ImpactAlpha, May 4 – The average loan size of the U.S. Paycheck Protection Program has fallen to $79,000, down from an initial $300,000 or so when the small business relief program first launched in early April. Yet a grim set of stats making the rounds this weekend on social media showed that the money may still not reach the most vulnerable businesses: up to 95% of businesses owned by Blacks, Latinos, and Native Hawaiian or Pacific Islanders stand little chance of receiving a Paycheck Protection Program loan through a mainstream bank or credit union, according to the Center for Responsible Lending.
These businesses tend to be small, often sole proprietors that employ 1099 workers. They often do not have established credit relationships with mainstream financial institutions, which have favored larger, existing customers in doling out PPP loans. The lopsided relief is likely to exacerbate a racial wealth gap fueled by decades of discriminatory policies that have worked against communities of color and prevented them from building wealth.
“The pandemic is really a magnifying glass over structural inequity,” says Connie Evans of the Association for Enterprise Opportunity (AEO), a trade group for microbusiness and microfinance organizations. “It needs to be addressed with innovation and bold, intentional policy.”
Entrepreneurship can help break the cycle of low wealth among communities of color. The median net worth for Black business owners is 12 times higher than Black non-business owners, according to a recent AEO study. If under-resourced Black-owned businesses were able to reach employment parity with overall privately held U.S. firms, some 600,000 new jobs would be created, and $55 billion added to the economy, the report concludes.
A second $310 billion tranche of PPP funding released last week set aside $30 billion each for small and mid-sized lenders, but did not take other steps that might have expanded access to the program. “We’re still going to see black businesses and other businesses of color who will not get a fair share of this CARES 2.0,” Evans told ImpactAlpha.
AEO, along with the Hispanic and Asian/Pacific Islander American Chambers of Commerce, the Association of Women’s Business Centers and other groups, formed the Page 30 Coalition to advocate for underserved businesses. The coalition takes its name from page 30 of the CARES Act, where a “sense of the Senate” statement makes clear that underserved small businesses such as those owned by socially and economically disadvantaged individuals were meant to be prioritized.
The group signed onto a letter to Treasury Secretary Mnuchin asking that the PPP program set aside $10 billion for community development financial institutions (CDFIs) and minority-owned banks to fund loans for small businesses of color, and that smaller borrowers in low- and mid-income areas be prioritized.
Lack of capital is one obstacle for minority-owned businesses; lack of technological savvy is another. AEO’s newly launched MainStreet RISE program provides free resources to help entrepreneurs keep their businesses afloat and selling during and after the COVID-19 pandemic. The package includes help in setting up an online presence, payments, mentoring and bookkeeping, via companies including GoDaddy, Bench, Fanbank and MicroMentor. The program is underwritten by banks and other funders, who can specify regions or even particular businesses to receive the bundles.
Southern Bancorp, a $1.2 billion CDFI, has made over 1,000 PPP loans totaling more than $100 million in Arkansas and the Mississippi Delta. “We’re more proximate with our customers,” than the larger banks, Southern Bankcorp’s Darrin Williams told Fox News (see, “How community banks and local lenders are bridging racial gaps in COVID recovery”).
Call to action
The COVID crisis is an opportunity for impact investors to step up. “Everybody needs to reevaluate what equity and fairness means right now,” says Evans.
Joe Neri of IFF, a Chicago-based Community Development Financial Institution, says “Let’s interrupt history” of businesses owned by people of color being excluded from relief efforts. Among Neri’s interruptions: “Commit that that for every 10 customers you help, you will intentionally help 3 or 4 or 5 new customers of color.”
Longer term, writes Living Cities’ Ben Hecht, we must reckon with a legacy of racism, support local leaders who value equity, address longstanding power imbalances, and rebuild for the new majority.