How can PPP do better for minority companies?

the goal of Salary protection plan (PPP) has been helping to alleviate the economic impact of the COVID-19 business lockdown for small businesses. After multiple rounds of federal funding that expired in August 2020-but just updated again on December 27-how has the PPP served to minority businesses so far?According to some Financial expert, Community leaders, and even Congressman: not good enough.

As of December 27, 2020, Congress has approved additional funding for PPP. Fundbox no longer accepts PPP applications, but SBA can help you find PPP lenders.

Minority businesses are important

According to the National Minority Supplier Development Committee (National Ocean and Development Commission), there are more than 4 million ethnic minority enterprises employing more than 2.2 million people And generate Annual revenue of 400 billion U.S. dollars. This National Bureau of Economic Research According to the report, among the racial and ethnic groups in the United States, the coronavirus shutdown is hurting African-American companies the most Black-owned businesses fell by 41% From February to April 2020. It was two months before this article was written, and the economic impact is still continuing.

Provide PPP to those who need it most

When its second round of PPP funding was signed into law in late April, nearly $60 billion was earmarked for small and medium-sized financial institutions.But that U.S. Inspector General’s Report Accusing the Small Business Administration of its preliminary guidance in fulfilling its commitment to prioritize underserved communities for the PPP, wrote: “These borrowers, including rural, ethnic minority, and women-owned businesses, may not receive loans as expected.”

No such guidance or accountability (And because demographic information is not collected as part of the PPP process, except for the option of choosing tribal business), there are few tools to measure or implement PPP’s support for these minority communities.So SBA specifically Provide funds to small financial institutions to achieve Small, rural and ethnic minority enterprises.Their policy is Evenly distributed among financial institutions Assets of less than 10 billion U.S. dollars and assets of 10 to 50 billion U.S. dollars. These will include community banks, regional banks, and credit cooperatives.

The U.S. Treasury Department also Increased the possibility of using PPP funds for small businesses that need more help Applicants are required to prove in good faith that they have no additional sources of funds. This new regulation is beneficial to minority businesses and entrepreneurs, who are characterized by less access to capital and credit. “Black entrepreneurs are nearly three times more likely to have a negative impact on business growth and profitability due to lack of funds than white entrepreneurs,” U.S. Chamber of Commerce notes, They report that 70.6% of black entrepreneurs rely on personal and family savings.

Support for sole proprietors

Providing funding resources for sole proprietors and independent contractors is especially important because minority business owners are unlikely to hire workers. SBA statistics show that 96% of black-owned businesses are non-employees, And the proportion of white companies is 79%. The term “salary” in the title of the PPP may have caused some confusion between banks and business owners regarding the qualifications of self-employed persons.

In April 2020, SBA and U.S. Chamber of Commerce publishes final guidelines Explain how PPP loans apply to sole proprietors and independent contractors. For most independent contractors, calculating your PPP loan limit is a 3 step process:

For more details, see Self-employed PPP Published on the Fundbox blog.

PPP progress report

One Small business majority survey in May 2020 As of May 27, these findings regarding PPP applications have been reported:

• 63% of black and Latino small business owners applied for PPP loans (compared to 69% of all small businesses).
• 63% of applicants received financing approval (compared to 73% of all small businesses).
• Among all the respondents who did not apply for PPP, nearly 30% stated that they did not seek financing because they were worried that the loan would not be forgiven.
• 19% said they were told (or believed) that they were not eligible.
• 12% could not find a bank to apply for a PPP loan.

other UNIDO research It was found that there was greater disagreement in PPP applications, with minorities demanding less funding than other companies-and receiving even less funding than they were seeking. According to the report in May 2020:

• 51% of black and Latino small business owners seeking assistance asked the federal government to provide less than $20,000 in temporary funding.
• 12% of people received the assistance they requested.
• 41% reported that they did not receive PPP funds.

mentioned before Small business majority research Noted that many people who received loans expressed concern about the plan, and more than 80% were worried Loan relief rules And waive their loans. Fifty-eight percent of respondents made it clear that using at least 75%* of loans to pay wages is challenging.

[*Note: With the recent passage of the Paycheck Protection Program Flexibility Act (PPPFA), this ratio of payroll/operating expenses has changed from 75%/25% to 60% payroll and 40% operating expenses to qualify for loan forgiveness. For details on these and other major changes to the PPP forgiveness rules, check out our article or podcast on PPP Loan Forgiveness.]

Does PPP have a better future?

Congress may still update the PPP. If so, wWhat can be done to help improve access to these funds for small businesses owned by ethnic minorities?

• Send a signal to sole proprietors to increase the availability of PPP. The SBA’s initiative to open and clarify PPP for sole proprietors and independent contractors is a good start, but more education and outreach will help self-employed business owners, especially in minority communities, take advantage of the program.
• Identify and help promote minority and community financial institutions (Metered-dose inhaler and CDFIs) And financial technology lenders that provide PPP loans. As most small businesses revealed, 12% of the companies surveyed could not find a PPP lender.The fact that increases the difficulty of finding PPP lenders is 25% of American households (Most of them are ethnic minorities, many of them are self-employed) Either they don’t have a bank account, or they don’t have a bank account, which means they only have a basic checking/savings account, or they don’t.
• Simplify and improve education and clarity regarding the application and forgiveness process. According to the previous survey on PPP experience (nearly one-third did not apply because they did not understand forgiveness), one thing that can greatly help borrowers is to spread greater awareness and a clearer understanding of the application and PPP rules forgive. Fundbox and other PPP lenders have learned a lot of things that can improve your success rate of applying for PPP loans, including Required PPP application documents.

Alternative options for small business owners

For business owners seeking support beyond PPP, there may be other avenues worth pursuing.Check out our updated list State COVID-19 resources for small businessesBeginning the search at the state level may help reduce competition for funding. For example, there are programs dedicated to helping minority businesses in Iowa (Economic Development in Iowa: Targeted Small Business Program) And New Jersey (New Jersey Economic Development Authority: Small Business Fund).

Opportunity Fund It is a national source of small loans (and PPP loans) for underserved small businesses, especially small businesses owned by low- and middle-income immigrants, people of color, and women.

Another source of small business resources including guidance is Score netFor 500 years, America’s premier source of free business guidance and education.Also take a look at SBA Propaganda Office Resource ListEntrepreneurs, especially young minority business owners, who seek volunteer advice or long-term consultation in their respective fields, can obtain free guidance through the following channels The sky is the limit organization.

Whether you apply for a PPP loan or choose to take advantage of Other available financial resources for small businesses, Good luck, and stay safe.