When the COVID-19 pandemic hit, two businesses on opposite sides of Louisville faced the same threat to their futures.
One, a white-owned gym in the Clifton neighborhood, was among the first to be approved for money through the federal Paycheck Protection Program, which sent more than $2.3 billion to around 22,000 Louisville businesses during the pandemic. This helped the owners continue making rent and paying bills even as people paused their memberships.
The other, a Black-owned clothing store in the Portland neighborhood, struggled to survive in the early days of the pandemic before seeking and being approved for a loan just this summer.
Their experiences reflect stark racial disparities in how the federal program played out locally and nationally, putting livelihoods at risk in areas that already had less wealth at a time when protesters in Louisville and across the nation were calling for an end to structural inequality.
A Courier Journal analysis of PPP data for businesses with 25 or fewer employees located outside downtown reveals significant disparities in who got loans early in the pandemic, when they could help the most during serious COVID restrictions and an economy in free fall.
Even though the total number of loans per capita was similar in Louisville’s majority-white and majority-nonwhite ZIP codes over the life of the program, 36% more loans per capita were approved in the program’s first three months in majority-white communities.
The ZIP code where the Clifton gym is located, 40206, had 359 loans approved in April-June 2020, or about 18.2 for every 1,000 people who live there. It’s one of the many Louisville ZIP codes that is mostly white.
Far fewer loans were approved in the clothing store’s ZIP code, 40212, in those first three months — just 60 loans, or about 3.6 for every 1,000 people. It’s one of the few Louisville ZIP codes that isn’t mostly white.
It wasn’t until the final months of the program — about a year into the pandemic — that the gap between those ZIP codes narrowed, after the Biden administration made changes to target people who’d been left out early on. The federal data reviewed only included approved PPP loans.
The Trump administration, which launched the program, had aimed to quickly infuse small businesses with money amid historic and rising unemployment rates.
But it soon became clear the program often left out businesses owned by people of color, partly because the program relied on banks to distribute the money, and partly because existing systemic inequities complicated the rush to get money out fast.
Sadiqa Reynolds, president and CEO of the Louisville Urban League, said the decision to go through banks reflects an inclination by political leaders to stick with the status quo.
“That’s really why we don’t have the change we deserve to have in this country. That’s really why we are not as great as we really could be, ” she said. “There’s so much potential, but when in an emergency you fall back to status quo, you get what you’ve always been getting.”
There are no local statistics on how many businesses owned by people of color didn’t survive the pandemic. But national research showed that the rate of active Black business owners dropped by 41% from February to April 2020, compared with a 22% decrease overall, according to a working paper by Robert Fairlie of the University of California, Santa Cruz for the National Bureau of Economic Research.
Experts said business owners of color started out in a more vulnerable position because so many have very small businesses, which turned out to be the hardest to reach by the federal loan program. Those businesses — many employing just one person — usually don’t have the types of strong relationships or frequent dealings with banks like larger firms, making it much tougher to navigate the complex federal program.
Reynolds said historic inequities in the banking system also played a role.
“Think about the relationship that Black businesses and Black people have had with banks,” she said. “Think about the opportunities we have or don’t have to get home loans or equity lines. Think about redlining. Those things are still present in the banking system.”
Difficult straits in the early months
For years, Harold Hamilton had run his business, Southern Styles & More, out of his truck.
He used social media to make appointments or post where and when he’d be around, then people would show up to buy clothes from him. Before COVID, he was optimistically considering the jump to a storefront.
But the pandemic threatened to put him out of business. People generally weren’t buying clothes, he said. And when customers did reach out, it was hard to find a safe place to make sales without risking illness.
In June 2020, he found a storefront at 3416 W. Bank St. in the Portland neighborhood with a rental price he couldn’t pass up. He used much of what remained in his business account for rent, paint and other supplies for his new shop.
Meanwhile, he kept selling clothes from his truck.
“I had no (source of) income other than the clothes that I had, which is what I was trying to sell,” he said. “Everything in the business account I was using to pay (rent for the store). And I still had to pay rent and stuff on my house.”
He’d heard about PPP loans from a relative, but he was skeptical they were legitimate.
About 7 miles away, in the Clifton neighborhood, the owners of Grit Fitness on 1864 Frankfort Ave. also found themselves in difficult straits early in the pandemic.
Wes Griffin, Patrick Mahoney and Mike Pfeiffer opened the doors to their gym in December 2019, just months before COVID hit and forced most businesses, including gyms, to close their doors.
The shutdowns meant virtually no hope of bringing in new clients. Existing clients paused their memberships.
The gym started doing Zoom workout classes, the owners said, and relied on the relationships they’d built with members over the years working as their personal trainers elsewhere.
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They reorganized parts of the gym, since its business model focused on smaller group sessions, and they bought more cleaning supplies.
“I mean, looking back on it, it should have been a lot scarier than it was,” Griffin said. “But I think we just didn’t have time to feel those emotions.”
Pfeiffer had heard about the loans in the news early in the program and talked to the gym’s bankers, who are among their clients, to get more information and start the process.
He said he took on the role of securing a loan and worked with the bank on the paperwork and application. It became his full-time job for the gym for about three weeks.
“It was not a simple process,” Pfeiffer said, even when working closely with their bank, which he credits with doing a great job to help. Their loan was approved April 11, 2020.
Days later, the program ran out of money.
‘Business account went all the way down to zero’
The owners of Grit Fitness didn’t get as much as some similarly sized businesses because the gym was so new, and they had just started taking salaries.
Their $14,991 loan was less than half the roughly $39,000 average for all Louisville businesses with 25 or fewer employees.
