The new $900 billion Covid-19 recovery stimulus bill includes a new $284.45 billion round of Paycheck Protection Program (PPP) funding, with some major tweaks aimed at fixing some of the issues with the first round. It’s no secret that Black-owned businesses were the hardest hit by the pandemic, with Goldman SachsGS finding that they continue to face a tougher road to recovery. The Wall Street firm noted that 31% of Black small business owners have seen less than 25% of their pre-covid revenue return. Even though 60% of funds borrowed by businesses under the new PPP must still go toward payroll, the other expenses that the remaining 40% can go toward have been expanded and could be a game-changer for Black-owned businesses.
The Breakdown You Need To Know:
CultureBanx reported that in response to claims that small, women, and minority-owned businesses didn’t have as much access to the PPP the first time around, the new law sets aside a portion of the total money for small community banks, credit unions and community development financial institutions (CDFI). Typically, CDFIs have a special interest in banking throughout minority communities, reviving struggling neighborhoods, increasing local economic activity with hopes of ultimately seeing the Black and brown entrepreneur thrive.
Many experts feel the relationship between Black business owners and major banks has accelerated the demise of these companies across the country during the pandemic. The most recent Federal Reserve data illustrates that Black business owners are denied loans at twice the rate of white business owners. Remember, that the initial PPP program was the first time some Black and Latino business owners had ever requested a bank loan and, and according to the New York TimesNYT, "many banks considered applications only from existing customers.”
The Second Draw:
Losses for small business are being felt across nearly all industries. African-American businesses are being hit especially hard experiencing a 41% drop, Latinx business owners fell by 32%, and Asian business owners dropped by 26%. Unfortunately, more than 90% of small businesses in majority Black communities only hold cash reserves that are equal to less than two weeks of operating capital, so they are more likely to run out of cash when customers stay at home and are in need of the new PPP funding.
Unfortunately, the original PPP payments failed to adequately reach Black and Latinx business owners. In fact, only 2% of Black-owned businesses received loans as part of the CARES Act, that’s funded 4.9 million loans totaling more than $521 billion. The application process was run through commercial banks, primarily benefiting those companies with existing relationships.
Goldman Sachs found that 31% of Black small business owners have seen less than 25% of their pre-covid revenue return. The financial firm also noted that 43% of Black small business owners say their businesses’ cash reserves will be depleted by year's end. A recent survey of Black and Latinx businesses found that about 12% received the assistance they requested.
What’s Next:
Some of the new expenses covered through the latest round PPP can be tremendously helpful for Black-owned businesses now includes costs to install sneeze guards, buy personal protective equipment, switch to outdoor dining and other money needed to make a business Covid-19-safe. The funding can also go toward expenses incurred through vandalism or looting that occurred last summer. Businesses that received a PPP loan the first time can apply for a second loan under the new PPP, with certain restrictions. The program is still administered by the Small Business Administration, which will release details in the coming days/weeks on how to apply.
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