Why minority-owned businesses are struggling to get PPP loans
The Paycheck Protection Program or PPP provides federally-backed forgivable loans to businesses whose revenues may be impacted by the COVID-19 crisis. According to the Center for Responsible Lending, little of the $659 billion fund has made it to Latino and Black-owned businesses, despite being the communities hit hardest by the crisis. NewsHour Weekend’s Ivette Feliciano reports.
The Small Business Administration and the Treasury Department announced yesterday that they will begin revealing the names of some businesses that received loans from the PPP – a reversal of policy. The Paycheck Protection Program provides federally-backed forgivable loans to businesses whose revenues have taken a hit due to the COVID-19 pandemic.
Borrowers who received less than $150,000 will not have their identities revealed.
According to the Center for Responsible Lending most of the program’s $659 billion has already been disbursed, but little of that money has made it to Black and Latino-owned businesses. Many of these communities have been hit hard by the coronavirus.
NewsHour Weekend’s Ivette Feliciano spoke with some business owners to learn why it’s been so difficult for them to get federal assistance during this time
This segment is part of our ongoing series “Chasing the Dream: Poverty and Opportunity in America.”
Two years ago, Bobby Price began his business, Principal Barbers, in the North Lawndale neighborhood of Chicago, where he was born and raised.
My neighborhood in Chicago is a long historical community. From being part of a white flight in Chicago, to Dr. King being in the neighborhood, this community has been a part of some very pivotal historical moments.
To build his business, Price needed money. When his commercial bank turned him down for a business loan, he turned to his community for support.
Fortunately, my pastor had some friends and some men I knew who were angel investors pretty much ready to go. And so when I made the decision, it seemed as if all the doors opened.
With funds from community investors, Price rented a storefront in 2018 and began growing his business.
Last October, he got a micro-loan to buy new equipment from a Community Development Financial Institution, or a CDFI, called Accion in Chicago. Accion is one of 1,000 CDFI’s serving low-wealth neighborhoods across the country, and aims to fill the gap where mainstream lenders aren’t present. Brad McConnell is the CEO at Accion in Chicago.
Our mission is to help neighborhood entrepreneurs grow. Unfortunately, we find that there are just far too many instances in which a small business owner in an underserved community doesn’t have access to the same types of wealth that is required in order to generate more wealth.
By March, Price was just starting to make a profit. But then, the COVID-19 pandemic hit, and business came to a complete halt.
Everyone was hopeful, but the neighborhood itself pretty much shut down.
As part of the $2 trillion stimulus bill passed in late March, Congress created the Paycheck Protection Program, or PPP. The program provided $359 billion dollars’ worth of federally-backed business loans, which would be forgiven if the borrower spent 75% of the funding on payroll within 8 weeks.
The Treasury Department’s Small Business Administration runs the program. While the federal government guarantees the PPP loans, it’s the banks that actually put up the cash–the same banks that Bobby Price tried and failed to get capital from when he first started his business.
Price applied for a PPP loan when it was announced through Chase Bank. But when he tried to reach out to the bank for clarification about the program’s stipulations, he had little success.
There was no answer, no replies and e-mails. The largest questions were like, what were the expectations of paying it back? How to make it a grant, you know, instead of a loan? It just wasn’t clear.
We filled out the applications, we did all the work. We thought we were in queue, but we weren’t.
Rodney Brown is Executive Director of the New Covenant Community Development Corporation in Chicago. The non-profit helped small business owners apply for PPP loans, but Brown says many didn’t have the documents needed in order to qualify.
What we found was some of them had not filed taxes. Some of them did not have a business plan. They didn’t understand what a financial statement was. Some had even been paying employees maybe in cash, not keeping records. So we had to help them with all those things.
Brad McConnell at Accion says another obstacle for his clients was the requirement to spend 75% of their PPP funds on payroll in order to qualify for loan forgiveness.
Payroll just isn’t a specifically large part of the way that a business thinks about its expenses, if you’re dealing with very, very few staff. When the Small Business Administration defines a small business as any entity that has five hundred or less in the number of employees that they have, then there’s a huge range.
Typically, businesses owned by people of color are more likely to have few to no employees, and spend more money on other expenses like rent or utilities, according to the Center for Responsible Lending.
The SBA didn’t collect demographic data on who applied for and received PPP loans. But a national online survey of 500 Black and Latinx small business owners conducted for Color of Change and UnidosUS found that only 12% of those who applied for the Paycheck Protection Program loans received the funds they asked for.
Eliuth Guzman was initially turned down for a PPP loan she hoped would keep her two-year-old catering business afloat. She said she had trouble getting the help she needed from her bank so eventually filled out the application on her own.
I was disappointed because they didn’t really give me a reason, what was the reason I didn’t get the paycheck protection.
Researchers at the Center for Responsible Lending say mainstream lenders prioritized their biggest clients, large to mid-sized businesses, which are primarily white-owned. As a result, the initial $359 billion dried up in two weeks.
And in a report released last month, the SBA Office of the Inspector General found that minority-owned businesses may not have received the loans as intended because the SBA failed to “provide guidance to lenders about prioritizing borrowers in underserved…markets…”
To address concerns regarding the Paycheck Protection Program, in late May, Congress passed legislation lowering the required amount that businesses must spend on payroll from 75 percent to 60 percent. It also extended the time that businesses can use their funds to qualify for loan forgiveness from eight weeks to 24 weeks.
The Small Business Administration declined an interview with PBS NewsHour Weekend. But in an email, the SBA said it is “… actively engaged in outreach to the CDFI… lending communities. To date, these institutions have approved over $15 billion dollars.” And, that “The SBA is providing [materials] in 17 languages other than English to help small businesses recover.”
Eventually, Eliuth Guzman sought the help of Accion in Chicago to apply for the second round of PPP funding.
I actually had a person walking me through the process. And a week later, I got the call from the bank and in a couple of days, they had transferred the money to my business account.
Bobby Price also sought the help of a local community organization to fill out his second PPP loan application.
The relationships of the organizations and the community just made it happen. They understood that a lot of us, especially small businesses, were having a hard time.
This time, Price was approved for $8,000, which he believes will be enough to carry him through as he attempts to adapt his business to the new normal.