April 07, 2020

Cardin, Schumer, Shaheen, and Small Business Committee Democrats Urge Trump Administration to Reserve a Portion of Paycheck Protection Program Funding for Underserved Borrowers

Members Push Administration to Ensure Most Vulnerable Small Businesses have Access to COVID-19 Relief Funding

WASHINGTON  Senate Committee on Small Business & Entrepreneurship Ranking Member Ben Cardin (D-Md.) and Senate Democratic leaders today sent a letter to U.S. Small Business Administration (SBA) Administrator Jovita Carranza and U.S. Secretary of the Treasury Steven Mnuchin urging the Trump administration officials to take steps to ensure that the most vulnerable small businesses have access to the important financial resources authorized by the Coronavirus Aide, Relief, and Economic Security Act (CARES Act).  In addition to Senator Cardin, the letter was signed by Senate Democratic Leader Chuck Schumer (D-N.Y.), committee member and member of the Senate Small Business Task Force Senator Jeanne Shaheen (D-N.H.), and Democratic committee members Senators Maria Cantwell (Wash.), Ed Markey (Mass.), Cory Booker (N.J.), Chris Coons (Del.), Mazie Hirono (Hawaii), Tammy Duckworth (Ill.), and Jacky Rosen (Nev.).

The senators pushed the administration to reserve a portion of the $349 billion appropriated to the Paycheck Protection Program (PPP)—a provision included in the CARES Act to provide small businesses and other entities with forgivable, low-interest, zero-fee, and fully guaranteed loans of up to $10 million—for small businesses that do not have relationships with the traditional lenders, especially those in underserved and rural markets, including businesses owned by veterans, minorities, women and businesses that have been in operation for less than 2 years.

The Senators wrote: “We recommend that a portion of available PPP funding be reserved for those borrowers who do not have relationships with the traditional lenders that will dominate delivery of PPP Loans…Without proactive and sustained outreach, we can expect that underserved communities will be disproportionately harmed – just as they were during the Great Recession when minority business enterprises suffered a precipitous decline in the proportion of SBA-backed loan approvals.”

According to press reports, last Friday, the first day small business owners could apply for PPP loans, large traditional banks are prioritizing existing clients that have a loan, checking account or credit card with the institution.

Financial institutions that issue PPP loans earn a processing fee of 5 percent for loans $350,000 or less, 3 percent for loans between $350,000 and $2 million, and 1 percent for loans above $2 million. Democrats fought to include the fee structure in the CARES Act to ensure that small businesses in underserved communities, including women, minorities and veterans, as well as rural markets, are prioritized in the processing and disbursement of PPP loans.

The Senators also urged the administration to authorize more lenders that have demonstrated stronger ties with underserved borrowers, writing, “We believe that more can be done to reach out to and authorize those lenders, such as Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), and mission-based non-profit lenders, which are best positioned to bridge the trust gap between many underserved communities and the traditional financial sector.”

Click here to download a PDF of the letter; the full text follows:

 

Dear Secretary Mnuchin and Administrator Carranza:

We write regarding implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Public Law 116-136), particularly as it pertains to helping underserved communities access important financial resources authorized by the law.  

As you know, the CARES Act included $377 billion to provide relief to support small business owners, who are desperate for help during this unprecedented public health and economic crisis. The majority of this funding was provided to support the Paycheck Protection Program (PPP), which provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. The program allows forgiveness of up to 8 weeks of payroll costs based on employee retention and salary levels, no SBA fees, and six months of complete payment deferral.

It is critical that underserved borrowers do not fall between the cracks in the implementation of this program. That is why Congress insisted on a tiered processing fee structure that incentivizes banks to make loans of $350,000 or less and inserted language encouraging SBA to release guidance to lenders to ensure that the processing and disbursement of PPP loans prioritizes small business concerns and entities in underserved and rural markets.  This includes those owned by veterans and other members of the military community, minorities, women, and businesses in operation for less than 2 years.

We believe that more can be done to reach out to and authorize those lenders, such as Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), and mission-based non-profit lenders, which are best positioned to bridge the trust gap between many underserved communities and the traditional financial sector. For example, a survey conducted by the Association for Enterprise Opportunity (AEO) found that more than half (51%) of Black respondents indicated they felt unfairly treated by financial institutions, compared to only 26% of white respondents.

We recommend that a portion of available PPP funding be reserved for those borrowers who do not have relationships with the traditional lenders that will dominate delivery of PPP Loans. In the first days of the program, it is already clear that many banks are serving existing clients first, with some even prioritizing only those existing clients who have already taken on debt with that financial institution. This leaves underserved communities with no or severely limited access to these vital funds. Without proactive and sustained outreach, we can expect that underserved communities will be disproportionately harmed – just as they were during the Great Recession when minority business enterprises suffered a precipitous decline in the proportion of SBA-backed loan approvals. We must not repeat this same mistake in implementing the Paycheck Protection Program.

We appreciate your immediate attention to this critical issue and thank you for your continued work to mitigate the impacts that this public health crisis is having on our economy.

 

Sincerely,

 

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