Neglected community lenders ask for help after missing loan frenzy

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“Panic” was how Joe Sky-Tucker described the sentiment of his low-income customers at the end of March.

His Seattle-based organization, Business Impact NW, went out of its way to help clients who often couldn’t get loans from traditional financial institutions. Uneven access to federal aid meant money was shrinking for the institution by $ 12 million, as it faced growing funding requests from panicked clients.

“It was so new that everyone was in a panic: ‘What is going to happen to their business, what is going to happen in the economy, what is going to happen from the point of view of public health, ”Sky-Tucker said. “Everyone was just grabbing, they were desperate for help.”

Congress provided a lifeline for small businesses in late March: the Paycheck Protection Program, a $ 349 billion program to facilitate government-backed forgivable loans to keep businesses afloat. Demand was strong when the program was launched in early April: the funds allocated sold out in less than two weeks and many community development finance institutions (CDFIs) like Sky-Tucker’s have felt left out.

The more than 1,000 CDFIs across the country provide education, investment, and loans to low to moderate income individuals and businesses who typically cannot access credit at major banks and are most at risk in the event. economic downturn.

With Congress set to begin negotiating another back-up plan later in July, CDFIs are looking to the future and seeking new funding mechanisms to support their clients.

“The people we work with feel the effects first, they feel the effects more deeply and it takes them longer to recover,” Sky-Tucker said. “It’s just who we serve.”

First missteps

At the start of the program, hundreds of CDFIs were certified to offer PPP loans, a Treasury spokesperson told Bloomberg Tax, because they were already Small Business Administration approved lenders or because they are federally insured financial institutions or credit unions.

But for many CDFIs, getting an application was almost impossible. Sky-Tucker said his organization was successful in getting eight requests approved into the SBA’s system in the first round of funding, and only after investing in software that processes and submits requests more efficiently.

Tommy Espinoza, CEO of Raza Development Fund, a Phoenix-based CDFI, said the vast majority of his clients are used to dealing with physical cash and paper, unlike the digital submissions required by the program. This barrier alone has delayed her organization’s ability to direct funds to the Latino-owned mom-and-pop stores it supports.

“I would venture to say that the majority of this population, or these companies, have been excluded from this,” Espinoza said. “What is a shame is that some of them may not come back. “

The Treasury spokesman said the government tried, where possible, to include CDFIs from the start of the lending program.

“Since the launch of the PPP, the Treasury and SBA have worked tirelessly to encourage and facilitate the participation of CDFIs so that traditionally underserved communities have the resources they need,” the spokesperson said in a statement to Bloomberg Tax. “We have prioritized and contacted hundreds of CDFIs multiple times since the start of the program with a clear message: CDFIs are sought after as PPP lenders, and it is easy for them to sign up.

Second round changes

The first round of loans was criticized after the money ran out quickly and it was reported that recipients understood large companies like Shake Shack, Ruth’s Chris Steakhouse and the Los Angeles Lakers.

“Banks that have already been approved have gone to their customers,” Lisa Mensah, president and CEO of Opportunity Finance Network, told Bloomberg Tax. “And we knew from the start that their customers weren’t the backbone of the economy.

The Treasury Department has made some changes to program rules when the PPP was relaunched at the end of April with an additional $ 320 billion.

The Treasury has also done more to certify CDFIs, Mensah said, which has required the support of CEOs of some of America’s largest banks, constant harassment from CDFI groups and a surge of members of Congress.

The Treasury spokesman said more than 400 CDFIs were invited to become PPP lenders on April 26, and more than 200 more invited to apply on May 1. noted.

The Trump administration took another step in May to ensure low-income communities have access to P3 funds. The government affected $ 10 billion specifically for CDFIs and later an additional $ 30 billion for small institutions including CDFI.

“I think mistakes were made,” Mensah said. “But the swift response and the surprisingly bipartisan nature of the full-throated set of defenders have been extremely valuable to our industry and our future.”

Until June 27, the SBA had disbursed more than $ 7.3 billion in loans through 303 CDFIs, according to the SBA The data. This number could increase if President Donald Trump signs a bill that authorized Congress to extend the nomination period, which expired on June 30, in August.

Not a universal fit

Even with the increased reach of the Treasury, some CDFIs still chose not to participate.

Inna Kinney, founder and CEO of the Institute for Economic and Community Development in Columbus, Ohio, said her organization refused to participate because CDFI requirements prevented her organization from using the money. The organization has provided nearly $ 6 million in new loans since April.

Kinney cited a provision requiring CDFIs to create, maintain and manage more than $ 50 million in business loans or other trade financial receivables in a consecutive 12-month period in the past 36 months. His organization, one of the largest in Ohio, has total assets of $ 27 million.

ASB relaxed this requirement in early May, but Kinney expressed what many thought: PPP was not designed for organizations like his.

“It’s great for Congress to have all of these programs in place, but they also need to think about how organizations can do it because we don’t have the money like the banks do,” he said. Kinney said.

A direct funding vehicle for CDFIs in the next coronavirus relief measure would go a long way in depleting funds, Kinney said.

Until then, CDFIs will continue to leverage their existing banking partners, local governments and states for more assistance.

“We will strive to be there for our community,” said Espinoza of the Raza Development Fund. “We heard through all this madness: La esperanza que los dieron – everyone, you gave me hope, someone cared.”


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