A California lawmaker is calling for the Biden administration to conduct a comprehensive analysis of the Paycheck Protection Program in response to an investigation by Reveal from The Center for Investigative Reporting.

The program, known as the PPP, was established under the Coronavirus Aid, Relief, and Economic Security Act – or CARES Act – on March 27, 2020. President Donald Trump announced at the time that the PPP would provide “unprecedented support to small businesses.” The program has injected more than $780 billion into businesses, including Reveal, since last April.

A Reveal analysis of more than 5 million PPP loans found widespread racial disparities in how those loans were distributed. In the vast majority of metro areas with a population of 1 million or more, the rate of lending to majority-White areas was higher than the rates for any majority-Latinx, Black or Asian areas.

Los Angeles and New York had some of the worst disparities in the nation: Businesses in majority-White areas received loans at twice the rate that majority-Latinx tracts received, at least one and a half times the rate of businesses in majority-Black areas and 1.2 times the rate in Asian areas. 

On the morning of Sunday, May 2, Democratic U.S. Rep. Judy Chu was reading the Los Angeles Times, which co-published Reveal’s investigation. “I practically stood straight up and ran to the computer to say to the staff that we need to do something about this,” Chu told Reveal. From her Twitter account, Chu wrote: “For a year, I have warned that w/out better rules, PPP loans meant for ALL #SmallBiz will pass over communities of color. Now we have evidence that’s exactly what happened.”

That Monday, May 3, Chu wrote a letter addressed to Small Business Administration Administrator Isabella Guzman and U.S. Treasury Secretary Janet Yellen urging “immediate action to address racial disparities in the administration of the Paycheck Protection Program.”

“PPP has been among the most impactful interventions in response to the COVID-19 pandemic, and has helped millions of small businesses to keep their doors open through this crisis,” Chu wrote. “But evidence that minority businesses have not been provided the opportunity to participate at the same level as white-owned firms demands our immediate attention.”

Decisions made by the SBA and the Treasury Department in implementing the program ultimately led to the racial disparities Reveal uncovered, according to interviews with equitable lending experts and a sharply critical report by a congressional select subcommittee on the coronavirus crisis. Banks were directed to prioritize existing customers, even though Black-owned businesses are less likely to have a banking relationship. Forgiveness requirements in the program’s critical first round centered on payroll costs, even though studies have shown that most Black business owners are sole proprietors. The program also initially excluded immigrant business owners who pay taxes with an Individual Taxpayer Identification Number, instead of a Social Security number, blocking access for large numbers of Latinx, Asian and other immigrant proprietors.

Chu, a member of the House Committee on Small Business, urged the SBA and the Treasury to “conduct and report a comprehensive analysis of PPP’s performance in racial and ethnic minority communities and develop a plan to increase participation and outreach to underserved markets.”

Through the CARES Act, Congress ordered the SBA and the Treasury to issue guidance to lenders to ensure that the program “prioritizes small business concerns and entities in underserved and rural markets.” But the Trump administration exercised “a blatant disregard of the mandate of the CARES Act,” Chu told Reveal.

When the PPP launched last year, Chu said she heard from multiple small business owners in her district, which covers parts of Los Angeles and the western San Gabriel Valley, who could not get through to big banks. “I was getting all these calls from small business owners who were so desperate, who could not get even to step one,” she recalled. She wrote a letter at the time to the SBA and the Treasury expressing concern that PPP lenders were failing to assist businesses in underserved communities.

Chu’s district includes the predominantly Asian city of Monterey Park, where only about a third of businesses received PPP loans, compared with 61% in the predominantly White community of Playa del Rey just 30 miles away.

Ron Tang, owner of the bubble tea cafe One Zo, was one of them. A former tax manager, Tang said he had a good relationship with Bank of America; when his foot traffic dropped dramatically last year, he secured PPP funds with ease. But since then, the bank rejected his application twice due to a “tax ID discrepancy.” 

“I called multiple times and sometimes they would say it’s with the SBA, sometimes they would say they’re reviewing my application,” he said. “I don’t really know who to blame. It’s more like … ‘Why is this happening to me at a time when we really need the funds?’”

In her letter, Chu noted that investigators from the SBA inspector general’s office and the Government Accountability Office had repeatedly told the small business committee that the “SBA under the Trump Administration was not taking seriously its responsibility to reach underserved businesses.” Since then, the Biden administration has made changes to the PPP that are already reaping benefits for very small business owners. In February, the SBA established a 14-day exclusive PPP loan application period for businesses with fewer than 20 employees. By March 5, minority business loan approvals had increased 20%, according to the SBA.  Immigrant business owners can now apply with their ITIN numbers. In addition, Chu pointed out, the SBA recently launched a pilot program to strengthen outreach to underserved communities.

The PPP is now mostly out of funds, except for roughly $8 billion that was allocated to community financial institutions that typically focus on lending in communities of color. The application window closes May 31.

Los Angeles Times reporter Alejandra Reyes-Velarde contributed to this story. It was edited by Esther Kaplan and copy edited by Nikki Frick.

Laura C. Morel can be reached at lmorel@revealnews.org, and Mohamed Al Elew can be reached at malelew@revealnews.org. Follow Morel on Twitter: @lauracmorel.

Creative Commons License

Republish our articles for free, online or in print, under a Creative Commons license.

Laura C. Morel (she/her) is a reporter for Reveal, covering reproductive health.

She previously covered immigration during the Trump administration. Before joining Reveal, Laura was a reporter at the Tampa Bay Times, where she covered criminal justice issues.

She was a 2022 finalist for the Livingston Award, which recognizes young journalists, along with Reveal data reporter Mohamed Al Elew for an investigation that exposed racial disparities within a federal lending program. She was also a Livingston finalist in 2017 as part of a team of reporters that investigated Walmart’s excessive use of police resources.

Mohamed Al Elew (he/him) was a data reporter for Reveal. He received his bachelor’s degree in computer science at the University of California San Diego, where he was a research scholar at the Data Science Institute and served as editor in chief of The Triton, the school’s independent student newsroom. As an intern at CalMatters, he worked on an award-winning investigation into instruction lost at California public schools due to natural disasters and infrastructure failures.