Relief for small businesses in confusion, with dashed hopes
The federal government’s massive paycheck protection program, which has been a lifeline for small businesses affected by the pandemic, has become so mired in confusion and delays as money runs out that hundreds of thousands of applicants may not get help, especially in underserved minority communities.
In the first few months after President Biden took office, his administration far outstripped its predecessor in funneling funds to vulnerable companies. But in recent weeks, as the program’s May 31 expiration date approaches, the agency responsible for it has been overwhelmed and lenders can’t even be sure how much is still available for loans.
As of Friday, only about $ 3 billion was left of the $ 800 billion planned for the program, according to congressional staff. And if congressional conservatives continue to balk at more spending, companies that have weathered the worst of the pandemic could hit the wall just as the health crisis appears to be easing.
As part of the program, the Small Business Administration oversees loans from private banks to businesses that meet the program’s criteria, with government guarantees for forgivable loans. The relief has been particularly valuable for minority-owned businesses, as they typically have fewer financial resources and operate closer to margins than larger, better capitalized businesses.
The current crisis came when many banks were caught off guard by what they saw as a poorly communicated change by the administration to the rules on who can make loans. Hundreds of lenders found themselves cut off. Others were paralyzed, not knowing how much money was still available.
The result: Just a week before the end of the program, the second and final round of relief is all but frozen for hundreds of thousands of small businesses.
Many of those now calling for help are smaller businesses, including sole proprietors who lacked the know-how, contacts, or confidence to participate in past P3 distributions. A disproportionate number are run by relatively inexperienced minorities and women who have started businesses and hired workers at lower cost. Conventional commercial loans are often inaccessible to small businesses.
April James, a 42-year-old black woman, had to shut down her clothing business in Los Angeles last year because she was unable to travel to New York to purchase merchandise. James said she survived by working as a hairdresser, a secondary vocation.
Just a few weeks ago, she started applying for a loan after learning about the program from a friend. James was preparing to submit additional documents to Womply, an online PPP loan facilitator, when she was told it was no use – she would now have almost no chance of being approved.
“By the time I caught up with what I needed to apply and then boom-bam-bam they announced they were running out of funds,” said James, who was only hoping for a few thousand dollars to hand over. his business on its feet. “Where do I fall in there?” People like me are in pain.
The PPP was launched as part of the $ 2.2 trillion economic relief measure that then-President Trump enacted in March 2020, during the first wave of the pandemic. It was conceived as a new effort to minimize layoffs and help small businesses stay afloat with low-interest loans that could be written off entirely if borrowers met certain conditions involving employee retention.
The program was then extended and this year Biden and Congress replenished their funding to meet continued extraordinary demand.
Over 11 million loans have been approved over the past year and experts say they have helped save millions of jobs. Although many businesses received two loans, one in each of the two rounds, many businesses owned by minorities and those in low-income areas disproportionately affected by the pandemic have been severely beaten.
The SBA says the pandemic has dealt a fatal blow to at least 400,000 small businesses and many more are struggling to hang on.
The agency is a relatively obscure agency. Biden asked Isabella Guzman, a former small business advocate under California Governor Gavin Newsom, to lead her. After the Senate confirmed her in mid-March, she set out to expand reach and increase lending to those who needed it most, including businesses in rural communities and the poorest. Statistics suggest that she has had some success.
Still, strong demand – as well as the start this month of a separate SBA grant program for restaurants – appears to have outstripped the agency’s ability to process loans effectively, according to lenders and congressional sources.
In an interview this month, Guzman said the SBA’s portfolio has grown from $ 40 billion a few years ago to over $ 1 trillion today due to the pandemic. She underlined the administration’s commitment to equitable access, but did not provide a figure on the remaining amount.
âWe don’t have the latest data released in today’s terms,â she said, âbut we know the money won’t last forever and, of course, will expire at the end of the month. “
While the SBA provides weekly updates that include total claims and approved dollars, the program balance was a critical missing piece. Neither the financial industry nor the congressional authorities could say for sure what was still available.
Adding to the complications, the SBA this month limited new applications to participating community financial institutions, including some minority-owned banks and credit unions serving low-income areas.
The move was meant to prioritize small institutions in underserved communities, but the SBA’s announcement blinded many big banks and facilitators like Womply, who had to break bad news to applicants.
And as well-intentioned as the new rules are, some of the participating EU institutions themselves have been caught off guard.
âOver the past two weeks, there has been some confusion over the amount of P3 funds available,â said Aissatou Barry-Fall, general manager of the People’s Federal Credit Union on the Lower East Side in New York last week. As a result, she said, she had to withdraw from processing new claims.
The SBA “has reached out to urge us to continue accepting applications, but delays in the approval process and our own capacity limits prevent us from doing so,” she said in a statement. House committee hearing on community development and minority lenders.
Guzman is due to appear before Congress on Wednesday and will likely be fraught with questions.
Congressional staff familiar with P3 were unsure why the agency had not been clearer in communicating data and program changes with lenders and the business community. Lawmakers have received thousands of angry letters from small businesses.
Toby Scammell, chief executive of San Francisco-based Womply, said his company had around 1.6 million PPP applicants awaiting funding, many of whom were minorities and first-time applicants.
After reviewing their eligibility, Womply submitted completed applications to its network of lenders. But the SBA’s action this month to limit new lending to community institutions means that most of the 1.6 million potential borrowers won’t get a dime unless the PPP is replenished again – this which is questionable given the Republicans’ complaints about federal spending.
“It’s about basic access and fairness – 90% and over don’t stand a chance,” Scammell said. Until the last few weeks, he added, âthe program was working better than ever. It is disappointing to see that it has been mismanaged in the last days. “
Applicants are not required to identify their race or gender, and many have refused to do so. Previous analyzes of PPP loan approvals by the Los Angeles Times and other organizations indicated that loan rates were higher for white businesses than for those operated by Latin Americans, Asians, or blacks.
But this year, the share of minority-owned businesses receiving loans has more than doubled, from 23% in mid-January to 56% at the end of April, according to Womply. As of April, Womply found that around 2.5 million loan approvals went to minority-owned businesses, mostly those owned by black and Latino people, accounting for 43% of all PPP approvals.
Everett Sands, managing director of Brea-based Lendistry, one of the country’s largest minority-run community development finance institutions, credits the SBA with focusing more on underserved areas. But the needs remain great, he said.
âI think the SBA could do a better job,â Sands added. “There could be more transparency.”