Banking and Business Ties Key to Federal Aid Process For Minority-Owned Businesses

Despite the federal government’s efforts to give minority and women-owned businesses priority in the latest round of PPP funding, small businesses without established ties to banks are still being left out of the aid program. 

The U.S. Small Business Association, the government agency responsible for distributing PPP loans, opened a third round of PPP funding in January that brought between $3 and $3.5 million to Connecticut. After receiving backlash for not reaching many businesses that arguably needed funding the most, the agency decided to adjust the loan application system to assist women-owned, minority-owned and veteran-owned businesses, as well as those located in underserved neighborhoods.  

To that end, the Small Business Administration allowed community development financial institutions — privately owned banks that serve people in low-income communities — to submit applications two days before it opened up its portal to other businesses. It set aside $30 million for loans given by community development financial institutions and other small financial lenders with less than $10 billion in assets. 

The Small Business Association also set aside $40 million for businesses with 10 employees or fewer and for loans of less than $250,000 to businesses located in low or moderate-income neighborhoods. 

These opportunities, however, heavily rely on banks and financial institutions to inform customers of the available loans and to help them through the process. For minority-owned businesses who didn’t have these relationships, gaining access to the PPP loans was a nearly impossible task.  

Anne-Marie Knight, acting executive director at the Black Business Alliance in New Haven, said that the first round of PPP funding was “disastrous.” She said that banks were refusing to help people who weren’t already their customers, or telling people that they weren’t participating in the loan program at all. 

“Folks were just turned away from so many doors,” she said. 

Joseph Williams, a capital access team lead and business advisor at the Connecticut Small Business Development Center, said that about half the people he worked with were able to take advantage of the PPP loans. 

The challenge, he said, was reaching the people who weren’t connected with their local chamber of commerce or any small business association. While larger banks were calling their clients to let them know about the loans, smaller institutions, he said, weren’t necessarily doing that. 

“If I don’t know anything about today’s press conference, or if I’m working at my local restaurant, how am I going to know…that I should be applying to the PPP right now?” said Williams. 

It’s difficult to know how many minority-owned businesses benefited from the PPP loans in the first two rounds, since the applicants were not required to provide demographic information. Data from the Small Business Association shows that out of 56,020 small businesses in Connecticut who applied for the first two rounds of PPP funding, 7,261 identified as male-owned, and 2,432 as female-owned. Additionally, 4,397 applicants self-identified as white, 427 as Asian, 339 as Hispanic and 169 as Black or African American. 7,876 self-identified as non-veteran and 366 self-identified as veteran. 

In addition to having less access to the PPP loans, Knight said, Black-owned businesses were particularly hard-hit because they operated from a very narrow budget to begin with. When the COVID hit, these businesses didn’t have any reserves to fall back on. 

“When [you] start a business bootstrapping,” she said, “You’ve got nothing behind you to help you bring your business forward.” 

Navigating the application

Fran Pastore, CEO of the Women’s Business Development Council, said that women business owners also faced a unique set of challenges as they tried to balance full-time childcare with work. For those who did try to sign up for the PPP loan, the application process became a barrier in itself. 

“The problem was that most mom and pop businesses could not decipher the application process,” said Pastore. 

Pastore said that for businesses that didn’t use payroll companies for their paychecks and didn’t have relationships with a bank, it was almost impossible to file the proper paperwork. 

For minority women, she said, the challenges were even greater.

“Most communities populated by minorities don’t even have a bank branch in their area,” she said. 

Williams said that many of the businesses he worked with didn’t have formal bookkeepers and their record-keeping wasn’t in a format that they could use to apply for the grant. 

“The back office is not solidified,” Williams said. “They know grandma’s recipe but they weren’t the best at taking care of the books.” 

