CARES-2 Needs To Step Up And Support Black & Brown Small Businesses

“The money is gone” was the news headline many American small business owners woke up to on the morning of April 17th. In less than two weeks, the federal relief effort designated to help small businesses weather the COVID-19 storm went through all of its funds, to a fraction of those in need. Of America’s estimated 30 million small businesses who would be eligible for support, only about 1.6 million were able to get money approved. That roughly 5% included $20M to Ruth Chris’s Steakhouse with 147 restaurants worldwide, $10M to a biotech company based in Singapore, and $10M to Potbelly, with 400 locations across the US. Does this sound like a small business emergency program?

$349B and 1,661,397 loans later, the program designed to help small businesses keep employees on the payroll has been widely cited as failing to support actual small business, and notably, businesses led by people of color. While banks make revenue from loan processing fees, they face widespread complaints that their criteria often locked out the most vulnerable businesses. 

WHO WAS LEFT OUT

Many big name bank customers felt ignored and insulted.

Bay Area artist Favianna Rodriguez applied for the PPP loan with her bank, Chase, on April 5th. On April 17th, she noted:

“My art studio business, Favianna.com, is a sole proprietorship and was founded in 2011. I employ 2 women, and I provide health insurance and a SEP IRA. I applied with my bank, Chase, for the PPP loan on April 5th when they got the very basic application up, which was simply my name, address and a few questions. Then the alert to fill out the full application was sent to me on April 7th. I filled it out within 24 hours. I requested $35,000.

I also applied on March 30 for the SBA Disaster Loan, and I have heard NOTHING even though they said the money was supposed to arrive in 3 days. I have heard ZERO.

My non-profit organization, The Center for Cultural Power, which employs 14 people, mostly women of color and immigrant folks, applied for $460,000. After our primary bank, Wells Fargo WFC , said they could no longer take applications, we went to Chase around the same time.  

We only received confirmations that our applications were submitted. But NOTHING else.”

Many community bank and credit union customers couldn’t get a loan.

In general, community banks, despite their mission-driven desire to help, were widely cited to be limited by liquidity concerns and not able to participate fully. This in turn impacted their customers. For instance, Omar Ali in Georgia shared the following experience after applying with two community banks — both of whom he noted have been great partners to him and his steel-manufacturing business in the past.

“We applied for the PPP within 2 days of it becoming funded. We were approved and sitting in the queue and we were up to be funded next week. Then we got the call that there were no more funds.

For us it affects two of our businesses. Our manufacturing company, Steel Fabrication Exponents that employs 50 full-time and independent contractors, and our development company employs 13 full-time workers.

We applied for only 130k with Steel Fabrication Exponents since we could not include 1099 employees. We only applied for 30k as applicable to our Development company.  

There has been no response on the disaster loan we completed 3 weeks ago. Originally we were told we will get a response in 7 days, then 10 days now we are being told it will take up to 3 weeks. We have no way of knowing where we stand on this.

We are not alone in this matter — we have spoken to at least 9 other companies who all have the same story.”

1099 recipients struggled to get relief.

Genesis Be, a long-time Bank of America BAC customer in Mississippi, was rejected because she wasn’t a business lending client. Similarly, Wells Fargo reported they wouldn’t accept anyone without a business checking account:

“I operate as a sole proprietorship and file two separate 1099’s annually. With my business, Strive Till I Rise, I act as a consultant and creative performer that requires extensive travel. I also have my own massage therapy business based in Georgia. Both of my income streams have come to a halt due to the COVID-19 crisis. 

I’ve been a BofA customer since 2007. I have a business credit card with them for Strive Till I Rise. I have an auto loan with them for the car that I use for business purposes (cross country travel for exhibits and home appointments for massage). I am the only employee for both of my businesses.

I applied for the SBA Disaster Relief Fund for $10k as soon as Georgia was added as a disaster area, I had to wait because at first they were not listed as a State that was eligible for the fund. I haven’t heard anything back from them at all.

On April 3rd I received an email from BofA about them supporting clients with the new Paycheck Protection Program. The email said I was eligible to apply because I have a “business lending and business deposit relationship with BoA, a Bank of America Business Credit Card.” I immediately logged into my account and attempted to apply online via the portal. Before I could fill out any information, it said that I was ineligible. I called and waited to speak to a person for about an hour. They told me that because I do not issue paychecks using my checking account that I do not qualify. They said I would need a BUSINESS CHECKING ACCOUNT through which I issue paychecks in order to qualify. 

I scheduled an in person meeting at BofA on April 11, 2020 citing that the purpose of the meeting was to apply for the PPP in person. The morning of the appointment and BofA associate called me (left a voicemail) and said that they will not be able to help me process anything in person and that it is all done online. ‘We don’t have any information regarding that at the banking center or over the phone.’ So I canceled the appointment and gave up.”

Longstanding, local businesses faced a digital divide.

Tiffany Rose Naputi Lacsado, Associate Director of Economic Development at The Unity Council, witnessed firsthand the multitude of barriers that immigrant small business owners faced in the scramble to apply for loans:

“The Fruitvale Business Improvement District (FBID) of the Unity Council serves over 350 small businesses in the Fruitvale neighborhood in Oakland. Most of our small business owners are Latinx and Middle Eastern. They've been in the neighborhood for generations and have their whole family helping in the operations of their businesses. The two biggest issues we found in helping to navigate the SBA loan programs were the digital divide and language access. If a business didn't already have a working level of digital literacy to navigate the resources online or a more tech-savvy family member who could navigate it for them, they were completely locked out of applying. In addition to digital literacy, information on these loans were not translated right away. The Unity Council had to keep track of the ever changing ecosystem, break down the information, translate it and get it out into the community. The fastest and safest way to do that is digitally and the reality is that we still do print newsletters and hand deliver them to each and everyone of our businesses because of the low digital literacy in our district. Walking the district and hand delivering information is great for community development but fatal under these pandemic circumstances.” 

