DENVER (CBS4) – Under the second round of funding for the Paycheck Protection Program, lenders approved Colorado businesses for nearly $4 billion in forgivable loans, but experts say many minority-owned business got left out again, due to failings in the Small Business Administration program.
Danielle Smith believed those loans could be a game changer for her company, Lotus & Lily Photography. The Denver-based photographer, who also works for the Colorado Black Chamber of Commerce, has struggled to find business throughout the pandemic.
“Unfortunately I’ve had 95% of my weddings for the summer canceled. The other 5% are kind of waiting to see what happens,” Smith said, who estimated she could lose $18,000 in revenue this summer. “We have families, and so losing that kind of income with no immediate plan for when we’re going to get that income back is hard.”
To keep paying her two employees, Smith applied for a forgivable loan through the Paycheck Protection Program on the second day applications were being accepted. So far she hasn’t heard back from the bank, and neither have some of her friends, who also own businesses.
“As a minority business owner, I’ve always had a little harder access to capital, but my first thought was, ‘now it’s the world’s situation,’” Smith said. “The general consensus for the paycheck program is nobody has heard anything back from them, in particular.”
CBS News has previously reported that many minority-owned and women-owned businesses are coming up empty because they either didn’t qualify for the SBA program or the funds had been exhausted by the time they could get their application processed.
A recent survey by the Center for Responsible Lending (CRL) found the odds are against businesses owned by people of color. A report done by the group estimates “roughly 95% of Black-owned businesses, 91% of Latino-owned businesses, 91% of Native Hawaiian or Pacific Islander-owned businesses, and 75% of Asian-owned businesses stand close to no chance of receiving a PPP loan through a mainstream bank or credit union.”
“The gap in opportunity and income and wealth is going to grow, which is not good for the economy in general, and not good for us as a society,” said Ellen Harnick, Executive Vice President at the Center for Responsible Lending.
According to Harnick, it comes down to commercial banking relationships, which businesses of color are less likely to have. Currently, many banks participating in the program are only issuing loans to existing clients to speed up the approval process.
“Disproportionately, business people of color have less access to credit from commercial loans and otherwise, so they were less likely, than their numbers suggest, to have that kind of relationship that would have gotten them the priority,” Harnick said.
A separate obstacle is another way some banks are handling loan approvals. Several big banks, such as JPMorgan Chase, Bank of America, and Wells Fargo, are currently facing class action lawsuits for prioritizing larger loan applications.
According to CRL, businesses of color account for 30% of all U.S. businesses, but Harnick said many have fewer than ten employees and would only need relatively small loans to stay afloat.
“Excluding these or under-serving these businesses is not only unfair, it has a real negative impact on these communities,” Harnick said.
Smith, only applied for $10,000 to cover payroll, but had never done business with a commercial bank. Despite two rounds of PPP funding and submitting applications at two banks, she has not received a response.
She tells CBS4 she’ll keep applying and hope Congress will add changes in the next round of funding.
“Am I hopeful in that? Not immediately,” Smith said. “I think we’ve been in a fight to get fair access to capital for a long time.”