How the Trump Administration’s Small Business Protection Program Has Failed Communities of Color

The Covid-19 pandemic has devastated businesses run by people of color. The Trump administration’s Small Business Administration isn’t helping.

Miranda Litwak

the SBA’s inaction follows a decades-long tradition of failing to support its mandate to help business owners of color. (Photo by Warrick Page/Getty Images)

In recent weeks, it’s become increas­ing­ly clear that the fed­er­al gov­ern­ment has failed to pro­tect minor­i­ty-owned busi­ness­es from the pandemic’s eco­nom­ic fall­out. Accord­ing to data pub­lished by the Nation­al Bureau of Eco­nom­ic Research, the num­ber of black-owned busi­ness­es decreased by 41% between Feb­ru­ary and April. For the busi­ness­es that have sur­vived, their cash bal­ances decreased by 26%, com­pared with a 12% decline overall. 

The SBA’s consistent failure to adequately fulfill its congressional mandate, especially in the age of Covid-19, requires that we reimagine what the agency could look like.

While Con­gress enact­ed two small busi­ness loan pro­grams to be admin­is­tered by the Small Busi­ness Admin­is­tra­tion (SBA), many entre­pre­neurs of col­or, who are fac­ing dis­pro­por­tion­ate effects of the cur­rent eco­nom­ic cri­sis, did not receive emer­gency fund­ing. Mean­while, large and well-con­nect­ed com­pa­nies, some of which are owned by mem­bers of Con­gress, walked away with over $1 bil­lion in loans from the SBA. 

Trump’s SBA not only failed to sup­port busi­ness­es strug­gling the most in the midst of the pan­dem­ic, but it failed to ful­fill its pur­pose as defined by Con­gress. When it first cre­at­ed the agency, Con­gress specif­i­cal­ly out­lined the SBA’s oblig­a­tion to sup­port entre­pre­neurs from social­ly dis­ad­van­taged groups, who faced (and con­tin­ue to face) lim­it­ed access to cred­it, low­er cred­it scores, a lack of rela­tion­ships with finan­cial insti­tu­tions and low­er lev­els of per­son­al wealth. 

In the Small Busi­ness Act of 1953, Con­gress wrote: “[T]he oppor­tu­ni­ty for full par­tic­i­pa­tion in our free enter­prise sys­tem by social­ly and eco­nom­i­cal­ly dis­ad­van­taged per­sons is essen­tial if we are to obtain social and eco­nom­ic equal­i­ty for such per­sons and improve the func­tion­ing of our nation­al econ­o­my.” In Sec­tion 8(a) of the Small Busi­ness Act, Con­gress laid out the SBA’s par­tic­u­lar respon­si­bil­i­ties to aide small busi­ness con­cerns owned and con­trolled by social­ly and eco­nom­i­cal­ly dis­ad­van­taged indi­vid­u­als so that such con­cerns can com­pete on an equal basis in the Amer­i­can econ­o­my,” whether that meant a leg up in fed­er­al con­tract­ing, man­age­ment assis­tance, or what­ev­er else the SBA deter­mined would aid entre­pre­neurs of color.

Struc­tur­al disadvantage

Today, busi­ness own­ers of col­or con­tin­ue to face the same struc­tur­al chal­lenges that put them at a finan­cial dis­ad­van­tage com­pared to white busi­ness own­ers when the SBA was cre­at­ed. A typ­i­cal black entre­pre­neur receives a third of the start­up cap­i­tal the typ­i­cal white entre­pre­neur receives. Busi­ness own­ers of col­or tend to have small­er busi­ness­es on aver­age than white-owned small busi­ness­es. More­over, 95% of busi­ness­es owned by Black Amer­i­cans have no employ­ees, com­pared with just 78% of white-owned businesses. 

These facts illus­trate just how vital the SBA’s pro­grams remain for minor­i­ty-owned busi­ness­es. Yet, by all accounts, busi­ness own­ers of col­or have faced dis­pro­por­tion­ate finan­cial suf­fer­ing dur­ing this pan­dem­ic, despite the two small busi­ness loan pro­grams admin­is­tered by an agency with a spe­cif­ic man­date to assist them. 

