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Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?

Author

Listed:
  • Sergey Chernenko
  • Nathan Kaplan
  • Asani Sarkar
  • David S. Scharfstein

Abstract

We use the 2020 Small Business Credit Survey to study the sources of racial disparities in use of the Paycheck Protection Program (PPP). Black-owned firms are 8.9 percentage points less likely than observably similar white-owned firms to receive PPP loans. About 55% of this take-up disparity is attributable to a disparity in application propensity, while the remainder is attributable to a disparity in approval rates. The finding in prior research that Black-owned PPP recipients are less likely than white-owned recipients to borrow from banks and more likely to borrow from fintech lenders is driven entirely by application behavior. Conditional on applying for a PPP loan, Black-owned firms are 9.9 percentage points less likely than white-owned firms to apply to banks and 7.8 percentage points more likely to apply to fintechs. However, they face similar average approval disparities at banks (7.4 percentage points) and fintechs (8.4 percentage points). Sorting by Black-owned firms away from banks and towards fintechs is significantly stronger in more racially biased counties, and the bank approval disparity is also larger in more racially biased counties. We conclude that insofar as automation by fintechs reduces racial disparities in PPP take-up, it does so by mitigating disparities in loan application rates, not loan approval rates.

Suggested Citation

  • Sergey Chernenko & Nathan Kaplan & Asani Sarkar & David S. Scharfstein, 2023. "Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?," NBER Working Papers 31172, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31172
    Note: CF
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    Cited by:

    1. Matteo Crosignani & Hanh Le, 2023. "Stakeholders’ Aversion to Inequality and Bank Lending to Minorities," Staff Reports 1079, Federal Reserve Bank of New York.
    2. David Glancy, 2025. "Bank Relationships and the Geography of PPP Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 67(3), pages 157-186, June.
    3. Lambert, Thomas & Mishra, Prachi, 2021. "The Politics of the Paycheck Protection Program," CEPR Discussion Papers 16842, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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