Minority-owned businesses largely miss out on federal relief

Locals hope that the next round of Paycheck Protection Program loans won’t prioritize large, publicly-traded corporations over the hardest hit small businesses.

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Photo by Max Herman

A stretch of the 59th Street commercial district just east of Kedzie.

The federal government’s small business rescue program has not served minority communities well — although advocates expect that some portion of new stimulus legislation will be targeted to the hardest-hit businesses and communities.

None of the businesses she’s advised that have applied for the Small Business Administration’s Paycheck Protection Program have gotten a response — days after the first round of lending was shut down when funding ran out, said Sandra Bivens, executive director of the 51st Street Business Association. 

She praised the University of Chicago for offering grants of up to $7,500 to small businesses in nine South Side communities. The university announced Tuesday that it’s awarded $680,000 in emergency grants to 182 businesses.

Bernard Loyd, president of Urban Juncture, got a PPP loan, but he knows he’s the exception — and he probably has his background in the financial services industry and his relationship with a small local bank to thank. The economic development group has a number of innovative projects underway, most centered on 51st and Calumet — including Bronzeville Cookin’, an Afrocentric culinary destination, and Boxville, a pop-up shipping container market. The group is also redeveloping the Bronzeville Forum at 43rd and King as a cultural center. 

The group also sponsors a business incubator, and Loyd has held a series of seminars and consultations with dozens of neighborhood entrepreneurs. He estimates that of the people he’s worked with, 90% were unable to access the first round of PPP loans.

There are many reasons for that, he said. One was the hard timeline and first-come-first-serve nature of the program. Many small business owners were “overwhelmed with trying to just keep the doors open, with dealing with their families and kids home from school, and overwhelmed with information, 10 or 15 emails a day with long lists of resources,” he said. Many were unclear about how the program would work — it offers loan forgiveness for funds spent on payroll, rent and utilities within a two-month period — and leery of potentially taking on more debt. 

Many decided to “take time to sift through the information and make sure they’re doing the right thing,” he said. The program doesn’t reward that approach.

Some didn’t have banking relationships with financial institutions approved by SBA to participate in the program. Black business owners are far less likely to have strong relationships with banks — they start out with less capital and have less access to bank loans and business credit cards — a “legacy of the practice of redlining,” according to the New York Times. Businesses without the proper banking connections were excluded from the program.

And for those with banking relationships, “it’s pretty clear banks are dealing with their large customers first,” said Loyd. Larger loan awards are more profitable for banks. Earlier this week, a number of small businesses sued Bank of America, Wells Fargo, and JPMorgan Chase, charging they prioritized applications from large, publicly-traded corporations

The big banks “are discriminating against the businesses that need the most help,” Loyd said.

He added that the complexity of the application and the documentation required for it was a hurdle for many smaller businesses, which often lack financial expertise and keep their own books.

Some small businesses in Little Village don’t know how to navigate the internet and may not have an email address, adding more obstacles, said Blanca R. Soto, executive director of the Little Village Chamber of Commerce. Businesses that pay their employees in cash don’t have the documentation required to apply, she said.  She added that undocumented immigrants don’t benefit from state and federal programs, “even if they’ve been paying taxes in this country for many years.”

The requirement that businesses have existing relationships with banks resulted from the desire to get money out as quickly as possible, “but we can’t stop there,” said Brad McConnell, CEO of Accion Chicago, a nonprofit lending organization that provides credit and other services to small businesses that lack access to traditional sources of financing.

Accion is processing applications for the Illinois Small Business Emergency Loan Fund and the Chicago Small Business Resiliency Loan Fund. McConnell said he expects new legislation augmenting PPP funding will include some financing set aside for community development financial institutions like Accion. 

“Wave two, three, four, and five [of small business lending] have to go as deeply as possible, not just to the businesses that are easiest to fund,” he said. “The pressure will grow on Congress to do more, not just financing in the usual way, but making sure businesses in underserved communities have access to that capital.”

“Getting dollars to underserved communities has to be a priority for all these programs,” he said. “If they can do that, they will be successful.”

“You certainly want a wide array of institutions pushing these loans to small businesses in a broad way,” said Elliot Richardson, president of the Small Business Advocacy Council of Illinois. He said he’s optimistic funds will be set aside for business owners who don’t have significant banking relationships. “The question is how that will be set up. The concern is whether there will be funds set aside for mom and pops, solo entrepreneurs, and minority businesses.”

With House approval imminent for a new coronavirus relief package with $320 billion in additional PPP funding, “Small business owners are extremely concerned that this money is going to run out and they are again going to be left out and unable to access the capital they need to keep their doors open and retain their employees,” Richardson said.

Congress or the SBA should exclude corporations that are traded on the stock market, some of which have qualified for millions of dollars in PPP loans under a carve-out for restaurant and hotel chains, said Ellen Shepard, CEO of Community Allies, which assists organizations working for equitable economic development. 

She said the program could assign business without existing relationships to banks — but she also called on the government to bolster loan loss reserves for small local banks, which have done a better job distributing PPP loans, so they could expand lending.

Thousands of small businesses — which provide vitality to thriving neighborhoods and hope to struggling neighborhoods — are tottering on the edge of extinction. We don’t need another government program that helps the “haves” and harms the “have-nots.”