Feds fix some PPP flaws but ignore old flaws – nonprofit news

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“DC Street, Washington, DC USA, 08/05/2020”, Ted Eytan

The Paycheck Protection Program (PPP) is one of the key components of state coronavirus relief legislation. While the program is riddled with flaws, it has been an important pipeline for both small businesses and nonprofits. To date, $ 525 billion has been distributed through the program.

The federal coronavirus relief bill, passed in late December, creates a new $ 284 billion pool of funds to support small businesses and nonprofits. The new funds provide a second chance for a “first drawing” for companies (following the same rules as before) that have not yet received an eligible PPP loan. It also allows a “second draw” of PPP loan funds up to a maximum of $ 2 million for qualifying companies. The main rules that beneficiaries must follow in order to qualify for the second drawing include the following:

  • Have less than 300 employees.
  • You have previously received a PPP loan that has already been issued or is on the right track.
  • Can demonstrate a reduction in gross income of at least 25 percent between comparable quarters of 2019 and 2020.
  • As before, at least 60 percent of the proceeds have to cover wage costs (what counts as payroll is more relaxed; for example, personal protective equipment counts).

There are other important tweaks. Some groups like 501c6 organizations that were previously ineligible are now eligible. If your loan is $ 150,000 or less, the remission application form is a single page. Non-profit organizations such as theaters and museums that receive grants under the Save Our Stages program are also unable to apply for a second PPP drawing. The rules are also more generous for restaurants and hospitality companies, which can borrow 3.5 times their average monthly payroll costs instead of 2.5 times the average – in response to how badly COVID-19 has harmed these sectors.

The new funding is very welcome and needed. But while hundreds of thousands of nonprofits and millions of small businesses have benefited from PPP, many big problems cannot be overlooked. These began with a rollout that explicitly favored larger companies with existing banking relationships. The first $ 349 billion funding round expired in 13 days. In fact, according to a congressional report, it was later revealed that “the Treasury Department privately encouraged banks to limit their PPP lending to existing customers and to exclude many minority and women-owned companies.”

Registered mail NPQ, Joe Neri, CEO of IFF, a community development financial institution (CDFI) in the Midwest, explained the dynamics:

Millions of small businesses and nonprofits, especially those owned or managed by people of color, have applied to their local banks and, as many of us predicted, have heard less-than-desirable responses. I say “predictable” because companies run by colored people have had difficulties in raising capital from traditional banking systems in the past for a myriad of similar reasons: too small, not enough collateral, not enough assets, no co-signers with assets, not “ mature “enough, etc.

[…]

These deals aren’t turned down because of race – it’s illegal. They are rejected because they do not have existing relationships that they do not have due to persistent racial wealth and income inequality due to decades of racial inequality.

Some of these issues were mitigated in a second round of PPP funding that raised $ 10 billion to CDFIs. However, as the CDFI trade association Opportunity Finance Network noted, “When dedicated PPP resources were directed to CDFIs, demand for the program had decreased. Unfortunately, some small businesses had already closed their doors, including 41 percent of black-owned companies. “

Now, in 2021, the U.S. Small Business Administration (SBA) is introducing safeguards to promote businesses in communities of color. The most important provisions:

  • $ 15 billion in PPP loans for lending by CDFIs
  • $ 15 billion in PPP from other small lenders with assets less than $ 10 billion
  • $ 15 billion and $ 25 billion for first and second drawing PPP loans for borrowers with 10 or more employees, or for loans less than $ 250,000 to borrowers in low- or middle-income neighborhoods

And now the SBA has finally added a demographic reporting section to the PPP borrower application. The application states: “PPP lenders should encourage borrowers to report the optionally added information in order to better inform lenders and SBAs of the success of our efforts to underserved, [people of color]-Companies owned by veterans and women.

One nice symbolic change is that CDFI lenders got a head start this time around, as PPP loan applications were only accepted “from municipal financial institutions for at least the first two days when the PPP loan portal reopens”. That is a sharp contrast to last April. It is encouraging that evidence showing that small banks outperformed large banks in distributing money to businesses has resulted in a change in policy.

But the SBA couldn’t help but gloss over its past shortcomings. “Although the PPP was an incredible success, there are many other ways to support companies that do not yet have access to these forgivable loans,” writes administrator Jovita Carranza.

Yes, an incredible success. That must be why the SBA is only now taking positive steps to improve access to capital for black-owned companies.

There is ample precedent for this. Over 90 years ago Pravda published an article titled “Dizzy with Success” praising the disastrous Soviet collectivization of agriculture when announcing a break in the program. Sometimes it is a sign of the opposite when an agency advertises its own success. In the midst of COVID-19, the devastation of black-owned businesses is hard to deny. The federal efforts, which came up short, did not help. Course correction is now very welcome. But it is also very late. – Steve Dubb

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