In the best of times, many black-owned business owners across the U.S. struggle to obtain bank financing to start or grow their small businesses. In COVID-19 America, these same entrepreneurs are finding it challenging to access relief through the Paycheck Protection Program (PPP), according to an April 10 piece in The New York Times.
A study in 2016 by the Stanford Institute for Economic Policy Research says only one percent of black business owners get a bank loan in their first year of business, versus seven percent of white business owners. The same study found twice as many white business owners than black owners use business credit cards in their first year. Black entrepreneurs turn instead to family, friends, and, in many cases, CDFIs — 58 percent of OFN’s member CDFIs are people of color — for start-up or growth capital.
Therein lies one of the PPP conundrums: Black entrepreneurs without a banking relationship cannot access PPP through CDFIs because not all CDFIS are currently candidates for becoming PPP lenders. Currently, PPP lenders must either be certified to lend by the Small Business Administration (SBA) or meet a threshold of $50 million in annual lending to small businesses. This leaves only roughly 70 of OFN’s more than 280 members eligible to participate in PPP as lenders.
So, the current program structure for the PPP established by the Treasury Department and SBA makes it very difficult for underserved small businesses and nonprofits, especially those owned by minorities or women, to get rapid and equitable access to these resources. OFN is actively advocating for PPP policy to change regarding what organizations can serve as lenders:
“On Monday, the leaders of the Opportunity Finance Network, a group that represents the community development organizations, met with Treasury officials to suggest ways that the government could quickly approve the lenders for the program. But later, in a statement posted on its website, the group said that Treasury officials were “noncommittal” about what, if any, actions they would take in response to the group’s recommendations. A Treasury spokesman did not provide a timeline for when more community organizations might be approved to participate.” (The New York Times)
OFN continues to advocate for greater CDFI access to the PPP. We also know CDFIs need new grant funds for loan loss reserves, lending capital, and operating expenses more than anything else and are asking Congress for $1 billion in CDFI Fund grant dollars for immediate distribution to our industry.