Working Paper: NBER ID: w31172
Authors: 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.
Keywords: Paycheck Protection Program; Racial Disparities; Fintech; Small Business Credit Survey
JEL Codes: G01; G21; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| application propensity (C52) | loan receipt (G51) |
| racial bias (J15) | application propensity (C52) |
| application propensity (C52) | approval rates (H43) |
| application disparities (J79) | confusion over application process (J68) |
| application disparities (J79) | lack of awareness of program (H53) |
| application disparities (J79) | missed deadlines (G14) |
| black-owned firms (L20) | likelihood of applying to banks (G21) |
| black-owned firms (L20) | likelihood of applying to fintech lenders (G21) |
| black-owned firms (L20) | approval rates at banks (G21) |
| black-owned firms (L20) | approval rates at fintechs (G21) |
| fintech automation (O14) | application disparities (J79) |
| fintech automation (O14) | approval disparities (J78) |