News

June 2020

Flaws in PPP loan distribution have negative effects on Black-owned businesses

Courtesy of The Columbus Dispatch
June 29, 2020

Already at an economic disadvantage due to the racial wealth gap, Black-owned businesses are struggling during the pandemic. Missing out on federal funding has forced some to change their strategies or close altogether.

As one of few Black-owned hair and beauty supply stores in the Columbus area, Regal Beauty was already facing an uphill battle when it opened on East Main Street in February 2019.

According to its owners, sisters Dasha Tate, 35, and Deanna Jones, 38, the small, Olde Towne East business had to compete with larger stores that get better deals from distributors. That means they couldn’t get the most popular products in bulk, and they had to charge more to turn a profit.

A sudden, global pandemic and shutdown of non-essential businesses certainly complicated matters, but they thought they might find some relief from the U.S. Small Business Administration’s Paycheck Protection Program.

“We missed the first round of it,” Jones, of the East Side, said of the PPP loans, which are forgiven as long as small businesses keep their workers employed and the funds are used for payroll, rent, mortgage interest or utilities.

Although they applied, they did not receive any of the initial $349 billion, which ran out in two weeks. A provision in the stimulus package allowed restaurants such as Shake Shack and Ruth’s Chris Steakhouse to receive funding, which they ultimately returned to give smaller businesses a chance to benefit from the program. (The restaurants found alternate sources of funding.)

The government allocated another $310 billion ($128 billion remains, and the next application deadline is Tuesday), and set aside some funding for low-income communities. It also loosened spending restrictions to further increase accessibility.

Locally, the City of Columbus and organizations such as the Central Ohio African American Chamber of Commerce have also stepped in to assist minority-owned businesses, but it might not be enough to ensure their survival.

There has been national concern about the racial disparity in government funding received amid the pandemic. Between April and May, only 12% of Black and Hispanic business owners polled in a national survey said they received the SBA relief efforts they requested. That is well below the national average of 38% as reported by the U.S. Census Bureau’s Small Business Pulse Survey. (The SBA said it will release demographic information of loan recipients in the future as part of a transparency plan).

Experts attribute this outcome to a structural disadvantage. Minority-owned businesses have historically poor relationships with banks, which are the gatekeepers of PPP loans.

“There’s a diminished access to capital for small, minority and women-owned businesses, just in general,” said Beverly Stallings-Johnson, who serves as the chief diversity officer for the City of Columbus.

Partnering with Ohio’s Minority Business Enterprise program and the Ohio Bankers League, the city’s Office of Diversity and Inclusion helped over 150 small, minority and female-owned businesses gain access to banks and PPP applications during the first round of funding, Stallings-Johnson said.

“If you really think about it, that’s the role of the SBA,” she added, “but we injected ourselves because we care about small businesses.”

However, they were unable to reach out to every business.

Mayor Andrew Ginther’s office is also in the process of implementing a recent executive order to assist small, minority and female-owned businesses with gaining government contracts and other opportunities. And in May, the city established a $5.5 million recovery fund for businesses in low and moderate income areas.

SBA Great Lake Regional Administrator Rob Scott said the agency made attempts to connect with minority communities by developing webinars explaining the PPP process and partnering with chambers of commerce and other organizations such as the NAACP.

Those entities had to step in to advocate for Black-owned businesses at some of the larger banks, said J. Averi Frost, who serves as executive director at the Central Ohio African American Chamber of Commerce and manages a minority business program with the Columbus Urban League.

″(We said), ‘Hey, you’re not engaging with your customers,’” Frost recalled. ”‘How do we make sure that they’re getting a fair shake in the second round?’”

According to the North Carolina-based Center for Responsible Lending, 95 percent of African American-owned businesses have no employees, which presented another issue; sole proprietors were required to wait one week before applying for the first round of funding.

There was also confusion about eligibility, and many businesses didn’t have the resources to hire accountants or consultants, or know to seek help from nonprofit organizations.

“The struggle is real for Black and brown businesses,” said La’Mier Dennis, 45, of Powell, who owns a photography business. “We don’t know of all of the different grants or the loans or the opportunities. … It handicaps you from being able to look past the ceiling that we sometimes look up at because of the lack of knowledge.”

After missing out on the first round, Dennis eventually received PPP funding during the second round, but the future of his business is still up in the air.

“As we’re all walking in this new norm, I don’t know what a sense of security is going to look like,” he said.

Though shut out of the PPP loan, Regal Beauty eventually did receive an Economic Injury Disaster Loan and grant from the SBA, but it wasn’t enough to sustain the brick-and-mortar location. As a result, Tate and Jones moved the business online.

Still, they were luckier than some.

“It’s heartbreaking to watch others close around us,” Jones said. “You know that if they just got that earlier help, they could have been in it with us. We’re lucky that we had a way that we could pivot.”

But even if funding was ultimately received, it wasn’t enough to prevent some businesses from shuttering.

“The dollar amount is low for the PPP (loan),” Frost said. “It’s not necessarily business-saving if you don’t have a lot of employees. And they’re not moving as fast (with processing). … These businesses need immediate injections of cash.”

The racial-wealth gap between Black and white people — the result of years of systemic racism — informs the small business market. According to a study by the J.P. Morgan Chase institute, most businesses in majority Black and Hispanic neighborhoods did not have enough cash on hand for two weeks’ worth of bills.

The flaws in distribution of government funding only exacerbated the impact of the pandemic, which may increase economic disparities.

“It’s such a vast challenge,” Frost said. “It’s like, where do we start getting at this elephant? … Everywhere you look, there’s a barrier.”

By Erica Thompson
ethompson@dispatch.com

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