Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

We explore the sources of racial disparities in small business lending by studying $806 billion Paycheck Protection Program (PPP), which was designed to support jobs during COVID-19 pandemic. PPP loans were administered private lenders but federally guaranteed, largely eliminating unobservable credit risk as a factor explaining differential race. document that even after controlling for firm’s zip code, industry, loan size, approval date, and other characteristics, Black-owned businesses 12.1 percentage points (70% mean) more likely obtain their from fintech lender than traditional bank. Among conventional lenders, smaller banks much less lend firms, while Top-4 exhibited little no disparity including controls. use novel data show is not primarily explained differences pre-existing bank or relationships, firm financial positions, affinity, borrower application behavior. In contrast, we businesses’ higher rate borrowing fintechs compared particularly large places with high animus, pointing potential role discrimination some lending. find evidence when automate processes, thus reduce human involvement origination process, increases, larger effects animus.