Businesses In San Diego's Majority White Communities Received By Far The Most PPP Loans
It was November 2019 and members of the Corona family were finally living their dream of opening a Mexican restaurant in their hometown of Imperial Beach.
Then came 2020.
“It was right before the pandemic hit,” said Tania Corona. “When we were getting ready to open, everything was already closed. Everything was different for us.”
She opened Lumbre Mexican Seafood on 13th Street for takeout orders in April 2020, but still struggled to make rent. So when the federal Paycheck Protection Program (PPP) loan program was announced, Corona immediately went to her bank to try to get funding.
“They said I wouldn’t qualify for the one they were offering, because my business was so new,” she said. “The requirements they had were to submit payroll and two years’ tax returns, which I just didn’t have because I’d just opened up the business.”
The story of the Corona family, who are originally from Mexico, is one that became all too common in San Diego County and throughout the country during 2020. A half a trillion in federal dollars were distributed through PPP loans, but relatively few ended up in the pockets of business owners in underserved places like Imperial Beach, where the population is 70% non-white and the median family income is almost $25,000 lower than the countywide median.
Only 4% of eligible businesses in Corona’s Imperial Beach census tract received PPP loans, according to federal loan and business data provided by the journalism nonprofit Reveal’s Reporting Networks. The rates of businesses receiving loans were similarly poor in other low-income census tracts in South County—the percentages of businesses receiving loans in communities such as Skyline, San Ysidro, Nestor and Paradise Hills were all 5% or below, according to the Reveal analysis.
Where The Data Came From
This story was completed with information from Reveal’s Reporting Networks. Reveal used a combination of U.S. Postal Service data and a census count of self-employed people, to estimate the number of businesses in a census tract. That number was used to calculate the rate of businesses that received PPP loans in a census tract.
In addition, because demographic information was not required of business owners who received a PPP loan, Reveal instead used a count of businesses that received loans that are physically located in census tracts with a racial majority, including whites, Latinx, Blacks, or Asians. That does not mean the business owner is of that race, but that his or her business sits in a neighborhood with one of those racial majorities.
But travel up I-5 to majority-white enclaves in North County and a far different picture emerges. In some census tracts in Carlsbad, Poway, Torrey Highlands and Encinitas, 96% to 99% of eligible businesses received PPP loans, according to the Reveal data.
The primary reason for this discrepancy is essentially the same reason why minority-owned businesses have always struggled in the United States: the banking system. The Reveal analysis found similar disparities in large metro areas throughout the country.
To get the PPP loans out as quickly as possible, Congress and the Trump Administration decided to route them through the Small Business Administration (SBA), which has been funding small business ventures since the 1950s. But in order to get that PPP funding, many businesses found they needed to have an existing relationship with a lender that works with the SBA. That’s not something a lot of small, minority-owned businesses have.
“The goal was to move quickly and reach businesses in a very fast manner, and to leverage existing infrastructure so businesses all over the country could access capital,” said Mark Herbert, a strategist with the advocacy group Small Business Majority. “The basic fundamental problem is that our financing system for small businesses in this country does not work really well for the smallest businesses. So when you build a program and just bolt it on top of our existing system, it’s going to exacerbate the problems that existed even before the pandemic.”
Businesses in lower-income areas struggled to meet the requirements to apply for these federal loans, and even if they did apply, were less likely to have their applications accepted by banks. They had to provide extensive documentation, complete lengthy applications, and have enough computer literacy to navigate the process.
The data shows these challenges added up to vast inequity in San Diego County. Lenders here gave 61% of loans to businesses in majority-white census tracts and just under 12% to businesses in majority-Latinx census tracts.
‘You’re just complaining’
While Corona was barely hanging on in Imperial Beach, Molly Boyd, the owner of Bryll Hair Lounge in Carlsbad, was facing her own crisis. But in the end things turned out quite differently for her.
In March 2020, Boyd, who is white, followed the county health order and closed her salon, even though her clients were “freaking out.”
“Everybody started panicking, not only healthwise, but just like, ‘I have to look good,’ I mean, we are in California,” Boyd said. “Between all those social platforms, people still have to look good.”
Then despite the stay-at-home orders, she opened the salon for “a very select few people” who were “911 cases” because they had hair extensions that needed to be taken out. She also applied for a PPP loan from her usual bank and was put on a waiting list.
“My other friends and people I know who own small businesses were getting funded all around me, and I said, ‘what are you doing, what’s the secret?’” she said. “If I wouldn’t have asked other entrepreneurs how they got funded, if I didn’t know the unspoken language, but I just asked everybody how I could stay afloat through this.”
That network helped her find C3Bank that was giving out loans with no waitlist, so she applied and was granted money quickly. More than 84% of C3Bank’s loans went to businesses in majority-white census tracts and just 3% to businesses in majority-Latinx census tracts. It has one of the highest rates of loans to only predominantly white areas in the county. The bank did not return calls requesting comment.
