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‘The system was never created for us.’ Business owners of color still struggle to get enough COVID aid

For more than 20 years, Ilianna Salas’s family has run a clothing store called 4 Kids Clothes out of a shopping center in Anaheim, California. Her parents, who specialize in designing custom birthday and celebration outfits for children, opened the shop after immigrating to the U.S. from Mexico in the early 1980s.

“They’d come in and say, ‘get whatever outfit you want,’” Salas said of the families that would shop with their kids prior to the coronavirus pandemic. The business serves mostly Latino customers — she estimates about 60 percent are Hispanic — and used to draw visitors from out of town heading to DisneyLand as well.

But since COVID-19 brought devastation to both the U.S. population and economy last March, Salas said these customers — many of whom are lower-income essential workers — have become more hesitant to spend money at her family’s store. With more than a million Californians still unemployed, the number of families coming to the store each day has dropped to about 40 percent of what it was before the pandemic, Salas estimates. Her parents now hear customers caution their kids, “we’re still going to celebrate your birthday, but pick one or two things.”

“It’s not like people are hanging out at the mall on Saturdays anymore,” Salas said. “People are at home.”

Like many small business owners in the U.S., the Salas family is struggling to make ends meet as the economic downturn spurred by the coronavirus pandemic drags on. The Biden administration last week announced a number of changes to the Paycheck Protection Program to make loans more accessible to owners of very small businesses, many of whom are people of color like Salas’s parents.

One of those moves was establishing a two-week window during which only businesses and non-profits with fewer than 20 employees can apply for the program, an effort to prioritize working with the smallest and most vulnerable businesses. It is the latest in a series of measures Washington has taken to make PPP distribution more equitable following criticism that the program disproportionately favored white business owners with ties to big banks when it was first established last spring. In addition to announcing the two-week application period for small businesses, the Biden administration also said it would eliminate a PPP restriction on applicants with prior non-fraud felony convictions, and ensure that non-citizens who are lawful U.S. residents can apply by using their Individual Taxpayer Identification number. Congress also voted in December to allocate $15 billion for Community Development Financial Institutions, which typically work with low-income populations.

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Black and Hispanic business owners told the PBS NewsHour they feel the disparities in PPP distribution highlight longstanding systemic inequities in the U.S. that have kept entrepreneurs who are not white from accessing capital. Despite recent changes, challenges with the application process still exist, according to business owners and the lenders who work with them. Those who have been able to secure PPP loans worry the money will not be enough to keep their businesses afloat, and worry about whether they may be held responsible for paying them back down the road. Salas said the Biden administration’s efforts haven’t yet made a material difference for her family.

“The last time we got any aid from the government was May,” said Salas, 24, who helps the family business with their finances in addition to working a full-time job as a marketing specialist for a technology company. When the Small Business Administration established the Paycheck Protection Program to help business owners keep their employees on payroll last March, many businesses owned by people of color, including Salas’s parents, were shut out of the first round of funding. Although her parents did receive an $18,000 PPP loan in late May during a subsequent round of payments, she said it was not enough to cover the losses they suffered from closing for three months during California’s initial shutdown.

Salas helped her family apply for a second round of PPP funding after the program reopened in early January, but the lender she worked with did not alert her to changes that had been made to the application under the last stimulus bill, which was signed by then-President Donald Trump.

Because the SBA now requires businesses applying to a second round of funding to prove that their revenue dropped by 25 percent last year to qualify for PPP, Salas had to submit additional statements showing her family’s revenue losses from 2019 and 2020. She said the lender she worked with did not alert her to these changes, so she did not include the necessary documentation in her first application. She waited a month before she was informed that the application did not go through to the SBA, presumably because they did not receive the right information. After resubmitting the application, she is now waiting to hear back about whether her family will receive a second round of funding.

“I know a lot of this is in flux, but when every day counts for us, we need direction,” Salas said.

Shut out of first round, many struggle to catch up

Data released by the SBA from the first iteration of the PPP program shows that while small business owners like Salas’s parents were waiting on loans last spring, other white business owners received funding.

