Despite promises of small business relief, the first round of the $349 billion Payment Protection Program (PPP) ran out of funds in less than two weeks, largely bypassing those promised to be served. Many small businesses were expecting funds to help sustain operations and keep people on the payroll during the COVID-19 pandemic, but larger businesses received the bulk of the allocation.
According to a recent report by the Small Business Administration (SBA), forty-four percent of the total allocation went to borrowers with a loan request of over $1 million, and loan requests under $150,000 represented less than a fifth (17%) of funds provided.
At this rate, many smaller businesses, particularly those owned by people of color and women, may not receive relief.
Due to challenges with accessing credit and technical assistance, minority and women-owned businesses have been unable to receive relief from mainstream financial institutions, even prior to COVID-19[1].
Given the economic challenges caused by the pandemic, access to federal relief is vital for the future of under-served businesses.
The lack of access underscores the critical role of Community Development Financial Institutions (CDFIs). CDFIs are committed to increasing financial access among historically disenfranchised populations and have been instrumental in providing financial resources to small businesses.
This is evident given HOPE’s experience with operating the PPP in the Deep South. The majority (73%) of loans in our PPP pipeline are under $100,000 — over half (59%) of which are under $50,000. Nearly half are to women (49%) and minority-owned businesses (46%).
Concerning larger loans, most are for vital community infrastructure including rural hospitals, community health clinics and schools.
CDFIs are committed to increasing financial access in markets that mainstream financial institutions are unable to reach. Many provide essential capital and technical assistance to minority and women owned businesses in communities where financial services are limited. For the next round of PPP funding, CDFIs must have an explicit a set-aside in order to continue to ensure these funds flow to the small businesses who need it most.