Boyd said she needed to submit about 15 different documents and sometimes had to resize files or get more information from her taxes. But she doesn’t see inequity in the process.
“It’s hard to say, oh, you didn’t have internet, like it’s 2021, everybody has internet, and if you don’t have it, then you better get a new phone, I think that’s a little unfair,” Boyd said. “If you were a small business struggling during a pandemic, yeah that sucks big time, but I also think people who were entrepreneurs that did stay afloat, it wasn’t because we just idly stood by. If you didn’t put in the time and the work and the extra that you needed to stay afloat, then you’re just complaining.”
Struggle to apply
What Boyd is not considering is the still large digital divide between places like Carlsbad and Imperial Beach. Many Imperial Beach business owners don’t have regular internet access and struggled to compile the required documentation, said Councilman Matthew Leyba-Gonzalez, who represents the area that got the lowest rates of loans. He went door to door telling business owners about the loans when they were first announced.
“A lot of these businesses never had anyone reach out, even direct them to the website,” he said. “They felt intimidated in applying, and maybe don’t have wifi, or a computer, so we ended up giving out fliers.”
Many businesses in Imperial Beach are run by just one person with few employees, doing work that’s sometimes paid in cash, so there isn’t as much financial documentation, said Ricardo Alvarez, a tax accountant who runs RFA Financial Center on the border of Imperial Beach.
“Tattoo artists, barbershops, hairstylists, cleaning, gardening, construction, laborers,” he said. “A lot of people work in cash, in the gig economy.”
When the PPP loans were first announced in April 2020, “it was a sense of hope, the government is going to help us, that was the word,” Alvarez said.
But quickly, business owners he knows were intimidated by the process, didn’t have the proper documentation, and were scared about taking out loans they couldn’t pay back—even though PPP loans will be forgiven as long as businesses follow the requirements. Some opted to just close their businesses and go on unemployment, he said.
Behind this fear of the PPP loans is a lack of experience with banks. A report by the New York Fed found that only 25% of Black-owned businesses had a relationship with a bank.
And the Small Business Majority found that in California, 28% of small business owners of color lacked this relationship, compared with 19% of white business owners.
“If a business didn’t have a preexisting relationship with a lender, it was hard to get in with that lender,” said Jason Richardson, the director of research and evaluation at the advocacy organization National Community Reinvestment Coalition. “That’s not a program requirement, that’s a choice the lender made. The effect is a large public benefit was not available to the public in the way it was intended.”
Another issue was that banks were incentivized to give loans to bigger businesses because they earned a percentage of the loan.
The Small Business Majority found that in California, only 17% of small businesses got the full amount of the loan they applied for.
“If you’re a business owner, regardless of the amount you need, that’s just as important to you, so for a small business, $10,000 is just as important to you as $1 million is to a bigger company,” Richardson said. “But to a bank, it’s a very different calculus.”
In San Diego County, Bank of America was the biggest lender, and 58% of its loans went to businesses in majority-white census tracts, while almost 14% went to Latinx census tracts. Bill Halldin, a spokesman for Bank of America, said the bank can only grant loans to those who apply, and that the SBA has recently made changes to make loans more attractive to business owners who don’t have employees. He also noted that 46% of the funding distributed in San Diego County went to majority-minority neighborhoods, above the bank’s national average.
First round vs. second round
The SBA had to move quickly to issue the loans, and so chose to use banks and lenders already approved to give other SBA loans, said Mike Sovacool, the deputy district officer of the San Diego SBA office.
The agency tried to make changes between the first and second rounds of SBA funding to give out money more equitably, he said.
But those changes didn’t impact equity in San Diego County—in both the first and second rounds, almost two-thirds of loans went to businesses in white census tracts. And the percentage of loans to businesses in Latinx census tracts only ticked up slightly in the second round—from 9% to just 12%.
Sovacool said there is another round of PPP loans that businesses can apply for now, and the SBA has made changes to improve equity in those loans, including setting aside a two-week period where only businesses with fewer than 20 employees could apply. The Biden administration has also made changes so that sole proprietors can get bigger loans, and to allow people with both non-fraud felony convictions and student loan delinquencies to apply.
But Juan Pablo Pardo-Guerra, an economics and sociology professor at UC San Diego, said the program should have been run differently from the start.
“The money should go through an organization people are more comfortable with, such as the state, or federal government, or even the post office,” he said. “They could have taken in applications and managed disbursement.”
Herbert with Small Business Majority also said businesses should have received “a direct cash infusion to give businesses a runway to pivot,” which could have been dispersed through tax filings.
In the meantime, business owners like Corona in Imperial Beach are looking to the future and hoping for a recovery that will keep them afloat.
Right now, she works another full-time job while running the restaurant and taking care of her kids. She’s getting ready to open for in-person dining in the next few weeks and hopes new customers will come to sample her dad’s specialty, salmon soup.
“We have good days and bad days, I think more bad than good right now,” she said.