An analysis of PPP loans by ZIP code by the Associated Press found that “thousands of minority-owned small businesses” were among the last to receive loans during the first two rounds of funding, which lasted from April 3 to Aug. 8. The AP found that many of these business owners didn’t receive a PPP loan until the last few weeks of the program, while more white business owners were able to secure loans earlier. The AP’s analysis found that during the first round of funding, six loans were approved for every 1,000 people living in the 20 percent of ZIP codes with the greatest proportions of white residents — nearly double the rate of loans approved for people living in the 20 percent of ZIP codes with the smallest proportion of white residents.

Experts have said this disparity was partially due to the fact that many businesses owned by people of color had trouble getting their applications processed by bigger banks, who may initially have been inclined to process bigger loans from more well-established customers.

Teresa Bishop, who emigrated from Peru in 2002 and now owns Just Right Auto Service & Brokers with her husband in Roswell, Georgia, had this problem when she went to PNC Bank to apply for a PPP loan back in May.

“I went to so many websites and printed a huge list of banks that was supposed to be processing these loans,” said Bishop, who eventually figured out that she could apply through PNC. She was denied. “It was very discouraging,” she said, remembering that she was thinking to herself, “How are we going to keep paying rent, providing for the kids, utilities?”

Bishop eventually had better luck applying for PPP through ACE Loans, a Community Development Financial Institution in Cleveland, Georgia, that works with underserved small businesses and has many Black and Hispanic clients. She recently received a second round of funding — a loan of $18,000 — working through the same lender. Bishop said that while she’s grateful to have eventually received the PPP, the funding won’t carry her business far. A maximum PPP loan is intended to fund companies up to 2.5 times their average monthly payroll costs, and for Teresa and her husband — who pay their own salaries through the business — the loans are “very, very little” in the grand scheme of almost a year.

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Montika Collins, who owns lactation consultation and family wellness businesses with her husband in Tulsa, Oklahoma, similarly felt that what she received from the SBA this year was paltry. After receiving a loan of more than $13,000 last year, she only received about $4,600 when she reapplied at the beginning of this year.

“It was a huge punch in the chest,” said Collins, who is Black, and thinks she received a smaller amount this time because she and her husband claimed more expenses on their tax returns last year than the previous year. “There was no one I could talk to to get any real help.”

Even before the pandemic, a Federal Reserve survey of small businesses found that firms with non-Hispanic white ownership had easier access to capital from banks. It found that Black business owners were half as likely as white owners to have obtained loans from banks, at just 23 percent. Latino business owners were similarly less likely to have accessed capital from banks, with just 34 percent reporting that type of funding in the third and fourth quarters of 2019.

Because borrowers can decline to answer demographic information when applying for PPP loans, it remains hard to tell whether more recent efforts by the Biden administration to make the program more equitable are working. But a report released last week shows that among the quarter of loan recipients who have self-identified, disparities remain: around 15.5 percent of those who received a PPP loan responded that they were white, while 4.8 percent were Black, 3.2 percent were Asian, and 1.14 percent identified as American Indian or Alaska Native.

“It has always been a systemic problem for Black people, because the system was never created for us,” said Donnetta Watson, who founded the National Black MasterMind Group, which works with Black entrepreneurs to help them make their businesses fundable. Watson likened the SBA’s treatment of Black-owned businesses during the pandemic to “redlining,” a U.S. government policy during the first half of the 20th century that resulted in systematic racial segregation in neighborhoods throughout the country.

Teresa and Mark Bishop at their auto service shop in Roswell, Georgia. Photo courtesy of Teresa Bishop.

Watson said that by designing the PPP program to fund payroll, the SBA discouraged many Black business owners from applying, as the majority of them (about 96 percent) do not have employees. “You’re creating another disparity in the whole way you released a program,” Watson said of the PPP. “The data shows we do not have employees in our business.”