But that relatively small infusion of cash helped them continue making rent and paying the overhead costs — while still being able to keep paying themselves.
“I don’t know if we would have made it without the loan,” Pfeiffer said. “To be frank, we are in a really good place right now. We’re hiring, and we’re growing. We feel pretty confident about our future.”
Hamilton’s PPP loan is so new it isn’t yet a part of the federal data The Courier Journal reviewed.
Unlike the gym owners, he couldn’t call clients who happened to also be his bankers. And he was apprehensive about the possibility of going into debt when he anticipated needing a loan to expand his business down the road — even though PPP loans can be forgiven if they’re used for, among other things, payroll, rent or supplier costs.
To stay afloat, Hamilton kept paying rent on his store, bought what inventory he could afford and tried to sell what he could.
“Everything that was in the business account went all the way down to zero by the time the economy started picking back up,” Hamilton said. The strategy paid off in the winter, he said, when he had coats and winter clothes to sell. At the same time, federal stimulus checks hit bank accounts, which held him over.
Eventually, on the recommendation of a friend who also is a sole proprietor, Hamilton said he applied for a loan through Womply.
Womply is one of two small companies that processed a third of all PPP loan applications nationwide, according to The New York Times, using marketing to reach sole proprietors, gig workers and others.
The Times said the companies connected people to banks to process the loans and then collected a portion of the fee, processing 2.3 million loans, most run by women and people of color.
Hamilton expected to get two payments of about $10,000 each.
But after recently checking on his status, he found the second payment won’t come — the program ran out of money again.
Program changes increased access
In total, $7.7 billion in loans went to businesses in Kentucky as part of the PPP program. Some firms with hundreds of employees received millions of dollars.
About 19,000 of Louisville’s 22,000 loans, and more than $750 million, went to Jefferson County businesses and solo ventures with 25 or fewer employees.
Excluding downtown, the 10 ZIP codes with the highest per capita loan rates in the first three months were all majority white. Three of the 10 lowest loan rates were majority-nonwhite ZIP codes.
Overall, majority-white ZIP codes outpaced majority-nonwhite ZIP codes by about two additional loans for every 1,000 residents.
From the start of the program through April 2021, loans to white-majority ZIP codes for businesses with 25 or fewer employees averaged about $2,800 more than loans to nonwhite-majority ZIP codes.
Experts said the program could have played out differently — and businesses owned by people of color might have fared better in the early days of the pandemic — if small businesses (defined as those with 500 or fewer employees) could apply directly to the Small Business Administration that managed the program.
Going through banks, they said, threw up numerous hurdles. The federal government and the banking industry wasn’t focused on the needs of small business owners of color, said Marisa Calderon of the National Community Reinvestment Coalition, an organization that works to end discrimination in lending, housing and business.
“From a legislative perspective and from an industry perspective, it highlighted the fact that there isn’t a strong understanding of how small business functions, most especially for Black and Latino businesses,” she said.Alex Bartik, a University of Illinois professor who was part of a research team that studied the first few weeks of the program, said even the bank a business used to apply for the loan affected whether it got the money.
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Some of the nation’s largest banks, such as Citibank or Chase, had different rates and could decide which customers to prioritize, he said. The Small Business Administration simply processed the loans as they came in from those banks.
“It’s obviously not ideal that in some ways that we did this big program through private banks, but on the other hand, people wanted to get the money out really fast,” he said. “If it was going to be useful, you know, maybe it would need to be really fast.
“And the question is, could you have preserved that speed while improving on other dimensions. It’s probably possible but it’s a little bit easier said than done.”
Bartik added that the government agency isn’t set up to run that kind of a program — processing that many loans and distributing that much money — with the urgency that was needed. It’s unclear whether another federal agency could have stepped in.
In late February, the Biden Administration made changes to the program specifically aimed at making the process easier for business with fewer than 20 employees, citing equity issues and allowing lenders to focus on reaching out to and working with the “the smallest of small businesses left behind in previous rounds.”
These changes included a two-week “exclusivity period” to give lenders time to focus on reaching out to these businesses as well as no longer excluding people who had been flagged for delinquent student loan debt or non-fraud felony convictions.
The changes, according to the Biden Administration, significantly increased access to loans from businesses owned by people of color, women, and those in rural areas.
The two months following those changes saw the most PPP loans approved in the area around Hamilton’s store since the program started, the Courier Journal’s analysis found.
It’s also when the gap, per capita, between majority-white Jefferson County ZIP codes and majority-minority ZIP codes began closing.
In fact, during the most recent three months of the program, majority-nonwhite ZIP codes, taken together, had more loans per capita than majority-white ZIP codes: 12.7 compared with 10.Too little, too late for some businesses
But nationally and locally, the help came too late for some businesses that lost ground in 2020 or even closed.
A national survey conducted late last year for the Small Business Majority, an organization seeking to empower diverse entrepreneurs, found 22% of business owners of color reporting they might have to lay off employees permanently, compared with 14% of white business owners.
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This February, polling by the organization showed 38% of business owners of color reported they could only survive three more months without additional capital, compared with 25% of white business owners.
There are both moral and economic reasons people should care about inequities that were part of a program that sent so much money to so many in Louisville, Calderon said.
And if someone isn’t moved by the moral argument, she said, then there’s an economic reality: The country’s demographics have been changing for decades, and so have the “consumer appetites and spending patterns and income-earning patterns.”
But the financial and credit-qualifying systems needed for small businesses started and run by people of color have not adapted, she said.
“As they succeed economically — because there are just so many more of these groups and individuals — then so does the country,” Calderon said. “So does Louisville. So does Kentucky.”