Con­sid­er the larg­er of the two SBA loan pro­grams: The Pay­check Pro­tec­tion Pro­gram (PPP). PPP uses pri­vate finan­cial insti­tu­tions to issue fed­er­al loans to small busi­ness­es that can lat­er be for­giv­en, so long as the busi­ness spends 60% of the funds on pay­roll expens­es. Since the program’s roll­out, SBA failed to issue clear guid­ance to lenders, or con­duct ade­quate over­sight. As a result, banks pri­or­i­tized larg­er, bet­ter-con­nect­ed busi­ness­es. Plus, sim­ply by the nature of the program’s first-come-first-served design, those big­ger and bet­ter-con­nect­ed busi­ness­es swal­lowed up most of PPP’s ini­tial funds, leav­ing many minor­i­ty-owned busi­ness­es to wait until the sec­ond round of fund­ing was approved. By then, many busi­ness­es had already closed their doors for good.

For those busi­ness own­ers of col­or who actu­al­ly got their hands on PPP mon­ey, the loans turned out to be less use­ful than imag­ined. Minor­i­ty-owned small busi­ness­es are less like­ly to have employ­ees but were still only per­mit­ted to use 40% of their PPP loans on non-pay­roll expenses. 

That’s where the SBA’s small­er pro­gram — the Eco­nom­ic Injury Dis­as­ter Loan Pro­gram (EIDL) — could have come in handy. EIDLs pro­vide small busi­ness­es with more flex­i­ble cap­i­tal that can be used for a vari­ety of busi­ness expens­es, not just pay­roll. Addi­tion­al­ly, busi­ness­es that apply for EIDL are eli­gi­ble to receive a $10,000 advance on the loan that does not need to be paid back. Unfor­tu­nate­ly, the SBA arbi­trar­i­ly lim­it­ed the amount of mon­ey busi­ness­es could receive from the $10,000 grants, and long wait times have left many busi­ness own­ers with­out any funds months after Con­gress cre­at­ed the pro­gram. And if busi­ness own­ers of col­or didn’t apply months ago, they won’t qual­i­fy for EIDL now: Trea­sury Sec­re­tary Steven Mnuchin lim­it­ed the pro­gram to allow only agri­cul­tur­al busi­ness­es in April.

The dis­par­i­ties in access to SBA loans for busi­ness own­ers of col­or are stark. In a recent report, Unido­sUS and Col­or of Change found that only 1 in 10 Black or Lat­inx-owned small busi­ness­es received the PPP assis­tance they request­ed. Anoth­er report from Gold­man Sachs found that only 79% of Black busi­ness own­ers applied for a PPP loan, com­pared with 91% of small busi­ness­es over­all — and that 26% of black busi­ness own­ers have less than one month of cash reserves com­pared with 17% over­all. These dis­par­i­ties might have been reduced but for the SBA’s fail­ure to instruct lenders to pri­or­i­tize under­served busi­ness­es, includ­ing minor­i­ty and women-owned businesses. 

Unfor­tu­nate­ly, the SBA’s inac­tion in this cri­sis fol­lows a decades-long tra­di­tion of fail­ing to sup­port its man­date to help busi­ness own­ers of col­or. The agency has not ade­quate­ly pro­vid­ed small busi­ness own­ers of col­or with the sup­port the Small Busi­ness Act calls for in near­ly 70 years since the legislation’s passing.

8(a) pro­gram

Through the SBA’s 8(a) busi­ness devel­op­ment pro­gram, minor­i­ty-owned busi­ness­es can com­pete for set-aside gov­ern­ment con­tracts and receive man­age­ment and tech­ni­cal train­ing. Yet since its incep­tion, oppor­tunis­tic white entre­pre­neurs have defraud­ed and abused the pro­gram, while the SBA has failed to ensure mon­ey got in the right hands.

