Of thousands of PPP loans in Kansas City metro, only 24 helped Black-owned businesses
At Open Minds Child Development Center, a massive federal stimulus program did exactly as intended: it kept people employed even as the pandemic hit the business hard.
But owners AbdulRasak and Alicia Yahaya know they were the exception among minority-owned businesses. They were able to avoid layoffs or furloughs even as the number of kids in attendance dropped — thanks to a loan of at least $150,000 from the Paycheck Protection Program.
“We had a good experience with our bank, but a lot of people were struggling to get those applications through,” said AbdulRasak Yahaya.
Their childcare center was among just 24 Black-owned businesses known to receive PPP funding across the metro, according to a recent analysis by a University of Missouri-Kansas City researcher.
Part of the Coronavirus Aid, Relief and Employment Security Act passed by Congress in March, the Paycheck Protection Program was aimed at quickly infusing small businesses with cash in hopes they could keep workers on their payroll.
Publicly available data released last week shed light on all businesses and organizations that received loans of $150,000 or more. That information excludes small businesses that received smaller loans, and experts say minority owned businesses trend smaller in size.
Still, the results underscore long standing challenges faced by small minority-owned and women-owned businesses, particularly when it comes to accessing capital and traditional bank services.
The UMKC analysis found that 34 PPP loans went to Hispanic-owned firms and 33 went to Asian-owned businesses. Across the nine-county Kansas City metro area, only 250 of 4,700 loans went to businesses identified as being owned by women.
The Yahayas were aided in large part by their company’s existing relationship with a local bank, which helped the business apply for PPP. And their professional payroll firm helped compile necessary data.
While they did not experience problems with their PPP loan, they have heard from other minority-owned businesses that had trouble navigating the program. And they have experienced first hand some of the financial hurdles facing small business startups: They had to rely on family support to launch their business, because banks were only interested in working with them long after they showed financial success.
“We went through 13 different banks trying to get a start-up loan and we were denied at all of them — for 13 different reasons,” said Alicia Yahaya.
Aside from problems navigating the application process, she suspects many minority-owned businesses were wary of applying in the first place.
“It’s challenging to think that a system that hasn’t been supportive of you in the past is now going to suddenly support you in this crisis,” she said. “I think it has a lot to do with opportunity.”
What the research says
Across the nine-county metro area, nearly 5,000 businesses, churches and schools were awarded loans of $150,000 or more.
More than 3,000 loans went to LLCs or other corporate structures that did not report ethnicity of owners. Still, only 24 of the more than remaining 1,600 qualifying firms were identified as Black-owned.
The data reveal basic truths about our economy as much as it speaks to the specific program administered by the Small Business Administration, said Brent Never, associate professor at the UMKC Henry W. Bloch School of Management who researched the issue.
“It says a lot about access to capital, access to banking,” he said. “It says a lot about firms that are growing and firms that remain small. This is a story that’s been told for decades. But this data really lays it out in stark terms.”
Kansas City-based Commerce Bank, which processed more of the PPP loans in the area than any other bank, declined to comment for this article.
Never said his analysis doesn’t show wrongdoing, but does underscore economic realities. It certainly leaves out the smallest businesses that wouldn’t have qualified for loans of $150,000 or more. And Never suspects some minority-owned firms that operate on a cash basis would have lacked the proper documentation to qualify for the program.
Aside from examining ownership records, he mapped out the locations of all PPP loans in the metro, finding a familiar economic and racial fault line.
“When you look east of Troost, you probably only have two dozen loans. Now, it’s a residential area, but if you think of all the mom and pop shops — little grocery stores, convenience stores — all those businesses, you don’t see them on the map.”
Most of the 5 million PPP loans awarded in recent weeks were in amounts smaller than $150,000. So the UMKC analysis doesn’t fully tell the story of its local impact.
“It still begs the question of what’s going on in the marketplace. Either they’re not applying or for whatever reasons they’re applying and not being approved,” said Dell Gines, the senior community development adviser for the Federal Reserve Bank of Kansas City.
Gines said systemic challenges could help explain the disparate outcomes even in the absence of bias in the lending process
Data from the U.S. Census Bureau shows that Black-owned businesses in Kansas City tend to have lower payroll and sales than their white-owned counterparts. And the pandemic has uniquely hurt minority owned businesses across the country.
The number of active Black business owners plummeted by 41% between February and April, according to the National Bureau of Economic Research.
