As America reckons with a Titanic scale economic impact from COVID-19, we can’t afford to wait for relief for small businesses that are most vulnerable to closure. OFN commends the efforts of the Small Business Administration (SBA) to swiftly deploy new stimulus funds, including $284 billion in Paycheck Protection Program (PPP) funding that prioritizes small businesses underserved by mainstream lenders. These are the businesses CDFIs serve best and the businesses most marginalized in the first few rounds of PPP.
Regrettably, in the haste to help underserved small businesses hurt the most by the economic impacts of COVID-19, there are some bumps SBA needs to smooth to ensure the new PPP capital has the reach and impact intended. OFN is closely following the rollout of the 2021 PPP extension and actively advocating for a seamless deployment that will have the effect we all want: survival and recovery for America’s small businesses.
Prioritizing CDFI communities
After continued urging by OFN, community lenders, and small businesses last year, SBA has prioritized small businesses located in low-wealth communities in its 2021 extension of the PPP. To reach these target markets, the SBA dedicated the first few days (starting January 11) to PPP applications from community financial institutions (CFIs), which include CDFIs, Minority Depository Institutions (MDIs), Community Development Corporations (CDCs), and microlenders.
The CDFI industry is encouraged by the government’s recognition that CDFIs and other community lenders are best positioned to drive PPP to minority-owned, women-owned, and other underserved businesses.
OFN understands the crisis facing small businesses necessitates moving quickly to implement the changes to PPP. A short statutory deadline for new applications, which ends March 31, 2021, means each day is valuable. Businesses that have waited months for relief cannot afford any additional delays.
Yet, we are concerned about certain challenges behind this staggered rollout.
Current PPP challenges
The PPP prioritization of select small businesses is intended to prevent the rush of applications seen last spring that excluded many of America’s small business owners from this critical relief program.
Unfortunately, these initial days of prioritizing applications from CFIs will likely have modest results because of the implementation of major programmatic changes in a very short time period by SBA. Among them:
- Lending platform technology. SBA moved to a cloud-based platform aimed at reducing bottlenecks created when large number of applications from large lenders were submitted at once. However, guidance to help lenders use the new system was unveiled just a few days before the portal opened, leaving little time for staff training or technical assistance.
- Documentation and guidelines. There are also new loan documents and guidelines related to eligible uses of funds, expanded eligibility for new applicants, and requirements for borrowers seeking a second PPP loan — all just recently made available to lenders.
- Evaluation time. An early start on applications might not help marginalized and very small businesses that are more likely to need extra time to evaluate the potential benefit of submitting a PPP application. Their lenders (CDFIs and others) expect to devote considerable time answering questions and coaching potential applicants before many small entrepreneurs are ready to submit an application. This means some lenders might process few applications in the very first days of the program.
A rocky rollout of this round of lending does not mean funds will not reach targeted businesses.
The lending set-asides in the relief bill include $15 billion for community financial institutions and at least $40 billion for small businesses with fewer than 10 employees or for small loans of $250,000 or less to businesses in low- and moderate-income areas. These funds will be available longer than the dedicated window of access and should greatly increase access to PPP for businesses that had difficulty in the last round.
While the initial days of the program pose challenges, we expect the SBA will work through these challenges as new technology and policy changes are fully integrated into the lending process. And CDFIs will continue to process as many PPP loans as possible during the dedicated window open this week and through the program’s application deadline.
OFN also encourages SBA to pursue all possible strategies for reaching America’s most at-risk businesses, including:
- Encourage all PPP lenders to prioritize underserved businesses. The program will have greater impact when all PPP lenders — including mainstream banks — prioritize the communities singled out during the first week SBA is accepting applications.
- Enhance PPP marketing. Many underserved and very small businesses are still learning about the changes to the 2021 program and how it impacts their particular businesses. More public education and marketing from SBA and others is necessary to reach entrepreneurs who might benefit from the 2021 PPP round.
- Connect small businesses with CDFIs. Clearly identifying and publicizing which PPP lenders are CDFIs and other CFIs will ensure borrowers are aware of new PPP resources. OFN’s CDFI Locator directs small businesses to CDFIs in our network that are making PPP loans.