Black, POC business owners struggle to get emergency loans – Business Journal Daily



By SAFIYA CHARLES, the Montgomery announcer
MONTGOMERY, Alabama (AP) – Catastrophic, this is how David Sadler describes the impact of COVID-19 on his six-vehicle chauffeur service. And he doesn’t see it stopping. At least not until early next year – maybe.

From the moment President Trump began issuing restrictions on international travel in late January, Sadler said he started receiving calls from people asking for refunds and cancellations from his company CSI Transportation.

“Small businesses are hurting,” said the father of three. “Our doors have closed because people just aren’t traveling.”

Sadler is one of 31 million small business owners and more than 2.6 million black entrepreneurs reeling from the economic fallout from the coronavirus pandemic that experts say could linger in the fall and potentially in the winter of this year.

By changing its economic model, it is certain of being able to emerge triumphant from the crisis, but not unscathed. However, his company, in its current iteration, will be closed; join an ever-growing list of statistics that have emerged to assess the impacts of the crisis.

One of the most surprising comes from the Small Business Administration, which estimates that every hour of this pandemic, a small business is shutting down. And given the funding and lending disparities that black and brown business owners have traditionally faced, it stands to reason that a good chunk of those dissolved will be businesses owned by people of color.

When the CARES law was passed in late March, the Congressional Black Caucus negotiated $ 10 million in grants for minority-owned businesses. A figure that stands at just $ 1.25 for each of the estimated 8 million minority-owned businesses in the country.

Although financial resources to keep small businesses afloat have emerged, including the Paycheck Protection Program, the federal government’s primary vehicle for providing loans to small businesses to cover payroll and certain other expenses; A consumer watchdog has reported that flaws in the way the program’s $ 349 billion first round of funding was administered on April 3 would prevent women and POC-owned businesses from accessing the relief program.

On April 22, CBS News reported that about 95% of black-owned businesses – 91% of Latino-owned businesses and 75% of Asian-owned businesses – “had virtually no chance of receiving a PPP loan. through a traditional bank or syndicate loan ”because of the way the program was structured.

That first round of funding ran out within two weeks, and as expected, many POC-owned businesses either did not qualify or were told that funds had run out by the time their applications were processed. A second round totaling $ 310 billion was released on April 27, and as of May 4, only around $ 135 billion remained, although many lenders, including Regions, Wells Fargo and PNC, have not agreed to new ones. applicants due to arrears.

Sadler, who has been betting on Trustmark for at least a decade, was encouraged to apply and did so both times, but was warned that he likely would not be approved. His request remains pending.

What makes SBA guaranteed loans so attractive is that they are low interest rate and “forgivable” meaning that they do not have to be repaid once certain requirements are met. . They are also issued on a first come, first served basis, which at first glance seems egalitarian, but closer inspection reveals underlying shortcomings.

Many banks participating in the PPP program have only granted loans to existing customers in an attempt to streamline the approval process, but many black business owners do not have long-standing relationships with major ones. commercial lenders.

Black business owners are also more likely to own small businesses with fewer than 10 employees, which presents fewer incentives to lenders who can reap more profits from larger businesses. These larger loan applications took priority over small businesses, CBS reported, citing several class actions filed on behalf of small businesses.

“Banks are all about the money,” said Bob Dickerson, founder of the Birmingham Business Resource Center, which advocates for small business owners and administers the Birmingham Strong Small Business Loan Fund, an emergency resources program. for local businesses and workers affected by COVID-19.

“They want to devote their time, effort and expertise to analyzing business loans from two, three, five hundred thousand up to millions because that’s where they are going to make their money… and this borrower of 75,000 $ stands out in the cold. ,” he said.

The definition of a small business is broad and the SBA defines these businesses as employing 500 people or less. CSI Transport has only five employees.

While Sadler has said he understands the importance of supporting big business, he couldn’t hide his dismay that the structure of the low-interest loan program forces him to compete with businesses up to ten times its size. cut.

“It’s frustrating because you see these big companies making money. I get it, they hire a lot of people, but you can’t rule out small businesses, ”he said.

Micro businesses, those with fewer employees, assets and less income, can improve their chances of approval by applying through alternative lenders.

A key difference in the April 27 dispersal was the diversion of $ 60 billion in funds to community banks, credit unions, and companies like PayPal and QuickBooks. In Montgomery, Hope Credit Union, which works with small businesses that might not qualify for services from traditional banking institutions, is one such lender and, as of May 6, is still accepting P3 loan applications.

Representative Terri Sewell said she hoped the new directions in Congressional Fourth Coronavirus Response Bill to serve unbanked and underserved businesses would help address some of the exposed issues.

“I was deeply troubled by the initial inequalities in the distribution of funds through the Paycheck Protection Program, which clearly discriminated against minority-owned businesses,” Sewell said. “My heart goes out to the small business owners who currently fear for their livelihood, and you have my word that I will do everything in my power to continue to bring home resources to our district. ”

But many black business owners fear depending on outside support to keep them afloat. And rightly so.

According to data released every five years by the Federal Reserve, less than 47% of black businesses that applied for bank financing between 2012 and 2017 were fully funded. While investment bank Morgan Stanley reports that investors admitted to funding multicultural, female-owned businesses 80% less than white-owned businesses.

Jeremy Kelly of Kelly Realty said his company had applied for two-round PPP financing through local lender River Bank & Trust, but had no hope of receiving it.

Although foot traffic in the real estate industry has decreased significantly – where agents used to show 12 properties a week, they now only show three or four – their traffic online has increased. But the crisis has made it more difficult to reach agreements.

“People need to do a job audit until the closing day or week at this point because mortgage companies are concerned their job security may be compromised,” Kelly said. And necessary documents such as tax transcripts are often delayed due to increased processing times at the IRS.

Despite these obstacles, he is convinced that the business can survive if it adapts quickly.

For others, like John McClenney II, owner of Uptown Tanz Salon and Spa, it’s a waiting game. The business owner said he regularly receives calls from customers asking when he will reopen his store. A movement that he considers at the moment too risky.

McClenney, who also owns a parcel store on Eastern Boulevard, has applied for emergency funds through his credit union, but so far to no avail. While his hair salon is empty, he continues to pay rent and sales tax. McClenney is concerned for the well-being of his young stylists who haven’t had enough time in the industry to accumulate their savings and who are now out of work.

“I know I have a fight to do, but if I don’t get a PPP or SBA loan, I have great credit, I can go to my bank,” he said. “If you haven’t laid a foundation where you can go to the bank and get something, you’re in trouble.”

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