Why “Race Neutral” Policy Fails Black Small Business Owners: Lessons Learned From the Paycheck Protection Program and Mapping an Equitable Path Forward

Introduction

On March 27, 2020, the United States Congress enacted the Paycheck Protection Program (PPP) to help the nation’s small businesses survive the economic fallout from the COVID -19 pandemic. While the program was lauded as a success by many, the overwhelming sentiment amongst Black small business owners has been that the PPP failed them. In the media, stories of the difficulties encountered by Black small business owners in accessing PPP funds have been ubiquitous. Andrea Power, an Atlanta-based Black small business owner, applied for a PPP loan so that she could retain her ten employees. After first being told that the program had run out of money, she was then denied funding because of her poor credit history (Brooks, 2020). Dannesia Pullen, whose trucking company saw a 15-20% decline in cash flow due to the pandemic, applied for a PPP loan, and was also declined (Allam, 2020). Terrika Walker, who owns a residential care facility in Louisiana, was forced to lay off all five of her employees when she was rejected six weeks after applying for a PPP loan (Cowley, 2022). Black-owned small businesses, which are more likely to be located in highly competitive, low profitability industries, were the least likely to have the financial cushion to survive the COVID-19 pandemic. Yet, they were also least likely to receive assistance from the PPP. Meanwhile, the majority of White-owned small businesses received the PPP funds they applied for. Dr. Rich Coleman, a White veterinarian and owner of Four Paws Animal Hospital in Ohio, received a PPP loan for $206,000 within one week of applying. He stated that the loan helped him to retain his 34 employees, and allowed him to go home every night knowing that his employees could pay their rent, feed their families, and more importantly, maintain the massive amount of pets they own (Paycheck Protection Program: Loan Forgiveness and Other Challenges, 2020). The aforementioned accounts are not isolated incidents - that there were racial disparities in access to the PPP is empirically supported. According to the United States Small Business Administration (SBA), of the businesses that received PPP loans, 1.9% were Black-owned, 7% Latino-owned, while the majority - 83% - were White-owned. And, for those Black small business owners who were successful in obtaining PPP loans, their average loan amount of $24,315 was less than half of the average received by Asian-owned businesses, and merely one quarter of the average loan amount disbursed to White-owned businesses (Howell et al., 2021).

Much of the research on the experience of Black-owned small businesses with the PPP has focused on identifying racial disparities in access. The resounding conclusion of those studies is that there were indeed racial disparities. Missing from the literature, however, is a deeper exploration into the root causes of the disparities; a glaring omission that warrants further investigation. This chapter fills that void. Utilizing critical race theory as the analytical lens, the chapter explores why the PPP, which did not specify preference for race of the applicant, nevertheless resulted in racialized outcomes. Critical race theorists argue that racial inequality is maintained by policies which while appearing to be race neutral, systematically discriminate against minority groups (Bradbury, 2020). The chapter’s analysis has significant policy implications. As policy-makers grapple with how to close the racial wealth gap, increasing Black entrepreneurship has been advanced as a solution. Indeed, in June 2021, the Biden-Harris Administration announced that their two areas of focus for narrowing the racial wealth gap would be home ownership and small business ownership. This study will 1) help policymakers understand the underlying causes of the racial disparities in access in the PPP 2) help policymakers to, more broadly, understand why seemingly race neutral policies have had limited impact in helping Black business owners and 3) help with the design of more racially inclusive small business policies. Regarding the latter, this chapter recommends a targeted universalism approach to small business policymaking which, as is argued herein, would ensure that future small business policies are designed to produce more equitable outcomes for Black business owners, while also gaining acceptability among the different stakeholder groups.