By Ray Birch
NEW YORK—With only two days remaining to file applications for Paycheck Protection Program (PPP) funds, Inclusiv is concerned many minority small businesses will be left out of the two funding rounds—due to a “fault line” in the financial system the pandemic has exposed.
That fault line, explained Pablo DeFilippi, SVP of membership and network engagement at Inclusiv, is big banks have not served the very smallest businesses well through the PPP process because those requests for funds are relatively small. Moreover, he added, the SBA’s PPP has largely been designed for bigger businesses.
“There is huge opportunity to boost lending to small businesses for credit unions,” said DeFilippi. “There is about $120 billion in PPP funding remaining and data show 45% of Latino businesses are not going to be able to come back from this economic crisis. So, there's this disconnect between resources available and how we get these resources into communities, and that's where credit unions with their (Community Development Financial Institution) status can create an amazing story.”
DeFilippi believes credit unions, especially those with CDFI status, will likely have to look for ways to assist minority-owned small businesses after the PPP funding application deadline passes, which is June 30.
“We are running up against a deadline and there is a lot of money left—a lot of money that can do a great deal of good within minority communities,” suggested DeFilippi. “I am hoping credit unions do all they can in these final days to assist as many small, minority business as they can—they need the money desperately.”
Ignored Requests
What has happened among minority small businesses during the two rounds of PPP funding, contends DeFilippi, is big banks have largely ignored their requests for loans.
“The SBA program was designed more to serve established 7(a) lenders, which the majority are the big banks. And we saw what happened with most of the PPP funds during round one—they went to very large businesses. Now, much more of the money was able to be accessed by credit unions during the second round of PPP, and we saw many smaller loans going to smaller businesses.”
But the size of the typical loan to minority small businesses as part of the Paycheck Protection Program is about $27,000, said DeFilippi, citing Inclusiv data.
“They don’t need a lot,” said DeFilippi. “These are businesses that are not accustomed to getting business loans. They rely on their credit cards and consumer loans.”
New to Financial Institutions
Pablo DeFilippi
And that is another reason DeFilippi believes those businesses have been passed over by banks during PPP.
“These small businesses have typically not had access to financial institutions, and they need some special assistance to complete the PPP application packet,” explained DeFilippi. “The application packet is not that simple to complete. There's some preparation that has to happen, and that's where credit unions have been so helpful during this process.”
DeFilippi believes the personalized assistance credit unions have been extending to small businesses during the health crisis will pay off for those same CUs in the years to come.
“Credit unions, not typically know by consumers for making business loans, are making names for themselves as commercial lenders now,” he said. “The minority small business community is hurting and they need support. They need credit unions to step up. I know there are not many days left to make a PPP application, but I hope credit unions are doing all they can now to reach out and let minority small businesses know they will help them.”
Seeking Deadline Extenstion
DeFilippi noted Inclusiv has been speaking with Congress to extend the PPP application deadline.
“But we know that is not likely to happen,” he said.
After the deadline passes, DeFilippi hopes more credit unions will connect with minority small business owners to assist them with funding. He said the pandemic revealed a big problem exists.
“This health crisis has exposed a fault line in the financial system, a fault line credit unions can close,” he said. “We can be the solution. We can become the engine of economic recovery for these small businesses.”