Gines suspects many of the smallest businesses were hesitant to take on new debt through PPP. Program loans carry an interest rate of 1%, but can be forgiven if enough of the funds were used for payroll costs.
But he’s heard plenty of stories about minority-owned businesses that have struggled to navigate the process or find a bank to work with.
One small business owner tried two banks: it had a depository account at one and a loan account at another. The first bank refused to count that business as a customer because it only had a deposit account. But the second bank also refused to count it as a customer because it only had a lending account.
“Between the pandemic and the social unrest it’s put a spotlight especially on Black businesses in a way that I’ve really never seen,” Gines said.
A tale of two restaurants
At Niece’s Restaurant on Troost Avenue, owner Denise Ward said receiving a PPP loan was relatively easy. She said her loan was “way under” $150,000.
“But it helped,” she said. “Things are not normal — by no means, no way. But I’m slowly trying to get people back to work.”
Ward said securing the loan wasn’t too difficult thanks to the soul food restaurant’s meticulous record keeping and professional payroll service.
“It worked for me,” she said.
But less than two miles away on Prospect Avenue, Ward’s nephew had the exact opposite experience.
At first, Carlos White, owner of King’s Table Soul Food, was told the PPP program was out of money. Then, he was told his payroll was too small to qualify. Eventually, he said he was told he could only receive a $1,600 loan.
“It was such a headache I just said forget it,” he said. “It wasn’t a good experience.”
King’s Table occupies the original location of Niece’s, where White began his career at age 14 washing dishes. White describes the two restaurants as cousins: The Niece’s menu occasionally features banana pudding, for example, and King’s Table offers banana pudding cake.
White said he’s always done a majority of his business as carry-out orders. That’s allowed him to keep going through the pandemic. He didn’t let any employees go but he did take on more responsibilities as he limited their hours.
“Times are real hard,” he said. “But I believe we kind of made it over the hump — as long as we continue to stay open.”
A ‘complicated maze’ of a process
To Congressman Emanuel Cleaver, the disparities in the local data are emblematic of larger problems with the program. From early on, he said the structure of PPP favored bigger businesses.
“There are people I bet who simply picked up the phone and called the president of the bank where they have been depositing millions of dollars and said, ‘Why, we want to apply for this loan,’” said Cleaver, a Democrat from Kansas City. “And it’s just a matter of going down and picking up your money.”
But the smallest businesses lacked the in-house expertise to qualify, he said.
“If you’re running a barber shop, you can’t pick up the telephone or send an email down to legal saying you guys need to apply for this PPP. You can’t send a text message to the HR department in between haircuts to prepare the paperwork,” he said. “And so they were immediately at a disadvantage trying to get through this complicated maze.”
Likewise, Cleaver said banks had little incentive to issue small loans of $5,000 or $10,000, even though they were guaranteed by the federal government.
“And that’s what many of the small businesses needed,” Cleaver said.
While he said the UMKC analysis largely confirms his earliest concerns about PPP, there is some good news: The program still has more than $100 billion in funds to award.
“Members of Congress who care are now out every day trying to make sure that we have the opportunity to bring finally these black and brown and rural businesses to the table,” he said.
For the small businesses that did qualify, many found it critically important to stay afloat, said Ruben Alonso III, president of AltCap, a local nonprofit that provides financial services to underserved businesses.
“Because businesses were able to open up again and they really did need that payroll support,” he said.
AltCap worked with PNC bank to make available $1 million worth of PPP loans that specifically targeted minority businesses. Alonso said the 28 loans awarded so far have helped a variety of businesses that likely wouldn’t have qualified without the assistance they received from CPAs and other experts.
He said many of the metro’s very smallest businesses finance their operations with personal credit cards or other means — not traditional banks.
“They didn’t have that track record that probably would have allowed them to access PPP like a lot of other businesses,” he said. “Because that’s what the banks did: they prioritized whatever businesses they first had a relationship with.”
Alonso said it’s becoming clear that PPP money didn’t necessarily make its way to those that needed it the most. And it was fundamentally at odds with another federal policy: Congress approved an extra $600 per week in temporary unemployment benefits, while PPP sought to keep workers on payrolls.
So far, AltCap has awarded $742,000 in loans, meaning it can still help more local businesses until the federal deadline of August 8. And Alonso said he wants small minority-owned operations to still consider applying.
“We’re still going,” he said.
