Ensure PPP loans go to businesses that need them most

While the Paycheck Protection Program (PPP) was intended to help the small businesses hardest hit by the Covid-19 crisis – those owned by women and people of color – it has failed to deliver on its promise. From the start of the program on April 3 to the end of August 8, struggling minority homeowners received help later than their white counterparts, according to an analysis of the program’s data by the Associated Press.

Postal code data with the largest proportions of white residents received loans at twice the rate areas with the lowest proportions of whites. Data by gender is not available, but as women are more likely to be in businesses without an employer and in sectors most affected by the pandemic (personal services, retail and catering), it is expected that that they experienced a pattern similar to that of postal codes with a concentration of blanks. “Almost 60% of women business owners say they don’t have the same access to capital as men,” said Candace Waterman, President and CEO of Women Impacting Public Policy (WIPP). It is the largest non-partisan advocacy organization for women and minority entrepreneurs.

In response to criticism, the trend has improved over the past four weeks. Banks have started approving loans to small businesses and the pool of providers has been expanded to include more community development finance institutions (CDFIs) and fintechs, which are more likely to have lending relationships with women. and people of color. CDFIs were created to lend to groups that banks deem risky.

But still, more could have been done.

The program was not clear on the terms of the loan cancellation and the required documentation. “Smaller businesses often don’t have the same types of systems and documentation as large businesses,” said Joyce Klein, director of the Business Ownership Initiative at the Aspen Institute. He conducts research and advocates for the interests of micro and small business owners. ” There is very little [struggling] companies that want to go into debt when they are not sure they have the income to repay it. Anything the government can do to get something like grants in the hands of very small businesses is essential. ”

“The other challenge with PPP is that a lot of it went through the banks, especially at the start,” Klein said. CDFIs and fintech lenders must be an integral part of the distribution of PPP loans. “If you create a program that is run largely by the banks, you’re going to miss out on a lot of business owners who typically don’t have lending relationships with the banks.”

Funding beyond emergency aid

“When we come out of the crisis, who is going to lend to businesses owned by women and people of color?” Klein asks. Banks have tightened their credit standards and it will be some time before they return to previous levels. The federal government approved $ 12 billion in funding for CDFIs and designated institutions for minorities (MDIs) as part of its $ 900 billion COVID-19 emergency financing plan. This includes $ 3 billion in emergency assistance through the CDFI Fund to provide grants and other financial and technical assistance and a $ 9 billion emergency capital investment program administered by the Department of the Treasury. to provide low-cost, long-term capital investments to MDIs and CDFI custodians. .

“Free up cash flow for businesses that hold small business loans,” Klein said. The loans were good loans originally. “Let’s take these loans off their balance sheets.”

“Create a facility where banks (or other entities, such as foundations or corporations) would sell to Fed Equity Equivalent Investments (EQ2). * It is an investment vehicle that expands sources of equity capital for CDFI Unlike for-profit corporations which can raise equity by issuing shares, nonprofits have traditionally built their capital base through contributions, philanthropic sources, or the accumulation of retained earnings. An EQ2 is a long-term, highly subordinated loan with characteristics that make it function like equity. losses).**

In response to the inequalities revealed by the pandemic and the Black Live Matter movement, banks have increased their funding to CDFIs. Fintech startup CNote has developed a fully insured cash management product that allows companies to generate market rate returns while doing good for society. Mastercard and Mastercard Impact Fund collectively deploy $ 20 million in CNotes pledge accounts. The accounts provide funding for recovery and growth to small businesses in underserved communities through CDFIs and designated low-income credit unions. CNote will be doing more corporate announcements.

If we are to close the funding gap for minority and women owned businesses, CDFIs not only need more funding, but underrated entrepreneurs need to know about this affordable source of capital.

Don’t force women to choose between access to capital and access to markets

Access to markets is essential for all businesses. Having clients who spend billions on goods and services, like the Fortune 1000 or government agencies, increases your chances of strong growth. Whether corporate or local, state or federal contracts, business owners who are part of historically marginalized communities, such as women and people of color, do not receive contracts comparable to those of people of color. white men. Becoming certified as 51% minority or female owned opens the door to business development and training opportunities.

When minority and women-owned businesses seek equity investments to finance their growth, if investor ownership exceeds 49%, these businesses lose their socio-economic status. “Senators Marco Rubio and Maria Cantwell introduced the Women and Minority Equity Investment Act. It allows women-owned businesses to take investments from women-owned private equity firms while meeting the obligation to be unconditionally owned, ”Waterman said. When she was Vice President and Chief of Staff of WBENC, Waterman implemented this rule for them. This organization oversees the certification program for women-owned businesses for corporations.

WIPP and the National Women’s Business Council (NWBC) strongly support this law. NWBC is a federal advisory committee established to serve as an independent source of policy advice and recommendations to the President, the United States Congress and the Small Business Administration (SBA) of the United States on issues important to women business owners and entrepreneurs. . Waterman is optimistic it will pass this year.

Ensuring equal access to credit requires responsibility

Klein is working with the Responsible Business Lending Coalition (RBLC) on the need for data showing who gets capital, by product, and at what price. RBLC is a network of not-for-profit and for-profit lenders, investors and small business advocates who share a commitment to innovation in small business lending while ensuring responsible lending practices. The Dodd-Frank Act on Wall Street Reform and Consumer Protection was approved in 2010. However, Section 1071 requiring financial institutions to report demographics on small business loans has yet to be implemented. implemented. *** Economic disparity highlighted by the pandemic, along with Black Matter and MeToo, make it more critical than ever before Section 1071 was allowed.

What government policy changes do you think are needed to help women-owned businesses?

* Updated quotes to reflect loans from banks and not CDFIs.

** Updated to mention that the new stimulus package does not include funding for the Treasury that would make it easier for the Fed (because the Treasury would cover all losses). **

*** Updated to reflect Dodd-Frank item 1071 has been authorized. It has yet to be implemented.