Automation and Racial Disparities in Small Business Lending : Evidence from the Paycheck Protection Program

By enabling smaller loans, broader geographic reach, and less human bias in decision-making, process automation may reduce racial disparities in access to financial services. We find evidence for all three channels using a setting where private lenders faced no credit risk but decided who to serve: the Paycheck Protection Program (PPP), which provided loans to small businesses during COVID-19. Black-owned firms disproportionately obtained their PPP loans from fintech lenders, especially in areas with high racial animus. After traditional banks automate their loan application processes, their PPP lending to Black-owned businesses increases. Our findings cannot be fully explained by racial differences in loan application behaviors, pre-existing banking relationships, contemporaneous firm performance, or fraud rates