Michael Miller woke up at 12:30 last Friday, started the snowplow in his driveway and started blasting Redbone’s “Come and Get Your Love” on his radio. It had just snowed four inches of slush in Port Huron, Michigan, and he had three miles of road and parking to shovel before dawn.
“It’s like heaven,” he said of his work. “It’s very labor intensive, but it’s not labor intensive for me because I love what I do.”
He said he felt insecure and trapped when the pandemic forced him to close his landscaping and snow removal business for more than a month from mid-March. “If you can’t start doing the things you love, it’s hard,” he said. He had no income and it took him more than a month to get a business loan that would help him make ends meet.
His usual bank, Flagship Credit Union, did not provide pandemic loans under the Paycheck Protection Program, or PPP, and the six other major banks he called in early April did not take on new customers.
“I was frustrated,” he said. “I didn’t think I’d ever get through the jungle.”
Through the state website, he found a resource specifically designed to provide money to small minority owners, a Michigan-based community development financial institution, or CDFI, called the Opportunity Resource Fund. But CDFIs also struggled to access loans. In fact, many CDFI chief executives say that in the early days of the pandemic relief programs, they struggled just as much as their clients to get federal funding to meet demand. That only exacerbated the problems for the minority businesses that urgently needed help.
“It was one of the most crazy times I’ve ever experienced in my career, and I’ve been with Opp Fund for over 30 years,” said Christine Coady Narayanan, CEO of the Opportunity Resource Fund, where Miller got his loan. “We were literally bothered by the amount of money we could lend.”
An NBC News analysis last year of PPP data, census records, and a leading indicator of economic distress shows that troubled US communities have received proportionately less from the PPP program than the country’s wealthier and more vibrant neighborhoods. Economically distressed communities – in which minorities make up a greater proportion of the population than more affluent communities – fared worse than the country’s wealthiest communities when it came to obtaining loans for the Paycheck Protection Program.
When it comes to the number of PPP loans per business location, the most affluent areas of the country got 12 percent more in terms of the total dollar amount than the economically distressed communities. When it comes to the number of employees, they got 29 percent more. And when it comes to the number of PPP loans per population, the most affluent areas got 57 percent more than those in economically distressed communities. The data support concerns raised during the short history of the Paycheck Protection Program, some of them by Congress.
Officials from the Small Business Administration, or SBA, did not respond to repeated requests for comment about the NBC News analysis. But for this article, officials said they have since made every effort to help minority businesses receive money. Shortly after the PPP got more funding from Congress in late April, the SBA began positioning CDFIs as the ticket to reaching small minority owners. The second capital injection, which occurred in April, allocated $ 10 billion in PPP loans to CDFIs alone. When the second round reopened last month, CDFIs got the first cash withdrawal from the SBA.
“The Biden-Harris administration is committed to improving equitable access to federal aid programs, and CDFIs and MDIs will be critical to achieving our goals,” said Carol Wilkerson, SBA press director. (MDIs are minority custodians.)
But there are long-term consequences if you haven’t worked with CDFIs from the start.
“The customers we serve, mostly women, people of color, less wealth, customers in the state of Wisconsin, fell between the cracks,” said Wendy Baumann, president of the Wisconsin Women’s Business Initiative Corp., of WWBIC.
Bumpy start
For example, CDFIs such as WWBIC were unsure whether they could access PPP loans in the early stages of the program because they were community benefit lenders – financial institutions that provide specific “ community benefit ” loans through the SBA that are intended for disadvantaged communities. Community benefit lenders, including CDFIs, have no direct authority to process loans without prior assessment by the SBA.
More than 100 community lenders found themselves in this situation, the SBA said.
“By the time we found out, the first pot of money was gone,” said Jaimie Charon, director of portfolio management and loans at WWBIC.
While larger financial institutions had enough capital to back their PPP loans, CDFIs, which could be nonprofits, credit unions, or community banks, had to rush to borrow from banks and look for private investors. In late April, after the Opportunity Finance Network, which represents hundreds of CDFIs across the country, pushed for changes, the CDFIs gained access to the PPP Liquidity Facility – a pandemic relief program that provides credit to credit institutions direct from the Federal Reserve.
But then they faced a new hurdle. CDFIs had to process their transactions through traditional banks. The Opportunity Resource Fund could turn to Wells Fargo, with whom it had a deposit account, to process its loans. But Narayanan said many other CDFIs weren’t so lucky.
Although Narayanan said her team had access to funds, CDFIs were often not directly notified of changes to the PPP by the SBA headquarters. So they had to rely on local SBA contacts for updates.
“It appeared that the Small Business Administration was piloting the plane while it was building it,” said Janie Barrera, CEO of Texas CDFI LiftFund, one of the largest microcredit providers in the country by portfolio size.
CDFIs and government agencies found that the situation directly harmed minority businesses. A report released in May by the Office of the Inspector General of the SBA found that although mandated by the CARES Act, the SBA did not provide guidelines for lenders to prioritize small and disadvantaged small businesses . In addition, it was difficult for these participants to estimate the reach of the PPP because, according to the SBA, only a quarter of loan recipients reported demographics.
Nonprofits such as Color of Change, a predominantly online organization focused on racial justice, and UnidosUS, a Latino lobbying organization, stepped in to assess the reach of the program among African American and Latino small businesses. They found that the majority of owners had not received loans or were still waiting for responses in mid-May. Only one-tenth received the loan amounts they asked for.
“ Until Congress finances backward Covid aid with specific allocations for black business owners and addresses the glaring racial disparities ingrained in current aid programs, the devastating consequences of government failure by black communities will continue to ripple and growing the racial wealth gap for generations, ”said Rashad Robinson, chairman of Color of Change.
Growing power
This was not the first fight CDFIs have had to fight. They have a long track record in the battle for money for their borrowers. What began in the 1970s as a grassroots movement by smaller local banks to distribute capital to disadvantaged communities became part of a larger government effort in 1994 with the Riegle Community Development Banking and Financial Institutions Act. Established by the Riegle Act, the CDFI fund is allocated money annually by Congress which is then redistributed. But the CDFI fund didn’t even get money to distribute PPP loans until the federal budget was approved in December.
With more than a thousand CDFIs nationwide certified to raise capital and credit from the government’s CDFI fund, the program consistently struggles to meet demand. This year funding requests were more than double what the government granted.
As they enter the third round of PPP loans, CDFI executives are more confident in how the process has been streamlined and adapted. WWBIC, LiftFund and Opportunity Resource Fund have been able to meet all the demand of their customers so far.
“We’re just waiting for new applications,” said Narayanan.
Due to the changes in the program, CDFIs distributed a significantly higher volume of PPP loans than last year. They have already distributed 5 percent of PPP funding in 2021, compared to just 3 percent of PPP funding in all of 2020, said Matt Coleman, a regional communications director for the SBA.
CDFIs already have more minority business owners, disillusioned with the larger banks, coming straight to them in the first week of this round. Small business owners tell them that they have not had a positive experience with their banks in the early rounds or that they fear it will run out of money, Narayanan said. And the CDFI employees are happy to help you.
Miller said he finally got a call from Opportunity Resource Fund a few weeks ago telling him there was additional PPP funding for small businesses he was eligible for.
“I got the loan within a week,” he said. “I mean, you know, my head is still spinning.”
He noticed that the team was no longer working around the clock because he was getting emails at 1am. As someone who had just worked all night for 12 hours straight, he could understand.
“It’s like any other thing,” he said. “I’ll work as long as it takes to get the job done.”