Changes In PPP Eligibility Give Minority Business Owners Who Were Skipped Over A New Shot At Loans
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Businesses across the country were forced to close their doors last March as statewide lockdowns went into effect. So the announcement of financial support for business owners through the Paycheck Protection Program was a relief.
But instead of getting help, many minority-owned small businesses were denied PPP loans.
“A lot of people really just got turned down for loans,” said Shanté Williams, director of the Charlotte Mecklenburg Black Chamber of Commerce. “Even though they could show that they were hurting. They could show what they used to make prior to 2020, and it just wasn't enough."
According to data from the Small Business Administration, of the 14% of recipients who reported their race, fewer than 2% of Black-owned businesses and only 7% of Latino-owned businesses that applied received PPP funding. This is compared to 83% of white-owned businesses.
Williams says the lack of a banking relationship among Black and Latino business owners and the size of their businesses contributed to this disparity. She says most Black- and Latino-owned businesses have fewer than 10 employees, if they have any at all.
On Monday, in an attempt to make PPP funds more accessible to small and minority-owned businesses, President Joe Biden announced changes to the second round of PPP applications, which started Jan. 13 and continue through March.
“When the Paycheck Protection Program was passed,” Biden said in a press conference, “a lot of these mom-and-pop businesses just got muscled out of the way by bigger companies who jumped in front of the line.”
According to the White House, 98% of small businesses in the United States have 20 or fewer employees. So President Biden enacted an exclusive two-week window for businesses with 20 or fewer employees to apply for PPP loans. The priority period began Wednesday and ends March 10.
“American small businesses are hurting and hurting badly, and they need help now,” Biden said in his remarks. “And it’s in all of our interests to make sure they get the help now.”
In addition to the 14-day priority period, the Small Business Administration will provide a new formula to calculate loans for sole proprietors. Currently, loans for these types of businesses are calculated using their net profit. Now, the SBA will come up with a new formula to make them eligible for larger loans, which are forgiven if business owners follow the guidelines.
Guidelines from the SBA regarding non-citizen business owners who are U.S. residents will be clarified. Previously, unclear information led to some U.S. residents being denied access to PPP.
There are also no longer restrictions on business owners delinquent on student loans or who have non-fraud related felony convictions. This is especially important for minorities because the criminal justice system disproportionately affects Black and Latino people. Black and Latino people are also more likely to be in default of their student loans, preventing them from getting business loans.
These changes were welcomed by local experts who support small minority-owned businesses like the president of Charlotte’s Latin American Chamber of Commerce, Gris Bailey.
“I think that it's a step moving forward, but I think that the No. 1 thing our community wants to hear is that they're included,” Bailey said. “And I think that putting some of these barriers down will include them.”
But the optimism surrounding this announcement is accompanied by some confusion and concern. While Biden announced multiple changes, they don’t all take effect at the same time.
Other than the two-week priority period, which began on Wednesday, the changes in eligibility and the new formula for calculating certain loans won’t take effect until the first week of March.
This is causing frustration for people helping small business owners prepare to apply, like Rochelle Sparko, the director of North Carolina Policy at the Center for Responsible Lending. She says this could end up hurting the businesses the changes intended to help.
In reality, she says there isn’t really a two-week window dedicated to the smallest businesses. More like 7 to 9 days.
“The opening of the two-week window does not align with the rule changes that are kind of designed to benefit businesses owned by people of color,” Sparko said.
So far, the SBA has not said whether the new rules will be applied to businesses that submitted their application before the changes go into effect. That’s why some experts say that business owners who fall into these categories might want to wait until next week to submit their applications.
“If they can hold off on a couple of days, at least until the end of the week, all of their lending institutions will be given a new formula, which will hopefully be calculated using gross revenue instead of the gross net income,” said Janelly Rosales, a business development consultant at Prospera, a nonprofit that supports Latino entrepreneurs.
But while the changes aren’t all taking effect at the same time, organizations in Charlotte that support minority-owned businesses say business owners should seek professional advice as they take advantage of the new changes in the PPP program.
“We are the organizations on the ground. We're the ones who specialize in these specific subgroups and minorities. And so it's important for them to know there is help,” said Jose Alvarez, vice president of Prospera North Carolina. “It's reliable. It's confidential. So the first thing they need to seek out is help.”
Shanté Williams has been a member of WFAE's Community Advisory Board since 2019.