New York's Small Businesses Left Out of the Paycheck Protection Program

The COVID-19 pandemic has devastated small businesses nationwide, particularly in hard-hit cities like New York City and especially so in the City’s low-income communities and communities of color. The Paycheck Protection Program (PPP) was a response by the federal government to provide capital to businesses that had to shut down or reduce operations to slow the spread of COVID. It wasn’t until months after the program launched that the Small Business Administration released loan-level data, enabling the public to analyze the full extent of relief provided. The data has many limitations, particularly in the lack of demographic information for most loans, lack of census-tract level data, lack of application and denial information, inconsistent information between loans below and above $150,000, and data errors throughout. However, in the aggregate, the database provides some high-level insights into who benefited from this program and who didn’t as Congress debates future iterations of the program. 

The Association for Neighborhood & Housing Development (ANHD) analyzed the PPP data for zip codes in New York City and found that nearly 140,000 loans - 86% of all PPP loans in the City - were under $150,000, meaning the majority of loans went to small businesses. However, when we looked more closely, we found many people and communities did not receive the support they needed.

Key Findings

1. More funding should be directed to struggling small businesses - 86% of loans were under $150,000 and totaled just $4.1 billion, whereas the remaining loans were over $150,000 and totaled two to five times more ($9.6 billion - $22.7 billion). Also, $134 billion of total PPP funding was never loaned out.
2. PPP loans did not reach people or communities of color - The geographic distribution of loans largely matches pre-existing inequitable lending patterns, with lower concentrations of loans in low-income communities and communities of color where COVID hit hardest.
3. Nonbank lenders are more prevalent in communities of color and with smaller businesses - The percentage of PPP loans by nonbanks are higher in communities of color - communities that have fewer traditional bank branches and higher rates of unbanked people. These nonbank and additional online-only lenders were also more likely to make loans under $150,000, meaning small businesses did not have the same access to traditional banks for PPP loans.
4. Loans did not reach the industries that needed them the most - 30% of loans went to businesses that are more suited to working remotely, and 50% went to “face-to-face” industries that had to shut down or reduce operations.
5. For-profit landlords received loans while tenants got little to no relief - Over 1,900 landlords and management companies in New York City received up to $305 million in PPP loans at a time when tenants are getting little to no relief. This includes some landlords with histories of alleged harassment and displacement.

More Funding Could Be Directed to Struggling Small Businesses

Nearly 140,000 loans - 86% of all PPP loans in the City - were under $150,000. This is an amount which has long been expressed as an unmet credit need. Among the loans under $150,000, the average amount was much lower at $31,000, with a median of $20,000, indicating the program served some very small businesses. As impressive as those initial figures seem, the PPP data also indicates that many businesses and communities were left out of the program. Loans under $150,000 totaled just $4.1 billion, whereas loans over $150,000 totaled two to five times more, between $9.6 billion and $22.7 billion^[1]. Meanwhile, $134 billion of total PPP funding was never loaned out. This money could have been better directed towards struggling small businesses.

As the forgiveness process for the program begins, there are several factors that indicate whether an existing loan was successful. These include whether a business was able to have the loan forgiven or repaid in affordable terms, and whether the business was able to reopen and have sufficient capital and resources to continue operating over the long term. Unfortunately, many small businesses - particularly those operated by people of color - do not have access to these resources and may still not survive.

Loans Did Not Reach People or Communities of Color

The geographic distribution of loans largely matches typical inequitable lending patterns with lower concentrations of loans in low-income communities and communities of color where COVID hit hardest. Outside of lower Manhattan, the largest concentrations are in Flushing, Long Island City, Greenpoint, Park Slope, and Downtown Brooklyn. Corona (11368) and Elmhurst (11373), both low-income communities of color, had among the highest rates of COVID and received fewer than 1,000 loans each. In contrast, at least 6 zip codes in lower Manhattan - each a fraction of the size - received over 3,000 – 5,000 loans each.

To view the full map, click here.

Nonbank Lenders are More Prevalent in Communities of Color and With Smaller Businesses

Just 5% of all loans reported demographic data, and of those that did, 15% went to Hispanic-owned businesses and 5% to Black-owned businesses. Nonbank Financial Technology (FinTech) lenders are more prevalent in communities of color and end up reaching more of the smallest businesses than traditional banks. The percentage of loans by nonbanks are higher in communities of color - communities that have fewer traditional bank branches and higher rates of unbanked people. Of the top 10 lenders, over 98% of loans made by non-bank and online lenders Cross River Bank, Kabbage, Celtic Bank, and WebBank were loans under $150,000^[2] compared to, for example, just 83% at Chase and 58% at Signature. This matches trends in 1-4 family lending, further demonstrating how the largest banks are failing to serve communities of color equitably.

To view the full map, click here.

