Southern Bancorp is a lender serving the Arkansas և Mississippi Delta, where America’s poverty rate is the highest in the decades – redistributed neighborhoods with low generational wealth.
When the Paycheck Small Business Protection Program was launched in April 2020, many Southern Bancorp customers were unable to get help because Arkansas CEO Darin Williams turned to donors for $ 1,000 in grants to avoid it. apply to applicants empty-handed.
The bank has provided 128 such grants, more than 100 of which were to businesses owned by women or people of color. Someone allowed a nail salon owner to buy Plexiglas to reopen it. One allowed a small cafe to buy security equipment for its staff. Day evening care used the money for the new cleaning equipment she needed.
“So many companies will not come back, many of the disproportionately lost are brown businesses,” Williams said.
Congress created the Paycheck defense plan in March 2020 as a state of emergency that lawmakers had been expecting for several months with a sharp economic downturn. But as the epidemic escalated, the program, which provided its first loans a year ago this week, became the largest small business support program in U.S. history, sending $ 734 billion in forgivable loans to struggling companies.
The program helped retain nearly 7 million businesses. But it also suffered from complications, changing the rules at every stage of its existence. And a year later, it became clear that the hasty spread of the program harmed some vulnerable businesses.
Analysis of New York Times data from several sources, including the Small Business Administration, which manages the loan program, and interviews with bankers from dozens of small businesses show that businesses of colored people have been disproportionately unhelpful, often because they did not have access to aid. Opportunities to receive contacts or were rejected due to program rules
The attack was fast
After Congress drafted last year’s CARES Act, President Donald Trump’s administration, and in particular its Treasury Secretary Steven Mnuchin, has made it a priority for fast-growing businesses to make money fast. Just seven days after the law was signed, the earliest applicants received their coupons.
But hurrying meant that the rules were mostly written on a fly. Achieving a more difficult business was the second opinion. Lenders and advocacy groups have warned that relief efforts face structural challenges that are likely to inadvertently but disproportionately harm business owners who are women or people of color.
They said that achieving a more vulnerable business required determination, և the program did not give creditors any incentive to make those efforts.
The government relied on banks to provide loans, creating a barrier for borrowers who did not have a banking relationship. Some banks preferred their larger, richer customers, which pushed ordinary customers into line. Mystery shopper research has shown that black applicants are consistently treated worse than their white counterparts.
The program mainly blocked private entrepreneurs, independent contractors, one of the most popular business structures owned by people of color. These companies were not eligible to apply for the first week of the program. When they got access, a rule banning loans to unprofitable sole proprietorships, a restriction that did not apply to larger companies, prevented many from getting help. Most non-bank lenders, including those specializing in vulnerable communities, closed for weeks while waiting for approval by the Small Business Administration.
“Speed was the focus from the beginning, it was at the expense of justice,” said Ashley Harrington, Federal Director of Advocacy Credit.
In the last weeks of the final program, it is planned to stop accepting applications on May 31. President Biden’s administration has tried to change its course by changing the rules to raise more money for businesses owned by women or people of color, especially those who are just a handful. employees:
Last week, Biden slipped through his predecessor when he signed a bill extending the program’s deadline.
“Many small businesses, as you know, particularly Spanish-speaking ones, such as African-American small businesses, have simply been shut down because they were bypassed for the first time,” he said.
But Biden’s reviews, which have most obviously expanded lending to independent contractors and others who work for them, have encountered their own obstacles, including the speed with which they rushed. Lenders, ignored, struggled to implement them, with little time left until the deadline.
“The rules are complicated, they are constantly changing, it just blocks access,” said Randall Leach, chief executive of Beneficial State Bank of Oakland, California.
Businesses owned by people of color suffer
Because creditors are not required to collect demographic data on their borrowers, data on the Paycheck Protection Program’s racial decline is scarce, but economists are constantly finding signs of gaps.
