Michael Miller woke up at 12:30 on a recent Friday, turned on the snowplow in his garage and started playing Redbone’s “Come and Get Your Love” on his radio. It had just snowed 10 inches of heavy mud in Port Huron, Michigan, and he had three miles of roads and parking lots to clear before dawn.
“It’s like paradise,” he said of his work. “It is very laborious, but it is not laborious for me, because I love what I am doing.”
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, starting in mid-March. “When you can’t go out and do the things you love, it’s difficult,” he said. He had no income coming in and it took him more than a month to get a commercial loan that helped him survive.
His usual bank, the Flagship Credit Union, did not provide pandemic relief loans under the Paycheck Protection Program, or PPP, and the six other major banks he called in early April were not accepting new customers.
“I was frustrated,” he said. “I thought I would never make it through the jungle.”
Through the state’s website, he found a resource that was supposed to provide funds specifically for small minority business owners, a Michigan-based Community Development Financial Institution, or CDFI, called the Opportunity Resource Fund. But CDFIs were also having trouble getting access to loans. In fact, many chief executives of CDFIs say that in the early days of pandemic relief programs, they had as much difficulty as their clients in obtaining federal funding to meet demand. This only worsened the problems for minority companies that desperately needed help.
“It was one of the most insane moments I have ever experienced in my career and I have been with the Opp Fund for over 30 years,” said Christine Coady Narayanan, CEO of the Opportunity Resource Fund, where Miller got his loan. “We were literally hurt by the amount of money we had to borrow.”
An analysis by NBC News last year of PPP data, census records and an important indicator of economic crisis shows that struggling American communities have received less from the PPP program proportionately than the country’s wealthiest and most vibrant neighborhoods. Economically troubled communities – in which minorities represent a larger share of the population than the wealthiest communities – fared worse than the country’s wealthiest communities in terms of securing loans under the Payment Protection Program.
When it comes to the value of PPP loans by commercial establishment, the wealthiest areas of the country received 12% more in terms of the total dollar value than their economically struggling communities. When it comes to quantity by number of employees, they have 29% more. And when it comes to the amount of PPP loans per population, the wealthiest areas received 57% more than communities in economic difficulty. The data supports the concerns that have been raised over the brief history of the Check Protection Program, some of them by Congress.
Small Business Administration, or SBA, officials did not respond to repeated requests for comment on NBC News’ analysis. But for this article, officials said they have since made every effort to help minority-owned companies receive funds. Shortly after the PPP obtained more funding from Congress in late April, the SBA began to position the CDFIs as the gateway to reaching small minority business owners. The second capital injection, which took place in April, allocated US $ 10 billion in PPP loans to CDFIs alone. When the second round reopened last month, the CDFIs received the first draw of funds from the SBA.
“The Biden-Harris administration is committed to improving equitable access to federal aid programs, and CDFIs and MDIs will be essential to achieving our goals,” said Carol Wilkerson, press director for the SBA. (MDIs are minority depository institutions.)
But there are long-term implications for not having worked with CDFIs from the start.
“The customers we serve, who are mostly women, people of color, low wealth, customers across the state of Wisconsin, they were falling between the cracks,” said Wendy Baumann, president of Wisconsin Women’s Business Initiative Corp., or WWBIC.
Rugged start
CDFIs like the WWBIC did not know, for example, whether they could access PPP loans in the early stages of the program because they were lenders for community benefits – financial institutions that grant specific “community advantage” loans through the SBA to underserved communities. Community benefit creditors, which include CDFIs, do not have direct authority to process loans without prior review by the SBA.
More than 100 community benefit creditors were in this situation, said the SBA.
“By the time we found out, the first pot of money was gone,” said Jaimie Charon, director of portfolio management and loan operations at WWBIC.
While larger financial institutions had sufficient capital to back up their PPP loans, CDFIs, which may be nonprofits, credit unions or community banks, had to rush to borrow from banks and seek out private investors. In late April, after the Opportunity Finance Network, which represents hundreds of CDFIs across the country, pushed for change, the CDFIs had access to the PPP Liquidity Facility – a pandemic relief program that extends credit to credit institutions directly from Federal Reserve.
But then they faced another obstacle. CDFIs had to process their transactions through traditional banks. The Opportunity Resource Fund was able to turn to Wells Fargo, with which it had a deposit account, to process its loans. But Narayanan said that many other CDFIs were not so lucky.
Although Narayanan said his team was able to access funds, CDFIs were often not notified directly about changes to the PPP by SBA headquarters. Therefore, they had to rely on local SBA contacts for updates.
“It looked like the Small Business Administration was piloting the plane while building it,” said Janie Barrera, CEO of Texas CDFI LiftFund, one of the country’s largest portfolio-sized microcredits.
CDFIs and government agencies found that the situation directly harmed minority businesses. A report released in May by the SBA inspector general’s office concluded that, although it was determined by the CARES Act, the SBA failed to provide guidance to creditors to prioritize minority and needy small businesses. In addition, it was difficult to assess the reach of PPP for these participants because only a quarter of loan recipients reported demographic data, according to the SBA.
Nonprofits such as Color of Change, a predominantly online organization focused on racial justice, and UnidosUS, a lobbying organization for Latinos, intervened to assess the program’s reach among small African American and Latino companies. They found that, in mid-May, most homeowners had not received loans or were still waiting for answers. Only a tenth received the loan amounts they had requested.
“Until Congress funds Covid’s unsuccessful assistance with specific allocations for black business owners and resolves the stark racial disparities that are embedded in current aid programs, the devastating repercussions of government inaction will continue to spread across black communities and increase further the racial wealth gap for generations to come, “said Rashad Robinson, president of Color of Change.
Increasing strength
This was not the first fight that the CDFIs had to fight. They have a long history of battling to get money for their borrowers. What started in the 1970s as a grassroots movement by smaller local banks to distribute capital to underserved communities became part of a larger government effort in 1994 with Riegle’s Community Development Banking and Financial Institutions Act. The CDFI Fund, created by the Riegle Act, is distributed annually by Congress, which is then redistributed. But the CDFI Fund did not even receive money to distribute PPP loans until the federal budget was approved in December.
As more than 1,000 CDFIs across the country are certified to withdraw capital and credit from the government’s CDFI Fund, the program constantly struggles to meet demand. This year, requests for funding were more than double what the government allocated.
As they enter the third round of PPP loans, CDFI executives feel more confident about how the process has been simplified and adapted. WWBIC, LiftFund and Opportunity Resource Fund have managed to meet all the demands of their clients so far.
“We are just waiting for new applications,” said Narayanan.
Because of changes in the program, CDFIs have distributed significantly more PPP loans compared to last year. They have already distributed 5% of PPP funding in 2021, compared to just 3% of PPP funding in the entire year 2020, said Matt Coleman, SBA’s regional director of communications.
CDFIs are already causing more minority business owners, disillusioned with the larger banks, to come to them directly in the first week of this round. Small business owners say they have not had positive experiences with their banks in the first rounds or that they fear the money will run out, Narayanan said. And members of the CDFI team are always happy to help.
Miller said he finally got a call from the Opportunity Resource Fund a few weeks ago, saying there was additional PPP funding for small businesses for which he was eligible.
“I got the loan in a week,” he said. “I mean, you know, my head is still spinning.”
He realized that the team was no longer working 24 hours a day, because he used to receive emails at 1 am. Like someone who had just finished working overnight, 12 hours straight, he could understand.
“It’s like anything else,” he said. “I will work as long as it takes to get the job done.”