Of the 785 Michigan restaurants approved for more than $150,000 each in Paycheck Protection Plan (PPP) loans, only one self-identified as Black-owned, according to a Free Press analysis of government data.
In early June, the U.S. Small Business Administration released loan-level data for the 4.9 million PPP loans it has overseen since the beginning of the COVID-19 pandemic. Businesses that received more than $150,000, which account for nearly 75% of the stimulus program’s approved loan dollars, are identified with names and addresses, while those under that threshold do not include such identifying information.
Both datasets include voluntary demographic fields.
Though incomplete, the data highlights both the lack of detailed demographic reporting within small business lending and the systemic inequities baked into it, advocates say, exacerbating the racial wealth gap in America – where the average white family’s net worth is 10 times that of the average Black family.
Mike Ransom is the owner of the popular Ima noodle shops in Detroit and Madison Heights and the only Black restaurateur in the higher tier who voluntarily listed his race.
“It definitely surprises me,” Ransom, 43, said about being the only Black-owned restaurant on the list. “I sometimes don’t answer those things either. In this instance, I chose to because I felt like that might be something that would give me a better chance, because they know that Detroit was hit really hard and there’s a lot of minority-owned businesses here and the Black population was some of the hardest hit as well. So I feel like it’s important information to let people know who is behind this business, but I’m definitely surprised that I’m the only one.”
Of those in the higher tier, two Michigan restaurants self-identified as American Indian- or Alaska Native-owned, eight as Asian-owned, eight as Hispanic-owned and 153 as white-owned. The majority — 613 respondents — left the race/ethnicity field unanswered, but the lone Black-owned establishment represents just 0.6% of those that did report.
Ransom said he applied for and received PPP loans for each of his three restaurants, but only the Midtown location of Ima — listed under the business name Three Won Three LLC — received $150,000 or more.
Out of more than 3,000 Michigan restaurant PPP recipients who received less than $150,000, 15 self-identified as Black-owned while 495 self-identified as white-owned. That equates to 2.3% and 77% respectively of those who reported their race.
In an emailed statement, a representative for the SBA said that roughly three out of four PPP applicants did not include the voluntary demographic data.
“SBA is working to collect more demographic information from borrowers to better understand which small businesses are benefiting from PPP loans,” the SBA representative wrote in the email. “The PPP forgiveness applications expressly request borrowers’ demographic information, however, that information is requested on a voluntary basis.”
Race often frames loan experience
Until 2010, it was prohibited to collect gender and demographic data for small business loans, said Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), an association of community-based organizations around the country whose work champions fairness in housing, banking and business.
“Nobody knew who was getting the loans,” Van Tol said, “but we knew anecdotally that many Black business owners and Latino business owners and women business owners felt they had been discriminated against.”
For years, the NCRC has been conducting research on bias in business lending with an approach often used to measure customer service: the mystery shopper. For a 2019 report, the organization sent white, Black and Hispanic would-be loan applicants into bank branches and measured how each was treated.
“In almost every measure evaluated, white testers received superior customer service by being asked fewer questions about eligibility and receiving more information about the loan product than were their Black and Hispanic counterparts,” the study found.
This, even though the Black and Hispanic applicants showed slightly better income, assets and credit scores than their white counterparts.
For the same report, the NCRC analyzed publicly available business lending data from 2008 to 2016 and found “a significant decline in SBA loans to Black-owned businesses,” from 8% to 3%.
Van Tol said his organization has continued to run the mystery shopper experiments and has targeted PPP loans for a forthcoming report.
“As with regular small business lending, we have seen in our study of mystery shoppers’ experience with the PPP program that borrowers of color have a different experience than white borrowers trying to access a PPP loan,” Van Tol said. “There are disparities in the way they’re treated, even down to some cases where our mystery shoppers were instructed to not specifically ask about PPP loans, and in many cases the PPP loan was not brought up with Black borrowers and borrowers of color.”
To be sure, there are those who intentionally stayed away from the federal stimulus program in the first place.
“I was taught that you take a loan only to expand your business, not to fix your business,” said Omar Anani, owner of Moroccan restaurant Saffron De Twah on Detroit’s east side. “That’s just sinking bad money after bad.”
Anani, who is of Egyptian and Palestinian descent, said he tried to apply for the PPP during the first round of lending but, like many small business owners without a direct line to a big bank, was shut out. By the time the government added more money to the pot, Anani had reconsidered.
