Study: More evidence of inequity in access to bank services to help small businesses survive the pandemic

Black and Latino small business owners had less access to loan modifications

The federal government’s Paycheck Protection Program provided forgivable loans to help businesses survive the COVID-19 economic collapse. But that wasn’t enough. About four million small businesses closed permanently in 2020, and many needed other options, like modifications to outstanding loans and credit card debt. New research from the National Community Reinvestment Coalition (NCRC) found that Black and Latino small business owners had less access to those options than White small business owners.

NCRC surveyed 938 small business owners across nine metropolitan areas from October 23, 2020, to December 29, 2020. The purpose of the survey was to determine whether small business owners explored other options, such as lease and loan modifications to save their businesses, and if so, did they access them. 

The survey found significant differences in the rates at which Black, White and Latino small business owners contacted lenders to inquire about credit product modifications, and in the rates of approvals of loan modifications. White small business owners received modification approvals at a significantly higher rate (26.7%) than Black (10.9%) and Latino (12.0%) small business owners who contacted commercial financial institutions.  

“These troubling findings underline the need for financial institutions to strengthen their internal systems to root out discrimination that still pervades the lending experience for borrowers,” said Jesse Van Tol, CEO of NCRC. “Regulators need to strengthen their enforcement of fair lending laws, banks need to scrutinize their lending files for evidence of discrimination, and they need to incorporate rigorous testing and training programs to ensure compliance with fair lending laws. Our findings also highlight the need to expand access to education for small business owners.” 

In addition to the differences in access to and approval of loan modifications, NCRC found that White small business owners had significantly more access to business credit cards and business lines of credit than Black and Latino small business owners.

NCRC previously found evidence of discrimination in how banks responded to PPP loan inquiries.

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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