Access to PPP by US Minority Population

Paycheck Protection Program

After the severe economic hit due to COVID-19, on March 27, 2020, the US government signed the CARES Act into law. This bill was intended to help people and small businesses fight the disastrous effect of the current pandemic. Several measures were taken under this bill to help small enterprises sustain this pandemic’s economic blow. A key part of the CARES Act directed to help small businesses was the SBA Paycheck Protection Program. 

The SBA Paycheck Protection Program is a loan program designed by the Small Business Association to help small businesses by providing eight weeks of cash flow through federally guaranteed loans. Small businesses in the US were suffering from a massive cash shortage; they could not pay employees’ salaries and were struggling to stay open. The $350 Billion program’s original intention was to provide cash flow to small businesses to pay employees’ wages.

The second infusion happened to the program in late April after the initial allocated funding was extinguished, the US government approved an additional $310 Billion.

Revisions through the Paycheck Protection Program Flexibility Act made several changes to continue to help businesses through the ongoing pandemic. As the pandemic’s tenure increased more than initial expectations, this Act will now allow more time to spend the funds, and it has also made it easier to forgive loans fully.

Paycheck Protection Program specifics

  • All small businesses are eligible to apply for the loan.
  • The interest rate charged on the Paycheck Protection Program Loans is 1%.
  • Loans that are issued before June 5, 2020, have a maturity of 2 years, and loans issued after June 5, have a maturity of 5 years.
  • There are no fees charged for the issuance of loans, and there are also no collateral or personal guarantee requirements.
  • There is no need to make immediate repayments. Borrowers will get time till the loan forgiveness application is processed, or 10 months after the coverage period ends.
  • The loans can be fully forgiven once the borrower applies for forgiveness.
  • PPP loans can be applied to multiple lenders. The lender’s application, who first sends it to SBA, will be approved, and SBA will issue an SBA approval number known as PLP for each Tax ID. So a borrower can’t get two PPP loans.
  • Reducing the workforce will affect the PPP application if the borrower doesn’t plan to rehire them. Employees’ wages must not drop below 25% of the monthly average. 

Covid Impact on Minority-Owned Businesses 

There are nearly 1.1 Million Minority-owned small businesses in the US. They employ more than 8.7 Million workers resulting in $1 Trillion of economic output. The figures themselves speak the importance of small minority-owned companies in the US. 

Minority-Owned Small businesses have trouble raising capital from Financial Intermediaries in the US. Based on the 2018 Small Business Credit Survey data, it was seen that Large Banks approve only 29 percent of loans sought by Minority Small-Business owners compared to 60 percent of loans approved for White Small-Business Owners. 

Minority-Owned small business is very concentrated; they are concentrated in industries that are more prone to disruption due to COVID. They are mostly concentrated in retail, laundry, food service, hotels, and other personal services. These services can’t be delivered remotely and require physical presence. Social distancing and fear of physical contact have affected these industries hugely. 

Minority-Owned small businesses are suffering. Nearly 51 percent of Minority-owned small business jobs will be vulnerable in the near term.

Access to PPP Program by US Minorities

As per “Centre for Responsible Lending,” which is a Non-Profit that focuses on research on the impact of predatory lending and provides consumers with information, reported that 90 percent of minority and small owned businesses didn’t get access to PPP loans. 

Minority-Owned small businesses don’t have easy access to loans or credit products, so there is a lower number of businesses that have a longstanding relationship with a bank. The existing relationship played a vital role in initially obtaining PPP loans. Larger banks were offering PPP loans to businesses with whom they have a prior relationship, like Line of Credit, etc. The program has also excluded business owners with criminal charges to apply for the PPP program. 

Fintechs served the majority of loans to the US Minority population. The documentation requirement to apply for the loan was complex and could require expert advice such as an accountant, lawyer, etc. for the filing. Small Businesses owned by Minorities are mostly community-based and run by family members. They don’t have the scale, resources and many times expertise to complete these applications.

What’s Next: Loan forgiveness

Under the PPP scheme, a loan will be fully forgiven if the loan money is used for the below-mentioned purposes during either the 8 or 24 week period after disbursement. 

  • Suppose the loan money is used to pay for the payroll cost. That is to pay for the wage, vacation, salary, medical, health benefits, bonuses, hazard pay, etc.
  • Payment for utilities, if the service began before February 15, 2020
  • Payment for rent, if the lease agreement was signed before February 15, 2020
  • Payment for Mortgage interest, if the Mortgage was signed before February 15, 2020

At least 60% of the loan should be used for payroll expenses to qualify for forgiveness. Proper accounting of books and record-keeping is a must during the loan period to apply for forgiveness.

How to apply for forgiveness

Step 1: Fill the correct form by contacting your lender

There are several forms provided by SBA, Form – 3508, 3508EZ, 3508S, or a lender equivalent. 
Your lender will be able to guide you with the correct form.

Step 2: Arrange Documents for loan processing.

Documentation of payroll paid during the covered period is required for loan forgiveness.

Step 3: Contact your lender and submit the documents as well as the loan forgiveness form.

All the required forms, along with proper documentation, should be submitted to the lender promptly. If there is any requirement for additional documents, you should present them diligently. 

Step 4: Followup with the lender regarding the loan forgiveness process

The lender will notify you about the loan review decision when SBA will undergo the loan review process. Once the loan forgiveness is granted, SBA will make payment to the lender on your behalf. Your lender will inform you when they will receive compensation from SBA.

Another round of Funding

There is no certainty regarding another round of funding. There has been debate and support for another round of funding. But the meeting was put to a halt due to the US presidential election. There may not be fresh funding issued soon. Maybe there is a chance of fresh infusion after January 2021.

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