting firm in Atlanta, Parker saw much of her income dry up as clients faced their own financial struggles.

So when the first round of Paycheck Protection Program loans became available, she went to a community development financial institution (CDFI), Atlanta-based Access to Capital for Entrepreneurs, instead of a big bank.

"I have heard the horror stories, and I have witnessed the horror stories first-hand, the experiences with the large banks," said Parker, 37.

While she eventually got a $9,000 loan, one of her clients, who went through a larger institution, waited for months to find out they had been turned down.

"Prior to the pandemic, there was already a disparity in loan approvals for Black business owners compared to White business owners," said John Holdsclaw IV, board chair of the CDFI Coalition.

"The pandemic, even with the PPP program, only widened the gap."

More from Invest in You:
Here's a 12-month roadmap to financial wellness
Black, Hispanic Americans pay twice as much in bank fees as Whites: survey
Biden pledges to help fix the child-care crisis in America. Here is his plan

CDFIs have long played a role in underserved communities. They are credit unions, banks, micro-loan funds, or venture capital providers that provide low-income communities access to financial services. Their communities may trust them more than large financial institutions.

CDFIs are also among those given early access to the latest round of PPP loans. When the program reopened on Jan. 11, community financial institutions that work with underserved communities were first in line. It opened up to additional lenders the following week. More than 60,000 loans were approved that first week.

Parker is among those who have applied for another loan. Others are first-time applicants.

"This next round is huge for Black and Brown business owners and entrepreneurs," Holdsclaw said.

This round is just a downpayment for 2021, in my mind.
John Holdsclaw IV
CDFI Coalition

There is no exact data on the racial breakdown of PPP loans, since any demographic information included in applications is purely voluntary. About 75% of all PPP loans didn't include the information at the time of the application, according to the SBA.

However, PPP data analyzed by The Associated Press showed that many minority owners didn't get a loan until the last few weeks of the program that ended Aug. 8.

The analysis found that six loans were approved for every 1,000 people living in the 20% of zip codes with the greatest proportions of White residents. That was nearly twice the rate of loans approved for those living in the 20% of zip codes with the smallest proportions of Whites.

The relief is sorely needed. In a September survey by Goldman Sachs, 43% of Black small business owners said they will deplete their cash reserves by the end of 2020.

Killer Mike on launch of digital banking platform Greenwood to address inequality
Killer Mike on launch of digital banking platform Greenwood to address inequality

David Reiling, CEO of the Minneapolis-based CDFI Sunrise Banks, is heartened by the response to this latest round of PPP loans. The extra lead time enabled his bank to do community outreach and help underserved business owners navigate the process.

Of the 2,500 applications received so far, 1,700 are complete. Of those, 800 are first-time PPP borrowers, with an average loan size of around $30,000. About 45% are from low- and moderate-income communities, 25% are African American, 10% are Asian and about 25% did not disclose their race.

Yet, more will be needed to help these businesses survive.

"In some cases, a small grant maybe a more efficient and effective way to support these small businesses," Reiling said.

"They need a little equity boost to get them through Covid."

Holdsclaw hopes that the SBA continues to go to CDFIs and other organizations to reach minority communities.

"This round is just a downpayment for 2021, in my mind," he said.

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.

CHECK OUT: A year after I started my side hustle, it was bringing in $10,000 a month: Here's what I've learned via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.