Business & Money

Locked Out And Going Out Of Busines$

By Barrington M. Salmon -Contributing Writer- | Last updated: Jun 7, 2020 - 11:18:56 PM

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Black businesses shut out of second round of federal Covid relief funding; many will fail by the end of the year, according to recent survey

WASHINGTON—When congressional leaders of both political parties agreed to a $2 trillion economic stimulus package—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—Teri Williams had no expectations that Black businesses would get their fair share.

Ms. Williams, president and chief operating officer of OneUnited Bank, the largest Black bank in the U.S., told a reporter from The Final Call she could count on one hand how many of her customers got money from the Payment Protection Plan (PPP), which Congress created to help small businesses through the ongoing public health and economic crisis.

Zykeevian King, 15, gets a haircut from Travis Alexander at Nice Cutz barber shop in Meridian, Miss. on May 11. Some hair salons, barber shops and gyms across Mississippi reopened with caution, implementing new safety protocols to prevent the spread of COVID-19. Photo: Bill Graham/The Meridian Star via AP

“We thought it did what it was intended to do. It was structured in a way that Black businesses wouldn’t get any funding,” said Ms. Williams, who has been in banking for about 30 years.

A national survey by Color of Change and UnidosUS bore witness to what Ms. Williams said. According to the research, “fifty-one percent of Black and Latinx small business owners surveyed report applying for less than $20,000, but only 12 percent say they received the full amount of assistance requested. More than three times that number—41percent—report being denied assistance, while 21 percent say they are still waiting to hear if they will receive any assistance.

“Of the small-business owners of color who received either partial or full assistance, 45 percent say they had to wait more than two weeks to receive their funds. Survey respondents cited several barriers to accessibility: of those who decided not to apply, respondents cited an application process that was too difficult to complete (14 percent); concern that they were ineligible for the programs (32 percent); and belief that they would not be approved (26 percent),” said the survey, which was released this month.

The Color of Change-Unidos-US survey also warned half of the businesses surveyed could be closing by late this year or sooner.

“Only around 1 in 10 received the funding they requested— which is potentially driving overwhelming support for direct federal assistance, including for payroll, mortgage, and rent support,” the groups said.

The survey was important because the Small Business Administration had not reported any demographic data about Paycheck Protection Program applicants and recipients, they added.

“Small-business owners with full-time employees report forced cuts to their payroll obligations, including reduction of hours (44 percent), layoffs (21 percent), reduced wages (13 percent), or furlough (6 percent).”

“The failed execution of PPP by the Small Business Administration and major financial institutions underscores a historical pattern of American capitalism: the consistent exclusion of Black people from full participation,” said Mehrsa Baradaran, a law professor at the University of California, Irvine. “This crisis has already inflicted terrible damage, both in terms of lives and wealth lost, and changes should be made immediately if we want to emerge into a better world. First and foremost, Congress must remove the banks out of the equation and offer direct financial assistance to business owners of color for necessary expenses.”

While House Speaker Nancy Pelosi and the Democrats passed a new $3 trillion economic relief package in mid-May, the president and the Republican-controlled Senate said the legislation was “dead on arrival.”

“The bill already had zero chance of passing the GOP-controlled Senate and reaching Trump, making (a) veto threat a symbolic gesture. Along with caustic criticism by Senate Majority Leader Mitch McConnell, the exchange underscored the deep election-year gulch over what Congress’ next response to the crisis should be,” reported the Associated Press.

“But Pelosi’s proposal served as an opening move and is likely to eventually produce negotiations among congressional leaders and the White House,” AP added.

“The Democratic bill would provide nearly $1 trillion to help financially struggling state and local governments, extend special unemployment benefits and direct payments to individuals, and bolster spending for health care programs and essential workers,” said AP.

The Color of Change-UnidosUS survey said Black and Hispanic small business owners want legislation that allows for direct federal assistance to prevent mass layoffs and keep them afloat so they can quickly and safely restart and rehire their workers; suspension of foreclosures on individually owned and small business properties until the end of the crisis; federal financial assistance to businesses to help them cover salary and other necessary costs and negative credit reporting suspended until the end of the crisis.

The groups added, “A May 8 report by the SBA’s Inspector General found that, despite specific instruction in the CARES Act, the SBA had not communicated to lenders that business owners in underserved markets should be prioritized. Additionally, the Inspector General’s report found that the SBA had failed to ‘require demographic data to identify PPP borrowers in underserved markets,’ meaning that ‘it is unlikely for SBA to determine the loan volume to the intended prioritize markets.’ ”

When President Donald Trump and congressional leaders announced the CARES Act, governors in the majority of states had ordered as many as 230 million people to stay home in a desperate effort to blunt the spread of Covid-19.

The CARES Act was supposed to “provide fast and direct economic assistance for American workers and families, small businesses, and preserve jobs for American industries.”

The relief package came at a time when national commerce was at a virtual standstill, the stock market in a steep dive and the economy in a freefall with businesses, large and small, being dragged down by the economic malaise.

Little has changed.

The White House and governors are hoping a reopening of the country can help restart the economy but many fear it will lead to a resurgent round of Covid-19 infections and deaths.

And, while the CARES Act was supposed to fix shortcomings and overly generous support of corporations, that has not happened.

Most of the money has gone to large business interests, those able to hire lobbyists and businesses whose owners have relationships with lending institutions.

Ms. Williams said the CARES legislation was put together quickly and big players like Bank of America were ready to go, but others had to play catch up. None of that was helpful for Black businesses who needed the federal help and often did not have a relationship with big banks.

Fees banks charged were a percentage of the loan amount, so the higher the loan, the bigger the bank’s fee, she added. That meant that banks chased big money clients or businesspeople with whom they already had a relationship.