Banks appear eager to see more funds approved, and to have a second shot at processing more applications. A Bank of America representative noted: “We continue to accept and process applications, including obtaining the necessary documentation from small businesses, in the expectation that there will be additional funding available, given comments by the President and Congressional leaders.”  

A Wells Fargo representative commented, “Over the past week we have mobilized hundreds of Wells Fargo employees and launched new automation and technology so we can process the extremely high volume of PPP applications… Given the magnitude of the crisis the country is facing, we are hopeful that Congress will approve additional funds for the PPP and we will continue accepting new applications so we will be ready to proceed if and when that happens. We stand ready to help the hundreds of thousands of customers waiting for this much needed assistance during these unprecedented times.” However, they may also have to stand vigilant against a wave of lawsuits — just yesterday a suit was filed in California on behalf of multiple small business owners, alleging that “Wells Fargo unfairly prioritized businesses seeking large loan amounts” as reported in USA Today.

JPMorgan Chase did not respond to a request for comment by the time of publication.

WHAT CARES-2 CAN DO

Democrats are seeking to rectify the gaps in funding in CARES-2, calling for “$250 billion in assistance to small businesses, with $125 billion channeled through community-based financial institutions that serve farmers, family, women, minority and veteran-owned small businesses and nonprofits in rural, tribal, suburban and urban communities across our country, and improvements to ensure all eligible small businesses can access this critical funding and are not turned away by banks.”  

 This would be a step  forward — but the devil is of course always in the details. Nathalie Molina Niño and Michael Blake noted in Newsweek that “the failure to provide emergency relief to entrepreneurs in our communities will lead to economic insecurity at a scale that could trigger the extinction of black and brown businesses for generations.” They offered these critical actions that the government can take to get it right on round two: 

• Mandate banks to distribute PPP loans to businesses by need — not first-come, first-served, so banks won’t be incentivized to prioritize their largest customers.
• Track the race and ethnicity of the customers banks provide with loans. 
• Allow employers to include 1099 contractors in calculating their stimulus loan amount.
• Prevent banks from cherry-picking what applications to process. 
• Share information more equitably by translating materials into multiple languages, and sharing more effectively across social media and other forums.

It’s also critical to ensure — as the Democrats are suggesting — that Community Development Finance Institutions (CDFIs) are included. Lynne Hoey, Managing Director of the Olamina Fund, said, “Many CDFIs operating in traditional Black and Native communities were excluded from the program, either because they were not an SBA-approved lender, or because they could not access the Federal Reserve liquidation program because they are non-depository institutions. CDFIs have historically been the first financial institutions supporting these communities in disasters, and they need to be included in this program.”

BEYOND CONGRESS: HOW YOU CAN HELP

While we wait for Congress to authorize more funds — and ideally, prioritize the communities most in need — we can make sure to steer our time and dollars towards these businesses. 

Continue to patronize your local, people of color-owned small businesses. 

• Businesses that can are moving their commerce online, whether it’s POC-owned restaurants doing deliveries or selling clothes. Find them! Many cities like Oakland have some sort of directory like the Oakland Indie Alliance, with a strong emphasis on women and POC-owned businesses, or nationally there are apps like We Buy Black and Shop Latinx and that can direct you to both online and offline businesses still open during the pandemic.
• If you’re cooking more these days, don’t just head to big chains — make sure to also patronize smaller corner stores and groceries, which are more likely to be family-owned (and have shorter, safer lines!)

Volunteer your time to coach small businesses. 

• People across the country are organizing to coach small businesses through this crisis, helping them get a better handle on their financials and be prepared to take advantage of any government relief that’s ultimately provided. For example, New York-based investor and entrepreneur Eda Henries founded Covid19bizrelief, a volunteer effort to help small businesses, largely owned by women and people of color, navigate relief options — providing free one-on-one advising sessions with businesses to explain the programs and work on a plan of action to keep them afloat.
• Pacific Community Ventures similarly matches small businesses with expert remote mentors, and has seen a rise in demand alongside the coronavirus outbreak.  

As columnist Sam Fulwood III wrote back in 2015 for the Center for American Progress: “There’s an old saying in some African American communities that is often applied to the broad-stroke disparity of the nation's economy: when white folks catch a cold, black folks get pneumonia. Loosely translated, this clichéd quip means a downturn in the economy might pose hardships for some white Americans, but it’s deadly for those black Americans who are already mired at the bottom of economic ladder.” 

In the case of COVID-19 this has the potential to become doubly true. Due to historic health disparities, particularly when it comes to asthma and other diseases that create a high risk for COVID-19 complications, and the unsanitary nature of mass incarceration that disproportionately impacts communities of color, people of color, and in particular, African-Americans, have been contracting the disease, with more serious complications, at higher rates. And, if their businesses don’t receive the support they deserve, many of these businesses may perish, as well.  But if instead, we — and Congress — prioritize funds for communities that are the most economically vulnerable, perhaps they can emerge from this crisis far more economically powerful. 

Thanks to Jasmine Rashid, Nathalie Molina Niño and Dr. Lakeysha Hallmon for their contributions to this piece. Full disclosures related to my work available here. This post does not constitute investment, tax, or legal advice, and the author is not responsible for any actions taken based on the information provided herein.