Black, POC Business Owners Struggle to Get Emergency Loans

By SAFIYA CHARLES, The Montgomery Advertiser
MONTGOMERY, Ala. (AP) — Catastrophic is how David Sadler describes the impact of COVID-19 on his six-vehicle chauffeur service. And he doesn’t see things letting up. At least, not until early next year — maybe. 

From the moment that President Trump started issuing international travel restrictions in late January, Sadler said he began receiving calls from people requesting refunds and cancellations from his company CSI Transportation. 

“Small businesses are hurting,” the father of three said. “Our doors have shut because people just aren’t traveling.” 

Sadler is one of 31 million small business owners and more than 2.6 million black entrepreneurs reeling from the economic fallout caused by the coronavirus pandemic that experts warn could linger into the fall and potentially winter of this year. 

By shifting his business model, he’s certain that he can emerge from the crisis triumphant, though not unscathed. His company however, in its current iteration, will be shuttered; joining an ever-growing list of statistics that have emerged to gauge the impacts of the crisis. 

One of the most startling comes from the Small Business Administration, which estimates that every hour of this pandemic a small business closes its doors. And given the disparities in finance and lending that black and brown business owners have traditionally faced, it stands to reason that a healthy share of those dissolved will be firms owned by people of color. 

When the CARES Act passed in late March, the Congressional Black Caucus negotiated $10 million in grants for minority-owned businesses. A figure that amounts to only $1.25 for each of the estimated 8 million minority-owned businesses in the country. 

Though financial resources aimed at keeping small businesses afloat have emerged, most notably the Paycheck Protection Program, the federal government’s main vehicle for providing loans to small businesses to cover payroll and certain other expenses; one consumer watchdog agency signaled that flaws in how the program’s first round of $349 billion in funding was administered on April 3, would prevent women and POC-owned firms from accessing the relief package. 

On April 22, CBS News reported that roughly 95% of black-owned businesses — 91% of Latino-owned businesses and 75% of Asian-owned businesses — “stood close to no chance of receiving a PPP loan through a mainstream bank or credit union” because of how the program was structured. 

That first round of finance was exhausted in two weeks and, as predicted, many POC-owned businesses either didn’t qualify or were told funds had been depleted by the time their applications had been processed. A second-round totaling $310 billion was released on April 27 and as of May 4 only about $135 billion remains, though many lenders including Regions, Wells Fargo and PNC, didn’t accept new applicants because of backlogs. 

Sadler, who has banked with Trustmark for at least a decade, was encouraged to apply and did so both times, but was warned that he would not likely be approved. His application remains pending. 

What makes the SBA-backed loans so attractive is that they are low-interest and “forgivable,” meaning they don’t have to be paid back once certain requirements are met. They’re also issued on a first-come, first-served basis, which at first seems egalitarian, but upon further inspection reveals underlying deficiencies. 

Many of the banks participating in the PPP program only issued loans to existing clients in a bid to streamline the approval process, but many black business owners don’t have longstanding relationships with major commercial lenders. 

Black business owners are also more likely to own small operations with fewer than 10 employees, presenting less incentive to lenders who can earn more profit from more sizeable companies. These larger loan applications were prioritized over small businesses, CBS reported, citing multiple class-action lawsuits filed on behalf of small firms. 

“Banks are about money,” said Bob Dickerson, founder of the Birmingham Business Resource Center, which advocates for small business owners and administers Birmingham Strong’s small business loan fund, an emergency resource program for local companies and workers impacted by COVID-19. 

“They want to spend their time, effort and expertise analyzing business loans of two, three, five hundred thousand up into the millions because that’s where they’re going to make their money… and that $75,000 borrower is just standing out there in the cold,” he said. 

The definition of a small business is broad, and the SBA defines these businesses as employing 500 people or less. CSI Transportation has just five employees. 

While Sadler said he understood the importance of supporting larger companies, he couldn’t hide his dismay that the structure of the low-interest loan program forced him to compete against firms that were up to ten times his size. 

“It’s frustrating because you see these large companies getting money. I get it, they’re hiring a lot of people, but you can’t factor out small businesses,” he said. 

Micro-firms, those with fewer employees, assets and less revenue, may improve their chances of approval by applying through alternative lenders. 

A key difference in April 27’s dispersal was the diversion of $60 billion in funds to community banks, credit unions and companies such as PayPal and QuickBooks. In Montgomery, Hope Credit Union, which works with smaller firms that might not qualify for services at traditional banking institutions, is one of those lenders and as of May 6 was still accepting PPP loan applications. 

Rep. Terri Sewell said she was hopeful the new guidance in Congress’s fourth coronavirus response bill aimed at serving unbanked and underserved businesses would help to address some of the issues laid bare. 

“I was deeply disturbed by the initial inequities in funding distribution through the Paycheck Protection Program, which clearly disadvantaged minority owned businesses,” Sewell said. “My heart goes out to those small business owners currently fearing for their livelihood, and you have my word that I will do everything in my power to continue to bring home resources to our district.” 

But many black business owners are leery of depending on external support to keep them afloat. And rightly so. 

According to data released every five years by the Federal Reserve, fewer than 47% of black businesses that applied for bank financing between 2012 and 2017 were fully funded. While investment bank Morgan Stanley reports that investors admitted to financing multicultural and women owned businesses 80% less than white-owned businesses. 

Jeremy Kelly of Kelly Realty said that his company had applied for PPP funding both rounds through local lender River Bank & Trust but he wasn’t putting his hope in receiving it. 

Though foot-traffic at the realty business has decreased dramatically — where agents would show 12 properties a week, they’re now showing only three or four — their online traffic has increased. But the crisis has made it harder to close deals. 

“People are having to do employment verification up until the day or week of closing at this point because mortgage companies are afraid their job security is out of whack,” Kelly said. And necessary paperwork such as tax transcripts are often delayed because of increased processing times at the IRS. 

Despite these hurdles, he’s confident the business can survive if it adapts quickly. 

For others, like Uptown Tanz Salon and Spa owner John McClenney II, it’s a waiting game. The business owner said he regularly receives calls from clients inquiring about when he will reopen his shop. A move he views right now as far too risky. 

McClenney, who also owns a package store off Eastern Boulevard, applied for emergency funds through his credit union, though so far to no avail. While his hair salon sits empty, he continues to pay rent and sales tax. McClenney worries about the well-being of his younger stylists who haven’t had enough time in the industry to build up their savings and are now out-of-work. 

“I know I’ve got a fight on my hands, but if I don’t get a PPP or SBA loan, I have excellent credit, I can go to my bank,” he said. “If you haven’t laid a foundation down where you can go to the bank and get something, you’re in trouble.”

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