Forgive me not? Racial and Institutional Disparities in the Paycheck Protection Program Loan Forgiveness

Authors

Vladimir Kotomin, Illinois State UniversityFollow
Wyatt Frere, FDIC
Ruby Morr, Illinois State University

Document Type

Article

Publication Date

3-2025

Publication Title

Small Business Economics

Keywords

Automated Lending; Entrepreneurship; Lender Specialization; Paycheck Protection Program; PPP Loan Forgiveness; Racial Disparities in Lending; Relationship Lending; Small-business Lending

Abstract

Existing research establishes that minority borrowers, particularly Black small business owners, faced significant challenges in accessing funds from the Paycheck Protection Program (PPP), especially in its early stages. We find that institutional and racial disparities persist during the PPP loan forgiveness stage. Controlling for various loan- and borrower-level characteristics, we demonstrate that relationship lenders – community banks, credit unions, and farm credit institutions – are associated with higher rates of PPP loan forgiveness. In contrast, automated lenders – fintechs and fintech banks – exhibit the lowest forgiveness rates. Black borrowers experience the poorest outcomes, except for loans issued by non-depository fintechs and lenders categorized as "other", where they outperform White borrowers. Loan forgiveness rates improve, and racial disparities diminish, with increased lender concentration in specific economic sectors. Thus, specialized relationship lenders may have the highest odds of achieving the best and most equitable lending outcomes.

Funding Source

Illinois State University’s Office of Student Research summer 2022 FIREbird research grant.

DOI

https://doi.org/10.1007/s11187-024-00952-w

Comments

This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use, but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: https://doi.org/10.1007/s11187-024-00952-w

Recommended Citation

Kotomin, V., Frere, W., and Morr, R. (2025.) Forgive me not? Racial and Institutional Disparities in the Paycheck Protection Program Loan Forgiveness, Small Business Economics 64:3, 1433-1461