Community lenders get their share of the PPP pie

Shake Shack burger chain. Ruth’s Hospitality Group, owner of the famous Ruth’s Steak House. Ashford Hospitality Trust, an investor in upscale communities. What do these disparate businesses have in common? They are all publicly traded companies with revenues of over $ 300 million – and they all made (negative) headlines for gobbling up most forgivable loans under the Payment Protection Program (PPP ). That left little room at the table for small businesses, mainly those with fewer than 500 employees, who badly needed federal funds to help them survive the devastation of a raging pandemic.

But the change came quickly.

The response from the general public, politicians and small business developers has been swift and effective. In later phases of the program, Congress and the Small Business Administration (SBA) made changes to PPP to try to increase lending to smaller businesses in underserved locations, primarily those with less than 10 employees. These changes have paid dividends, according to a recent report from the Government Accountability Office (GAO). Designed to summarize the effects of the $ 814 billion program, which ended in June, GAO reported in September that by opening up the PPP program to non-bank organizations like CDFIs and minority depository institutions (MDIs) , the SBA did indeed finally bring in thousands of underserved businesses. and the individuals in the program. Significantly, in May, the SBA set aside $ 10 billion for companies that applied through the CDFI program as part of Phase 2.

According to the report, when the PPP closed in June, the SBA provided loans to minority-owned businesses and women in traditionally underserved counties “commensurate with their representation in the broader community of small businesses ”and, in some cases, overtook it. (The SBA defined a small business as a business with less than 10 employees.) For example, businesses in high-minority counties received 50% of all loans above their representation of 47% of all small businesses. from the country. On the flip side, loans to businesses with less than 10 employees fell short of their share of small businesses nationwide throughout the program and businesses located on Native American-owned land only got. that 1% of all loans.

Overall, however, “the SBA was grateful that an independent organization like GAO had come and said this program had evolved and… had had some impact on the ground,” said John Pendleton, chief financial officer. and community investment at GAO.

The GAO has been charged under the Coronavirus Relief, Relief and Economic Security Act (CARES) to monitor the federal government’s response to the COVID-19 pandemic. This study is the latest in a series of reports analyzing how well PPP has achieved its goal of helping small businesses obtain low-interest loans. These businesses included the self-employed, minorities, women and veterans. The 48-page report has mainly highlighted and confirmed much of the reporting on the program since its launch in March 2020 as part of CARES. This is a high-profile program that did not achieve its goal of protecting the economic livelihoods of the most vulnerable at first, but found its way into later stages.

The study found that initial PPP funding was exhausted within the first 14 days of the program, and 42% of Phase 1 loans went to larger companies with 10 to 499 employees. These companies, however, made up only 4% of all small businesses in the United States. These large firms obtained loans because they had already established relationships with traditional banks, which distributed most of the loans during phase 1. Most underserved and minority-owned businesses do not benefit from funding. such relationships with large financial institutions.

Out of the loop, small businesses were less aware of the PPP program, further explaining their exclusion from Phase 1 funding. Many applied later and faced longer processing times.

Fortunately, this was not the case for Byron Darden, whose PPP loan application was closed in a month last April. Guided by advisors including those from the CDFI Harlem Entrepreneurial Fund, Sole Proprietor Darden secured a large enough PPP loan of almost $ 20,000 to create a digital marketing platform for his keynote speaker business, Triple Axel Executive Coaching.

“The loan got me back on my feet,” says Darden, a former ice skating coach.

Other key findings of the study:

  • In the initial phase, enterprises in rural counties received 19% of loans while they represent only 13% of all small enterprises.

  • Unsurprisingly, companies in the hardest hit sectors, such as food service and retail, got 40% of the first phase loans.

  • In the second phase, the SBA opened the process by admitting more than 600 new lenders, including financial institutions that are not banks (these are classified as institutions that do not take deposits).

  • During the third phase, CDFIs and MDIs captured 24% of loans compared to only 4% in phase 1. They granted a whopping 97% of loans issued by new lenders during the last two phases of the program.

  • The share of loans to counties with a significant share of women-owned enterprises doubled from 9% to 18% in initial phase to phase 2. Loans to minority-owned enterprises increased from 36% in phase 2 to 50% in phase 2.

Supporters of minority businesses like Lenwood V. Long believe the report’s findings illustrate the primary function of CDFIs to meet with small and minority businesses where they are, despite initial stumbling blocks. Long is President and CEO of the Florida-based company CDFI’s African-American CEO Alliance, which, along with organizations such as the NAACP, has advocated for greater participation of minority companies in PPPs. Twelve companies associated with his alliance participated in the PPP, lending nearly $ 5 billion in financing during phases 1 and 2.

The PPP has shown, among other things, that “CDFIs have the capacity to respond to the service demands of (these) communities,” says Long. “It showed that CDFIs are important. “

This story is part of our series, CDFI Futures, which explores the community development finance industry through the prism of equity, public policy and inclusive community development. The series is generously supported by Partners for the Common Good. Sign up for PCG’s CapNexus newsletter on

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