Black-owned businesses turned to fintech firms at more than twice the rate of those owned by white, Hispanic or Asian people when applying for pandemic aid under the Paycheck Protection Program, according to research by the Federal Reserve Bank of New York.
The research released on Thursday, which showed about 25% of Black-owned firms applied for PPP loans through fintech lenders, confirmed that they were more likely to be forced to seek alternatives to the traditional banking system when applying for the government funding, which offered forgivable loans that could be converted into grants.
“Our results suggest that historical factors that prevent Black owners from receiving bank credit continued to operate with the PPP,” the researchers wrote in a series of blog posts published Thursday.
Businesses that used fintech firms to apply for PPP loans also generally asked for and received smaller loans.
The analysis, based on information from small business data processing firm Womply and a Fed survey of 9,693 small businesses, builds on previous research finding that minority-owned businesses struggled to tap into government aid early in the crisis because they lacked existing banking relationships.
The research released on Thursday also showed that businesses in communities with high concentrations of racial minorities, often based in urban areas, faced steeper drops in revenue – and a slower recovery – during the pandemic than neighborhoods with fewer minorities.
About two-thirds of the Black-owned businesses that sought financial assistance had reduced their staff, compared to less than half of white-owned businesses.
Once they received PPP loans, Black-owned firms were just as likely as white-owned firms to try to bring back their employees, a key condition of the loans.
Among the businesses that did not receive PPP funds, either because they did not apply or were not approved, Black-owned firms were less likely than white-owned firms to attempt to rehire their staff.