Ashley Harrington of the Center for Responsible Lending added, “Based on how the program is structured, we estimate that upwards of 90 percent of businesses owned by people of color have been, or will likely be, shut out of the Paycheck Protection Program.”

Statistics released by the Small Business Administration showed that 4,400 of approved loans exceeded $5 million. The size of the typical loan nationally was $206,000, according to an SBA report released April 16.

The SBA awarded the plurality of PPP dollars (13.12 percent) to the construction industry. Professional, scientific and technical services received 12.65 percent, manufacturing received 11.96 percent, health care received 11.65 percent and accommodation and food services received 8.9 percent.

Congresswoman Maxine Waters said she and fellow members of the Congressional Black Caucus, as well as other lawmakers who represent Latino and Asian businesses and constituents have been working to ensure that these businesses get their fair share.

“In the first rollout, banks took care of their concierge clients while those who stood in line and had a number were left out,” admitted Rep. Waters, who was a special guest speaker at a May 18 Zoom event hosted by the Center for Responsible Lending. “They created portals especially for special clients. They could do that as written without violating the law.”

Rep. Waters, the first woman and first Black lawmaker to chair the House Financial Services Committee, said she and her colleagues advocated for $60 billion of $310 billion of a supplemental relief package that the House and Senate passed in late April to replenish the SBA loan program.

“That supplemental $60 billion will go to minority financial institutions, Black banks and credit unions,” she said during the almost 90-minute discussion titled, “Covid-19 Financial Services Relief and the Black Community.

More money will go to “institutions with assets of $15 billion or less,” Rep. Waters said.

“A few years ago, the SBA only funded two percent of Black businesses,” she noted. “We’ve changed a lot, made the process more equitable, that’s why I created the minority subcommittee … we are looking at lessons learned to continue to improve on what we’ve learned, straightening out missteps and mishaps.”

“We have to work hard to change what’s been going on and them ignoring Black people,” admitted Rep. Waters, who added that the CBC, Latino and Asian members of Congress will be paying close attention to and tracking who gets the $60 billion and how.

Kim D. Saunders, president and CEO of the National Bankers Association, said there is still an opportunity for Black businessowners to apply for funds from the second round of money disbursed by the federal government.

“About $195 billion was approved by May 16 so money’s still available,” she said during the May 18 CRL Zoom event.

Ms. Harrington expressed grave concerns about how well small, minority-owned businesses will be able to access the $60 billion.

“Businesses of color were locked out of round one of the SBA PPP, and this Congress proposal fails to assure that they will have fair access to the new $60 billion small business appropriation. Nor does it ensure equity and transparency by requiring data tracking on borrower demographics and loan amounts to be collected or reported.”

“While it is a good and necessary change to include setasides for community banks to reach more businesses and rural areas, the bill fails to dedicate targeted funds for use by minority depository institutions (MDIs), and community development financial institutions (CDFIs). These are the institutions with a strong track record of serving borrowers of color. Both MDIs and CDFIs should have access to this vital small business support.”

It also has not been easy for lawmakers to track how well the money is distributed to small banks and lending institutions.

But Ms. Williams said that’s where institutions like hers can be and are of value.

“Because of the minority under-banking crisis, and especially since Black and Hispanic communities have been hardest hit by the coronavirus, OneUnited Bank decided to step in as a lender in the second round of the PPP,” she said.

“In this round, about $60 billion has been set aside to be distributed by small banks and community lenders to small, Black-and minority-owned businesses,” she said. “OneUnited is participating even though the bank does not typically do business loans and tends to focus on real-estate-secured loans.”

The bank is a Community Development Financial Institution which lends primarily to those in minority and low-income communities.

Because so many of the bank’s customers applied to larger banks and were not successful, officials at OneUnited felt compelled to take that step.

On May 23, the U.S. had 1.65 million confirmed cases of Covid-19 with 96,920 deaths. America has become the epicenter of the global pandemic with the highest number of deaths in the world.

With inadequate testing nationwide, and a federal government that is yet to put in place a comprehensive plan for contact tracing, surveillance, epidemiologists and other medical experts say signs point to a pandemic that will continue to spread.

Investigative journalist and Pulitzer Prize winner David Cay Johnston told The Final Call that small businesses, as well as a swathe of other businesses and industries, are in deep trouble, drawn into a public health and economic miasma that will probably not ease up until 2023.

“On March 23, what I wrote is that the pandemic will cost us $5 trillion or more over 18 months,” said Mr. Johnston, author of several best-selling books, editor of DCReport and a specialist in economics and tax issues. “The $2 trillion relief package won’t come close (to solving the problem) because of Trump dawdling.”

The country is looking at a 24 percent drop in the size of the economy and 32 percent unemployment, Mr. Johnston said.

“The media’s not telling this story in meaningful terms,” he argued. “We showed in numbers that (Dr. Anthony) Fauci was predicting 1.1 million deaths. That’s 2.5 percent of the American public dying. I don’t think it will be that bad, but it will be horrible. If the principal breadwinner who dies that will devastate families. This will affect insurance companies and health insurance providers. There will be lots of bankruptcies by individual workers and small businesses.”

“In the bottom fifth of the economy, only 9 percent can work from home and less than 2 percent of that population make low wages and can work from home. They live tough life,” he explained. “Adjusting for inflation, the average income of the bottom 90 percent in 2018 was $218 higher than 1969 pre-tax. That’s $4 a week or 60 cents a day. They are no better off now than they were in the ‘60s. People without well-paid jobs, renters and those in debt, it will be awful for them.”

(Final Call staff contributed to this report.)