The Cost of Banking Deserts: Racial Disparities in Access to PPP Lenders and their Implications

Paper489 KB


Many government support programs for small businesses are designed to pass through banks and credit unions. However, this poses barriers for minority communities that are less connected to financial institutions for obtaining this support. Using the latest program for supporting small businesses, the Paycheck Protection Program (PPP), as an example, we show that there was a large disparity in both the presence and density of PPP enrolled lenders by racial composition of the neighborhood. This difference is both due to a lower number of lenders in those neighborhoods in general, and by the fact that the lenders that do operate there are small credit unions without a previous relationship with the Small Business Administration. More heavily Black neighborhoods have significantly lower take-up of PPP loans, particularly in lower population (more rural) areas where this disparity is most salient. Through an instrumental variables analysis, we show that the intensive margin of access to enrolled lenders can explain about 32% of the racial disparity in take up within the relevant areas. Our results suggest that government programs that provide ``support through banks'' can have undesirable distributional implications.

Last updated on 04/29/2021