15 Jul Six Reasons Minorities Didn’t Benefit from PPP, Five Steps Congress Should Take to Fix It
The odds are stacked against us.
DENOR Brands + Public Relations could easily become a statistic. In the same year it celebrated its tenth anniversary, it could also be among the 40 percent of Black-owned businesses not expected to survive the aftermath of the novel coronavirus pandemic. Despite the federal government establishing the first-of-its-kind Paycheck Protection Program to pump resources into small businesses, many of those owned by ethnic minorities were shut out of the program.
Although the PPP was a valiant effort to protect the payrolls of small businesses, when the application process began, it became more than clear that the process was bungled and that there would be significant challenges with the program implementation.
While the problems with the PPP likely resulted from a flawed design and botched implementation, minorities being shut out of the process is an entirely different matter.
The inability for some entrepreneurs of color to receive PPP funding, despite significantly relaxed criteria and a simplified application, is the result of decades-long inequities in financial and government systems. These inequities have sown deep-seated mistrust in the system, fostered a lack of banking relationships, and cultivated a belief that attempting to secure the loans would be a fool’s errand.
The federal government entrusted the private banking industry to manage its business relief program. The challenge here is that the banking industry has inflicted historic harm on Black people. From the history of the Freedman’s Bank to legacy of redlining to the lack of capital/funding opportunities for aspiring and current business owners to the decline in Black homeownership to the devastating racial wealth gap, there is a legacy of governmental and banking mistrust and oppression that has kept many minority business owner from fully participating in the world of entrepreneurship.
As DENOR’s founder, I know firsthand what it is like to start a business with limited resources. I had student loan debt. I did not have a strong or supportive banking relationship (in fact, my investment banker told me NOT to start a public relations company because she tried and failed). I did not own a home I could use as collateral for a business loan. And, when I first started out, I didn’t even have a bookkeeper. Heck, initially I didn’t even realize the need for a bookkeeper, CPA, or an accounting system like Quckbooks.
I started my business for fun and then went full time in what amounts to an experiment. My very first client paid me in smiles and fancy food (though he has more than made up for it now) and the next several clients paid me for monthly campaigns an amount less than what I currently charge for an hour of my time. Most of what I now know about business was learned through crushing failure, a bunch of mistakes, and trial and error. Luckily, I learned everything I needed to have in place for a successful business well before a global pandemic spurred on one of the worst economic contractions in recent history.
I know for a fact that other business owners have not been so lucky.
In the seven years since moving back to Nashville, I’ve grown my business significantly. I’ve partnered as a mentor and trainer for several organizations that serve minority businesses. I work with the Nashville Minority Business Center to advocate for contracting equity. I’ve served on a few government commissions to advise on policies to benefit minority business owners. I am actively involved with the area chamber, previously served on the board of an ethnic minority chamber, and even served as the Chair of Metro Nashville’s Minority Business Advisory Council.
Basically, I’ve studied, convened, surveyed, trained, and advocated on behalf of enough minority business owners to have a sense of why so many of them may have been excluded from the federal program (aside from the obvious issues with the initial process and transparency and concerns over who received loans).
In my opinion, there are six reasons why some minority business owners haven’t benefited from the PPP.
- We have not completed the necessary local and state paperwork to legitimize the business. Owners had to prove the business existed before February to be eligible.
- We have avoided filing taxes on the income we’ve received through the business. To determine to amount of PPP funding a business would receive, it had to show tax returns or other quarterly payroll statements since the cornerstone of the program was to keep workers on payrolls.
- If we have filed taxes, we’ve chosen to take a loss, resulting in a net negative income from the business. Owners could not receive funding if they had a negative income amount the previous year.
- We don’t have the necessary fiscal structures or advisors in place to keep an accurate accounting and report of the business revenue, salaries, and expenses. Owners who had access to this type of data would likely have an easier time applying for the loan.
- We do not have a business banking account. PPP funding had to be deposited into a legitimate business bank account as opposed to a personal account.
- We operate within a multilevel marketing company. The PPP prohibited MLM representatives from participating in the program.
As Congress prepares to go back in session at the end of July to iron out details on a potential third round of PPP relief, there are some key items it should consider when determining how best to support the nation’s job creators. Congress should:
- Offer an additional round of funding that extends beyond an eight-week period, as the recession and fallout from the coronavirus is expected to last for months. Impacted businesses may need up to a year to fully recover. Additionally, Congress should allow business owners more flexibility in how to best use the resources.
- Clearly define and possibly expand the definition of ‘utilities.’ Right now, business owners can use a portion of PPP funding for utilities and rent and/or mortgage. Utilities listed by SBA include phone, water, and electricity. However, there are other types of utilitarian expenses owners need to run their enterprises, including cloud software, internet, technology, and insurance, to name a few.
- Fund low-interest, government backed loans for business owners adversely impacted by the public health crisis that do not use credit scores as a determining factor in approval. Congress already has approved funding for the SBA’s Economic Injury Disaster Loan program; however, though the application process was relaxed, many business owners were denied based on their imperfect credit. If Congress truly wants to support microenterprises and other small businesses, it should realize that many of its owners have less than perfect credit due to the normal and routine challenges with launching a business and the historic credit inequities that have put minorities at a disadvantage.
- Allocate funding through the federal Minority Business Development Agency (MBDA) to partner with MBDA partners nationwide to provide small, low-interest working capital loans to minority business owners. These loans should be government backed and be given to business owners to help them keep their businesses afloat beyond what the PPP can provide.
- Allocate funding to greatly expand entrepreneur education and preparation programs for aspiring and new business owners as well as management and technical assistance (including deep accounting support) to emerging business owners. This funding should also include significant investment into marketing and outreach in minority communities so that they are aware of the programming opportunities. This type of robust programming is the first step in how we tackle some of reasons outlined above about why many minorities were shut out of the PPP to begin with.
We have to be honest about our challenges if we are intent on solving them. Although my business was able to secure a PPP loan, I know so many other business owners who were not able to do so for one or more of the reasons I outlined above. It is critical that our members of Congress understand these challenges within the appropriate historic context and get creative about removing the barriers to participation. If Congress seriously considers the measures I discuss here, it would be a step in the right direction. Then, we could all beat the odds.