Though sole proprietors are eligible for PPP loans, one community lender based in Alabama, who spoke on background to respect client privacy, told the NewsHour that these owners often qualify for very little assistance, if any at all. That’s because the program used to determine loan amounts off of net, rather than gross, income. Because businesses without employees often deduct significant expenses on their tax returns, their net profit often registers either a loss or a very small amount, which means their loan applications didn’t reflect what the program considered to be payroll expenses, said the lender, who serves clients across the South.

Latasha Crawford, who owns a janitorial service business in Kansas City, Missouri, and has been trying to help other Black business owners in her network navigate the PPP application process, said a lot of Black-owned businesses are “solo-prenuers.”

“They didn’t get startup capital to start their businesses,” she said. “They’re cash-based businesses trying to operate as a company and trying to be competitive with other non-minority companies.”

Crawford said that when she started her business in 2017, she was unable to secure any capital loans. “Typically a business should start with one year of capital, so we were already strapped for cash and were struggling as a Black-owned business,” she said of the period prior to the pandemic. Crawford secured a PPP loan by working with Alt Cap, a Community Development Financial Institution based in Kansas City, but said many other small businesses in her circle have not been so lucky.

“It was very complicated,” Crawford said of the application process. “They ask for a lot of documents, and you really have to have those documents ready to go.”

Community lenders working with Black and Hispanic business owners said they’ve seen their clients encounter these challenges as they work through this latest application round.

“We still work with so many businesses that are just surviving for day to day with their cash flow, and they don’t have anything formal in place to quickly apply for these programs,” said Ruth Ann Whatley, who handles PPP for ACE Loans. “By the time they go back and forth with somebody, redo their paperwork … they’ve missed the deadline.”

“So many of them are still concerned about making payroll, or making their rent,” Whatley added. “They’re really desperate. Some of them are checking with me [on the status of their application] every day.”

Even after assistance, anxiety about what comes next

Collins has given up relying on PPP loans and is instead hoping that the $1.9 trillion package that the House passed last week, and is now being considered by the Senate, will carry her family through the next few months of the crisis. In addition to providing up to $2,400 stimulus checks for families of four, the package includes a child tax benefit.

“We’re extremely hopeful that the Biden thing goes through,” Collins said. “It would be a big help because we’re a family of five. That would be a game changer for us.”

The $1.9 trillion stimulus passed by the House does include some additional funding for PPP — $7.25 billion — but it does not extend the current application period, which ends on March 31. And while PPP recipients can qualify for full loan forgiveness, there are strings attached, which has some business owners worried that they may need to repay the money they received through the SBA program further down the road.

“My only concern is we haven’t applied for forgiveness of the first round,” said Teresa Bishop of Just Right Auto Service. In order to be forgiven for PPP loans, borrowers must show that 60 percent of the money was spent on payroll, but a number of business owners who spoke to the PBS NewsHour said that information regarding this part of the application process had been scant. Of the 5.3 million PPP loans distributed so far, only 1.7 million have been forgiven, according to SBA data, and 3.2 million borrowers have not yet applied for forgiveness.

“You borrow some money with the hope that everything is going to come [back] to normal and everything is going to be OK,” Bishop said. “But the truth is, we don’t know what is going to happen or how long it’s going to take [for business] to be what it was before.”

Outside the negotiations taking place in halls of Congress and the White House, businesses owned by people of color are starting to see the long-term impacts of the recession, and they worry about what their communities will look like on the other side of the crisis. “We’re all still scrambling, right?” Collins said. “The screen-printing place that did the letters on my brick and mortar [office] … I drove by there when I finally was able to go back to the office and they were moved out. So all these businesses that were good businesses are shut down.”

Salas said she recently noticed a Chinese restaurant owner in the same shopping center as her parents had trouble applying for PPP, and imagines there are “countless other stories like them.”

“I think a lot of small businesses are really hanging on by a thread. We employ a lot of people in our community, and if we can’t keep our doors open, it doesn’t just affect the owners, it affects the people who are employed by them,” she said. “For us, a lot of customers have become friends. We’ve watched their kids grow up. To think those connections won’t be there anymore, it’s kind of sad.”