Ensure PPP loans go to the companies that need them most
While the Paycheck Protection Program (PPP) was meant to help small businesses hit hardest by the Covid-19 crisis – businesses run by women and people of color – it failed to deliver on its promise. According to an analysis of the program data by the Associated Press, struggling minority owners received help later than their white counterparts from the start of the program on April 3 through the end of August 8.
Postal code data with the highest percentage of white people received loans at twice the rate of areas with the lowest percentage of white people. Data by gender is not available, but since women are more likely to be non-employers and in sectors most affected by the pandemic – personal services, retail and restaurants – they are expected to have experienced a pattern similar to postcodes with a lower score Concentration of whites. “Almost 60% of women entrepreneurs 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 group for women and entrepreneurs from minorities.
In response to criticism, the pattern has improved over the past four weeks. Banks began approving loans to smaller businesses, and the pool of providers expanded to include Community Development Financial Institutions (CDFIs) and fintechs, who are more likely to have credit relationships with women and people of color. CDFIs were created to lend to groups that banks consider risky.
Still, more could have been done.
The program did not understand the terms of the loan and the required documentation. “The smallest companies often don’t have the same systems and documentation as large companies,” said Joyce Klein, director of the Business Ownership Initiative at the Aspen Institute. It conducts research and advocates for micro and small business owners. “There are very few [struggling] Companies that want to take on debt when they are unsure have the revenue to pay it back. Anything the government can do to get something like a grant into the hands of very small businesses is critical. ”
“The other challenge of PPP is that it was largely run by banks, especially at the beginning,” said Klein. CDFIs and fintech lenders need to be an integral part of PPP loan distribution. “If you create a program that is largely through the banks, you will miss a large number of business owners who normally do not have credit relationships with banks.”
Financing beyond aid
“When we get out of the crisis, who will lend to businesses owned by women and people of color?” asks Klein. Banks have tightened their credit standards and it will be a while before they return to previous levels. The federal government has approved $ 12 billion in funding for CDFIs and Minority Designated Institutions (MDIs) as part of its $ 900 billion COVID-19 emergency stimulus funding package. This includes $ 3 billion in emergency support through the CDFI Fund to provide grants and other financial and technical assistance, and a $ 9 billion emergency funding program administered by the Treasury Department to provide low-cost MDIs and CDFI custodians enable long-term capital investments.
“Free up liquidity for companies that hold small business loans,” Klein said. The credits were good credits when they started. “Let’s get these loans off your balance sheet.”
“Create a facility where CDFIs can be sold to Fed Equity Equivalent Investments (EQ2). This is an investment vehicle that expands the sources of equity for CDFIs. Unlike for-profit companies that can raise equity by issuing shares nonprofits built their capital traditionally An EQ2 is a long-term, deeply subordinated loan with characteristics that make it function like equity, based on contributions, philanthropic sources, or the accumulation of retained earnings.
In response to the inequalities exposed by the pandemic and the Black Live Matter movement, banks increased their funding for CDFIs. The fintech startup CNote has developed a fully insured cash management product with which companies can achieve market-driven returns and at the same time do social welfare. Mastercard and the Mastercard Impact Fund are jointly putting $ 20 million into CNotes’ Promise accounts. The accounts provide small businesses in underserved communities with means to recover and grow through CDFIs and low income credit unions. CNote will be making other company announcements.
Not only do CDFIs need more funding, but also underrated entrepreneurs need to know about this affordable source of capital if we are to close the funding gap to minority and women-owned companies.
Don’t let women choose between access to capital and access to markets
Access to markets is vital for all businesses. Customers who spend billions on goods and services, like Fortune 1000 or government agencies, increase your chances of high growth. Whether the contracts are corporate or local, state or federal, entrepreneurs who are part of historically marginalized communities, such as women and people of color, do not receive contracts that are equivalent to white men. Being 51% minority or female-owned certification opens doors to business development opportunities and training.
When minority- and women-owned companies seek capital investments to fund growth, those companies lose their socio-economic status if the proportion of investors exceeds 49%. “Senators Marco Rubio and Maria Cantwell introduced the Stock Investment Act for Women and Minorities. It allows women-owned companies to invest in women-owned companies while still meeting the obligation of unconditional ownership,” said Waterman. When she was Vice President and Chief of Staff at WBENC, Waterman implemented this rule for her. This organization oversees the women owned company certification program for companies.
Both WIPP and the National Women’s Business Council (NWBC) strongly support this law. NWBC is a federal advisory council established to serve as an independent source of advice and policy recommendations to the President, US Congress, and the US Small Business Administration (SBA) on issues of concern to women entrepreneurs. Waterman is optimistic that it will happen this year.
Accountability is required to ensure equal access to credit
Klein is working with the Responsible Business Lending Coalition (RBLC) on the need for data that shows who is receiving capital by product and at what price. RBLC is a network of nonprofit and for-profit lenders, investors, and small business advocates who work together to innovate in small business lending while ensuring responsible lending practices. The Dodd-Frank Reform and Consumer Protection Act on Wall Street was passed in 2010. However, it has yet to be approved under Section 1071 that requires financial institutions to report demographics on small business loans. The economic disparities created by the pandemic, as well as the movements of black matter and MeToo, make it more critical than ever before this section 1071 is approved.
What changes in government policy do you think will be needed to support women-owned businesses?