In lieu of a formal banking relationship, many businesses that Knight worked with use the online lending platforms PayPal or Kabbage. These lenders were not able to issue PPP loans until the end of the first round. Data from the company showed that in the first three months after it was approved as an SBA lender, Kabbage offered 93 percent of its loans to businesses with 10 or fewer employees, and that it processed applications for 135 community banks. 

Other business owners don’t have the computer skills to input the application, said Knight. Pastore said she frequently got calls from businesses asking her to print receipts for them. According to data that Pastore provided, the Women’s Business Development Council normally helps 800 to 1,000 clients per year, but between March and November of 2020, they assisted over 4,600 individuals. 

“In my opinion the cards were stacked against microbusinesses…the majority of whom are women and minorities,” added Pastore.

The role of community banks

Williams said that he thought the Small Business Development Council should focus on sending their clients to community development financial institutions which could help process the loans, especially since the SBA is giving these lenders a head start in submitting applications.  

“We should be telling people, go see these people … because the first 2 weeks or so is [about] trying to get that business that has been left behind,” he said. 

Maureen Frank, president and CEO at New Haven Bank, one of two community development financial institutions in the New Haven area, said that they did see an increase in loan applications when the portal first opened to community banks on January 13.  

In the first week, she said, New Haven Bank processed about 65 loan applications. Frank said that’s equivalent to what they processed in the 2-3 weeks after the first round of PPP opened last spring. 

Frank said that about half of her current customers are people who didn’t apply for a PPP loan with New Haven Bank during the first two rounds, and that many are applying for smaller loans, which would suggest smaller businesses. At least half of the businesses they serve are in low to moderate income communities.

Yet Frank said that she anticipates less demand for loans in comparison with the spring — a combination of the fact that some businesses have closed and others have been able to make a sufficient profit despite the COVID-19 restrictions. 

“I don’t know the need is as great as it was the first go around,” said Frank. 

Frank said that her bank has tried to reach out to minority and women business owners. But she added that she doesn’t think this responsibility ultimately lies with the banks, saying that the outreach needs to come from community organizations. 

“There’s a lot of programs out there to benefit small business owners…but the funds aren’t being used up,” she said. “Identifying the need, I think, needs to be done from an organization in the city versus a small financial institution.”   

Community outreach 

Organizations like the Spanish American Merchants Association, the Black Business Alliance, the Small Business Development Center and the Women’s Business Development Council have tried to fill in the gaps.

Knight said she went door to door to telling people about the available loans. Other organizations sent out flyers and are holding online workshops about how to apply. 

Julio Mendoza, executive director of the Spanish American Merchants Association in Hartford and New Haven, said her organization set up a partnership with Liberty Bank. 

“They’ve been great,” he said. “They will look at whoever comes from SAMA like they were their customer.” 

The State of Connecticut has also found some out-of-the box ways of reaching people who fall through the cracks. For instance, both Knight and Williams said they supported the recent grant program run by Connecticut’s Department of Revenue Services, which granted 2,000 of the hardest-hit small businesses between $10,000 and $30,000 without any application requirement. 

“The state has come up with creative ways to meet the masses even when the masses can’t reach us,” said Williams. “It’s a new thinking, a paradigm shift.”  

Yet they still haven’t been able to reach everyone. 

Williams and Knight said that more outreach needed to be done on a grassroots level. In the Black community, said Williams, many people get their news in church on Sundays, at the barber shop or the hairdresser, or at the local bodega.

“It’s unfortunate, bad news travels fast in any community. Good news is hard to come by,” said Williams. 

And Pastore and Knight both said that while loans were great, there were other changes that needed to be made within the communities themselves. 

Pastore said there needed to be a cultural shift around the idea of accepting loans.

“We need to change our cultural outlook about what we think is a handout versus a hand up,” said Pastore. 

Knight added that she thinks that large corporations and universities in the area need to take responsibility for where they are spending their money, and that they should make an effort to support Black-owned small businesses when they outsource services. 

“I think it’s time for everyone to make a difference,” she said.

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