An analysis by the Federal Reserve Bank of New York shows that some counties with large black businesses, notably the Bronx and Queens in New York and Wayne in Michigan, which includes Detroit, have very low concentrations of aid loans. In some urban areas, mostly white zip codes had higher credit coverage than zip codes with a large color population, according to a San Francisco Fed analysis last month.
And the data from the Small Business Administration show the inclination of the relief effort. The vast majority of lenders did not disclose demographic data on the 3.6 million loans they provided this year, but out of 996,000, which included information on the borrower’s race, 71% of the dollars went to white businesses.
Pilar Guzman av avalan founded a small restaurant chain Half Moon Empanadas in Florida 12 years ago. He employed 100 people before the epidemic, established bank accounts, and detailed business records over the years. But av avala’s application stopped short of the first two creditors he tried, forcing him to hunt for a month until he finally found a local bank to work out his loan.
He is grateful for the help he received to help keep 50 employees, but found the process frustrating.
“The financial system does not reach really small businesses, Spanish-speaking businesses, women-owned businesses. It just does not happen, “he said.
Williams says many of South Bancorp’s 1,300 salary protection program loans last year went to customers with whom they called larger banks.
According to a recent Federal Reserve poll, nearly 80 percent of small business owners of Asian descent say their companies are in poor financial condition, compared with 54 percent of white business owners. And black landlords face unique challenges. While all other demographic owners told the Fed that their main problem right now is low customer demand, Black respondents cited another major challenge: access to credit.
When Ohio Ross, who runs a car dealership in Ohio, applied for a Paycheck Protection Program loan, his long-term bank told him to look elsewhere. A message that big banks like Bank of America, Citi, JPMorgan Chase and Wells Fargo passed on to many of them. customers in the fierce first days of the program.
A few days later, he received a loan from Huntington Bank, a regional lender, but the attempt was thwarted.
“Historically, access to capital has been a major issue in the survival of women’s minority businesses, it’s no different during this epidemic,” Ross, who is a member of the House of Representatives, told the House committee last year.
Community groups are invading
Community lenders and aid organizations took a leather approach to filling the gaps.
Last year, the American Business Immigration Coalition, an advocacy group with local nonprofits, launched a “community navigator” program that sent knowledgeable workers to Florida, Illinois, South Carolina, Texas, and other rural businesses. They plowed through roadblocks in a breakthrough style.
Language barriers were common. Many business owners have never applied for a bank loan before. Some did not have an email address but needed to create one. Some did not submit taxes. The coalition hired two accountants to help people sort out their finances.
“We were literally going door-to-door, people were walking in the process,” said Rebecca Sheen, the group’s executive director. “It’s time consuming.”
The group earned $ 8 million in Paycheck Protection Program loans to 219 companies. Helping those companies made a big difference.
TruFund Financial, a New York lender that focuses on historically vulnerable communities, has spent two hours on staff, on average, on each of the 490 loans made last year, far more than the contributions of larger lenders. Dozens of applications took 10 hours. or more to complete, said Ru Ames Bison, CEO of TruFund.
Many TruFund customers rushed to the door after turning around the big banks, where “not being able to talk to anyone in the bank, they sat and listened, and then for weeks they did not hear anything – it created a lot of people.” “Anxiety for our small business borrowers,” Bison said.
Shaundell Newsome, Las Vegas Business Owner և Small Business for America’s Future, Co-Chair of Advocacy Group, says improving performance for business owners will require deliberate, sustainable change across the banking sector.
“The solution is premeditation,” he said. “What I am saying is that bankers, regulators, policymakers will deliberately stay in the business of building SMEs, help us use capital.”
This is the message that Newsome conveyed to the Minister of Finance et Anet Yellen at a recent meeting. Ellen has promised to increase support for lenders who are focused on people of color, to make other changes to change the financial system, which she says still has unacceptable results in the days when Crow Crow’s laws were in effect.
Economic crises, such as the one in the country now, are “hitting people of color more and more” and exacerbating economic inequality. Yellen said during that meeting. “I’m worried that the current crisis will do it again. In fact, I know it will happen as long as we do not act. “