“I didn’t apply because the terms were outrageous,” said Anani, 38. “It just wasn’t beneficial to a restaurant. … When we looked at where we were at and when we were going to be able to reopen, the forgiveness had so many stipulations tied to it and I had to bring so much staff back … It was all about, ‘Look, we got these unemployment numbers down.’ It wasn’t about reopening these businesses successfully.”
Part of a historic federal stimulus package, the PPP offers businesses low-interest loans that can be converted to grants if used on payroll and approved business expenses like rent or mortgage payments. The original terms of the program required businesses seeking loan forgiveness to staff back up to 75% of pre-COVID-19 levels within eight weeks of receiving the funds. Those rules have been relaxed through subsequent legislation, and Anani said he’s now considering applying.
Networking to the bank
But there are numerous systemic reasons the PPP and programs like it tend to elude communities of color and one of the most potent is a lack of banking relationships.
And simply having a banking relationship at your local branch isn’t the same as having a meaningful banking relationship that comes with a cellphone number of a loan decision-maker, Van Tol said.
Ransom’s is one case in point.
“I use Chase Bank for all my business banking and Chase completely dropped the ball,” Ransom said of his PPP application experience. “I filled out all these documents they required and I didn’t hear back from them for almost a month. Couldn’t talk to a human being at all.”
After a month of waiting, it was Ransom’s landlord in Madison Heights who tipped the restaurateur off to the fact that an equipment leasing company was now processing PPP loans. Ransom applied through the company and was approved for all three of his restaurants within 24 hours.
“This may have affected a lot of people of color, business owners in the city,” Ransom said. “… It could be the inability of the banks to process these things that caused so many problems with these minority business owners. If I didn’t have my landlord reach out to me, I probably wouldn’t have gotten it either.”
Van Tol points to another systemic reason for the limited representation of Black-owned businesses: The PPP was designed specifically to help companies retain employees, and the NCRC’s research shows only 2.1% of businesses with employees in the U.S. are Black-owned.
While much attention has been paid to discrimination in mortgage lending to reckon with a well-known history of racial redlining, Van Tol said, the small business lending environment remains ripe for bias.
“A small business loan looks at things like revenue and credit score, but part of the small business lending process is a judgment effectively about your character or whether or not you’ve really got what it takes to succeed as a business,” Van Tol said. “The problem is it introduces quite a bit of judgment into the lending process. And we know that even absent intentional discrimination, people have implicit bias when dealing with people not like them.”
Tara Young is a former social worker born and raised in Detroit who switched careers almost a decade ago to open 44 Burrito, a fast-casual Mexican joint known for its deep-fried burritos and named in reference to Barack Obama’s historic presidency.
Restaurants, often seen as high-risk businesses by lenders, are difficult to finance to begin with, but as a Black, female entrepreneur, Young said she struggled even harder to fund her upstart fast-casual joint.
“Starting this business, I have never been able to get a business loan, SBA loan, anything like that, until this pandemic,” Young, 50, said. “It’s very rare as an African American to get a business loan through a bank institution. … If you are connected, that’s what opens the doors for you. It’s the who you know, not what you’ve done.”
Young said she used her connections developed through the Motor City Match program, which recently awarded her $60,000 to help her open a second location in New Center, to successfully apply for a small PPP loan when going through her banks proved fruitless. (Motor City Match is a neighborhood development program administered by the Detroit Economic Growth Corp. that helps entrepreneurs set up shop. To date, 70% of awardees have been women of color.)
Young said she feels like she “backdoored” the PPP process. The first time she tried to apply, she went to the credit union where she’s been a member for nearly 30 years and received the runaround.
“I feel like nobody is out here helping Black businesses,” she said of lending institutions. “You have to network yourself and do it however you need to make it happen.”
Young’s dream is to turn 44 Burrito into a national franchise, but that will be difficult to do, she concedes, without institutional support.
“I hate going to the bank,” she said. “It’s more depressing to be turned down. So you just keep doing what you’re doing and rob Peter to pay Paul, and that’s what you have to do because you can’t get a loan. Black businesses are always mom-and-pop because of that.”
This article originally appeared on Detroit Free Press: 785 Michigan restaurants got big PPP loans. 1 listed as Black-owned