Loans Did Not Reach the Industries that Needed Them the Most

While all types of businesses have struggled due to COVID, some of the hardest hit were in non-essential industries that were forced to shut down or severely curtail operations, had few or no options to work remotely, and have been slower to fully reopen. Examples include restaurants, hair and nail salons, barber shops, and retail stores. Face-to-face and essential businesses also incurred expenses to purchase Personal Protective Equipment (PPE) and update protocols to ensure staff and customers are safe during operations.

Using a similar methodology to Center for NYC Affairs, we find that about 30% of PPP loans went to businesses that are more suited to working remotely, and 50% went to “face-to-face” industries that had to shut down or reduce operations. The remainder of loans went to essential businesses, such as healthcare and grocery stores.

16% of loans went to professional, scientific, and technical firms which are much more likely to be able to work remotely and have more reserves. Only 7.2% went to food services establishments that have been among the hardest hit industries. Meanwhile, just 2.3% of loans went to manufacturing firms, many of which had to shut down completely for months. The manufacturing sector is vital to New York City as one of the few sectors where the majority of jobs pay good wages (over $50,000) typically without requiring a college degree, and employs large numbers of immigrants and people of color. Some of these jobs are also a critical part of recovery as the state is contracting with local manufacturers to produce PPE and medical equipment, and relying on warehouses and transportation facilities to keep the city’s supply and distribution chain in motion.

Only 98 loans went to street vendors, who lost significant revenue if they were able to operate at all. New York City has approximately 20,000 vendors, many of whom have been excluded from multiple relief programs due to their immigration status or the nature of their work. While some vendors were able to continue working, foot traffic declined dramatically. Many vendors were also excluded from other forms of federal relief due to their immigration status.

For-Profit Landlords Received Loans While Tenants Got Little to No Relief

Over 1,900 landlords and management companies in New York City received up to $305 million in PPP loans at a time when tenants are getting little to no relief. This doesn’t include additional loans to real estate agents, brokers, and companies that finance landlords. The burden on tenants is worse now that expanded unemployment insurance has ended, and the state’s eviction moratorium has expired. PPP money was designed to preserve jobs, and could not have been used for rent relief, but the fact remains that this money went to management staff who are tasked with collecting rent from people who cannot afford to do so.

In a time of severe housing instability, nonprofit affordable housing providers should be prioritized over for profit landlords, particularly those who have left tenants in unstable and unsafe housing situations. Tenants in buildings owned by some of these landlords have been struggling for years to get necessary services and combat tactics that fuel displacement, and little has changed in the pandemic. Zara Realty, for example, received a PPP loan despite having a documented history of alleged discrimination and poor treatment of tenants, including a lawsuit filed by the NY State attorney general. Two other examples include Chestnut Holdings, which is #9 on the Worst Evictor List; and Pinnacle, #7 on the list - both have a long history of alleged tenant harassment and eviction and yet, they received large PPP loans.

Small Businesses & Tenants Need Bold Action to Address Long-Standing Systemic Inequalities

While the PPP has been impactful for many businesses, it is also exacerbating long-standing systemic racial and economic inequities. The loans are distributed through banks, yet Black and Hispanic households are unbanked at 5 to 6 times the rate of white households and have significantly fewer bank branches in their neighborhoods. This means they are less likely to have the means to access financing programs like PPP. For some, the structure of the program may also have been a barrier, requiring that 75% of the loan go to salaries (later adjusted to 65%). In New York City, where inflated commercial rents were a top concern even before COVID, businesses are struggling to make up those costs. For businesses where the rent outpaced salaries, or those who didn’t have money to make up the difference, a PPP loan may not have been sufficient to meet their needs. Small businesses may also have been wary to take out a loan if they were unsure about how much would be forgiven or if they would be in business long enough to utilize it. Others may have gone out of business before they could access the loans. 

Now is the time for bold action to protect small businesses and tenants. Congress can support small businesses through the PPP with swift PPP forgiveness and new rounds of funding targeted to the most vulnerable businesses. They should focus on underserved and underrepresented Black, Indiginous, People of Color (BIPOC) and communities, while ensuring loans do not go to entities with a record of exploitation and harassment. They should also ensure full demographic reporting during the forgiveness process and for new loans moving forward.

Rather than address these issues, Congress has failed to provide any further relief. It is up to local legislators, financial institutions, and others to provide additional support through grants, low-cost loans, and rent relief. They should provide these directly to small businesses and tenants and through entities like Community Development Financial Institutions (CDFIs) and community organizations that serve these populations.

Small businesses, in particular those operated within and by communities of color, are the economic engine of New York City, and no housing is affordable without a good paying job. Yet, the pandemic is disproportionately harming low-income, BIPOC tenants, homeowners, and small business owners. An equitable recovery to benefit these populations requires targeted, systemic solutions. Our communities can’t wait anymore.