On these pages the case was made for the SBA to go deeper to reach the Mom and Pop stores that were left out of the first round of funding. Congress responded with dedicating $30 billion to go towards smaller lenders especially community development financial institutions. The SBA also responded by focusing on the smaller lender during a 7 hour window last week. So what do the latest numbers reveal as to the success in reaching the Mom and Pop entrepreneurs? (report below)
The broad aggregate numbers are moving in the right direction. SBA data shows of the $175 billion disbursed to date $ 27 billion went to lenders under $1 billion in assets. These smaller lenders included community development financial institutions that are better connected to their local communities especially micro businesses.
An interesting statistic is that 27 percent of the loans went to lenders under $1 billion in assets. But it appears that these lenders are the majority of lenders in the program but got a smaller percentage of the loan disbursements. 85 percent of lenders (who were less than $1 billion in assets) disbursed only 16 percent of the total loan amounts.
So the system is skewed to large lenders and the key point is how good are these larger lenders in serving minority and micro businesses? We need data dis-aggregated by race and size to get at the answer. Wonder when will that data be available?
In terms of loan size, both ends of the distribution got around the same percentage of total dollars – 28 percent went to loans under $100k and 27 percent of the loans went to loans over $1 million.
Minnesota received 37,000+ approved loans for a total of $2.1 billion. According the the SBA Update, “In total, 83,650 Minnesota small businesses will benefit from $11.2 billion to date from PPP loans.” This is a sizeable boost to the local economy.
The big challenge is to help the businesses who now have the ability to hire workers by increasing the demand for their products and services. The gradual opening of the economy is a step in that direction.
What we found out in Minnesota in a small sample of micro businesses was that the loans really began to reach the ones with the least power and access when the SBA dedicated a special 7 hour block exclusively for small lenders. This helped CDFIs serving micro and minority businesses either to upload their applications easier. A noteworthy partnership between a larger CDFI, the Community Reinvestment Fund (CRFUSA), established a partnership with smaller CDFIs to enable them to use their lending platform. A number of micro businesses got into the door through this important partnership.
The bottom line is as we go deeper into outreach we have the toughest group of micro-businesses who play a critical role in stabilizing low income neighborhoods, but have barriers of language and business infrastructure that prevents them for effectively applying for the loans. The executive director of a small CDFI serving African immigrants, AEDS, shared how he spent hours on 5 applicants only to finally reach the unfortunate conclusion that they did not have the necessary documentation to apply.
For CDFIs serving this tough demographic it is important to do two things – have dedicated funds for them and fund the increase in capacity to serve these specific micro businesses. This is an important part of the recovery effort. Boarded storefronts in low income neighborhoods will only pull that community down faster during this crisis.
We need to see the data of loan disbursed by CDFIs especially to minority and micro businesses.
Covid Economic Policy 