Forgive me not? Racial and institutional disparities in the Paycheck Protection Program loan forgiveness

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 fintech 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.