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Black Business Owners Turned to Fintech to Get U.S. Pandemic Aid

May 27, 2021, 3:03 PM

Black-owned businesses were much likelier than their peers to use online lenders than traditional banks when applying for U.S. pandemic relief loans, according to a study by the Federal Reserve Bank of New York.

About one in four Black owners seeking a Paycheck Protection Program loan applied to a fintech company, more than twice the rate of Whites, Asians and Hispanics, the New York Fed said in a blog post, part of its Economic Inequality series.

The reasons behind the findings have been well-documented. Minority-owned businesses have historically been underserved by the traditional banking system. Many were shut out from the PPP, especially in its first round at the peak of the Covid-19 crisis, because they lacked relationships with banks.

Fed data show that 95% of large-bank applicants and 83% of small-bank ones sought their PPP loans from lenders they’d done business with before. These borrowers had more employees, higher credit scores and were more likely to be White, according to the Fed’s research.

Fintechs approved a large majority of their applicants, even though most were new clients. They proved a lifeline for business owners who wouldn’t have gotten loans otherwise. This also means, the Fed researchers said, that inequality in credit access was perpetuated with the pandemic relief programs.

“Since Black owners were approved for loans by fintech lenders at a higher rate even before the pandemic, our results suggest that historical factors that prevent Black owners from receiving bank credit continued to operate with the PPP,” the researchers wrote.

One downside of fintech’s higher propensity to approve loans was that scammers made these companies their lenders of choice, based on an analysis of PPP loans connected to fraud cases last year.

Overall, the PPP program distributed 11.6 million forgivable loans worth $796 billion as of May 23, according to the Small Business Administration. Its stated goal at the onset of the pandemic in March 2020 was to help small businesses keep or rehire employees during the shutdowns.

More than three-fourths of firms that received PPP funds took actions to rehire staff, compared with just over half of firms that didn’t apply or receive any, the Fed researchers found.

To contact the reporters on this story:
Cécile Daurat in Wilmington at;
Alex Tanzi in Washington at

To contact the editors responsible for this story:
Margaret Collins at

Ben Holland

© 2021 Bloomberg L.P. All rights reserved. Used with permission.