In 1977, the Wash­ing­ton Post report­ed that white-owned busi­ness­es were fraud­u­lent­ly apply­ing to the pro­gram, procur­ing lucra­tive gov­ern­ment con­tracts meant for minor­i­ty-owned busi­ness­es. Mean­while, actu­al busi­ness own­ers of col­or in the pro­gram report­ed that they lacked tech­ni­cal sup­port and guid­ance from the SBA. One black small busi­ness own­er report­ed that the SBA offered to let him split a con­tract with a com­pa­ny owned by the white broth­er-in-law of an SBA employ­ee. Two Nixon offi­cials received 8(a) con­tracts. One fed­er­al offi­cial received an 8(a) con­tract for his busi­ness that had no assets or employ­ees and then sub­con­tract­ed all the work to white-owned businesses.

In 1979, in response to the abuse, the SBA Office of Inspec­tor Gen­er­al (OIG) released a report that found that one in five 8(a) par­tic­i­pants were defraud­ing the pro­gram. The Gov­ern­ment Account­abil­i­ty Office (GAO) found the 8(a) program’s eli­gi­bil­i­ty cri­te­ria were not applied uni­form­ly, and the SBA failed to prop­er­ly report data on participants.

Con­gress attempt­ed to improve the 8(a) pro­gram in 1978, 1980, and 1988, but it con­tin­ued to be mis­man­aged and plagued by fraud. Accord­ing to GAO, most of the program’s dol­lars went to a small num­ber of firms, and the program’s man­age­ment train­ing did not pro­vide minor­i­ty-owned busi­ness­es with the tools to become self-suf­fi­cient busi­ness­es, evi­dent from their lack of non‑8(a) clients after grad­u­at­ing from the pro­gram. The GAO also report­ed that the 8(a) pro­gram lacked resources and failed to prop­er­ly record data on the par­tic­i­pat­ing firms – in oth­er words, they con­ve­nient­ly were unable to track the improve­ment (or lack there­of) of participants. 

Even after con­tin­ued reports of mis­man­age­ment and fraud, the SBA failed to effec­tive­ly imple­ment GAO’s rec­om­men­da­tions. In 1996, the GAO report­ed that, while the SBA had made some progress, 8(a) was still not opti­mal­ly sup­port­ing minor­i­ty-owned busi­ness­es. The report crit­i­cized the pro­gram for only grad­u­at­ing three busi­ness­es. Again in 2000 and 2008, the GAO report­ed that the pro­gram was under­staffed and under-resourced and had failed to imple­ment rec­om­men­da­tions to improve the pro­gram and reduce fraud. This lack of resources meant the SBA could not effec­tive­ly sup­port minor­i­ty-owned firms par­tic­i­pat­ing in the pro­gram or ensure par­tic­i­pants met eli­gi­bil­i­ty requirements.

In 2009, after years of inac­tion, ProP­ub­li­ca revealed that the Depart­ment of Defense had award­ed near­ly $30 mil­lion in 8(a) con­tracts to com­pa­nies under crim­i­nal inves­ti­ga­tion for false­ly claim­ing to be small minor­i­ty-owned busi­ness­es. In 2010, GAO dis­cov­ered that 14 inel­i­gi­ble firms received $325 mil­lion in 8(a) con­tracts meant for minor­i­ty-owned busi­ness­es, and in some cas­es, the SBA was aware of the firm’s inel­i­gi­bil­i­ty at the time it gave out the mon­ey. As recent­ly as 2018, the SBA inspec­tor gen­er­al report­ed the agency failed to remove inel­i­gi­ble com­pa­nies from the pro­gram. Ulti­mate­ly, it is unclear just how much mon­ey has been pil­fered from the intend­ed minor­i­ty busi­ness own­ers due to the SBA’s neg­li­gence over the years.


In 1997, the SBA cre­at­ed the HUB­Zone pro­gram, which set aside fed­er­al con­tracts for busi­ness­es locat­ed in His­tor­i­cal­ly Under­uti­lized Busi­ness Zones.” While not direct­ly pro­vid­ing sup­port to minor­i­ty-owned busi­ness­es, this pro­gram served low-income com­mu­ni­ties, many of which have dis­pro­por­tion­ate lev­els of racial and eth­nic minori­ties. This pro­gram would help chan­nel funds into these com­mu­ni­ties, pro­vid­ing much-need­ed eco­nom­ic oppor­tu­ni­ty and growth.

Yet, since its incep­tion, HUB­Zone faced many of the same issues plagu­ing 8(a). The SBA inac­cu­rate­ly report­ed data on HUB­Zone par­tic­i­pants, which led to errors in report­ed lev­els of growth and achieve­ment, accord­ing to one GAO report. Anoth­er report crit­i­cized the SBA’s com­mu­ni­ca­tion about pro­gram guide­lines to par­tic­i­pat­ing firms.

Beyond mis­man­age­ment and data entry errors, the SBA used inac­cu­rate maps to deter­mine whether small busi­ness­es were locat­ed in eco­nom­i­cal­ly dis­tressed areas. A 2008 GAO report found that the SBA award­ed HUB­Zone con­tracts to small busi­ness­es in wealthy com­mu­ni­ties due to inac­cu­rate maps and failed to address these inac­cu­ra­cies with reg­u­lar mon­i­tor­ing required by SBA policy. 

Despite the numer­ous warn­ings from GAO and OIG, the SBA did not effec­tive­ly improve HUB­Zone, and in 2019, the Wash­ing­ton Post report­ed that $800 mil­lion in HUB­Zone con­tract dol­lars went to just 11 busi­ness­es, many of which were locat­ed in Wash­ing­ton, D.C.’s wealthy neigh­bor­hoods, includ­ing Dupont Cir­cle, Navy Yard and down­town. Mean­while, busi­ness own­ers in poor­er neigh­bor­hoods were left behind. In the program’s 20-plus-year his­to­ry, it has nev­er once met its goal of award­ing 3% of fed­er­al con­tracts to HUB­Zone firms. 

Reimag­in­ing the SBA

The SBA’s con­sis­tent fail­ure to ade­quate­ly ful­fill its con­gres­sion­al man­date, espe­cial­ly in the age of Covid-19, requires that we reimag­ine what the agency could look like. If future admin­is­tra­tions pro­vid­ed the SBA with ade­quate fund­ing and appoint­ed a Small Busi­ness Admin­is­tra­tor will­ing to invest in these defunct pro­grams, the SBA might be able to help build a more inclu­sive, stronger economy.

Demo­c­ra­t­ic nom­i­nee Joe Biden has report­ed­ly begun hear­ing pro­pos­als for clos­ing the racial wealth gap from his eco­nom­ic advi­sors. He’d do well to look at what tools would already be avail­able to accom­plish that ambi­tious goal should he become pres­i­dent in 2021 — the SBA is one of them. 

Unfor­tu­nate­ly, over the past sev­er­al decades, pres­i­dents have cut the SBA’s bud­get while its own lead­ers have sup­port­ed these cuts in the name of bal­anced bud­gets and effi­cien­cy. Decades of bud­get cuts have starved the SBA of the resources need­ed to con­duct prop­er over­sight and track­ing of its minor­i­ty lend­ing pro­grams and its PPP and EIDL programs. 

The SBA must do bet­ter. As Con­nie Evans of the Asso­ci­a­tion for Enter­prise Oppor­tu­ni­ty recent­ly told the Sen­ate Com­mit­tee on Small Busi­ness and Entre­pre­neur­ship, the pandemic’s eco­nom­ic con­se­quences are pro­ject­ed to erase decades of minor­i­ty enter­prise growth in under­served mar­kets.” But with a new admin­is­tra­tion and Small Busi­ness Admin­is­tra­tor ded­i­cat­ed to uplift­ing com­mu­ni­ties of col­or, the SBA could final­ly accom­plish its long-dis­re­gard­ed goals.

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