March 13, 2021

Pearl River     If the Jeffersonian story of America was the small yeoman farmer, the contemporary story of America is often of small businesses. These are the main streets and rural areas celebrated by Republicans certainly, but actually more widely in contemporary culture as well. Small businesses may not be as prosperous as techsters and urbanites want, but they are supposedly more “rooted.” In some ways, it’s an appealing story, but as Cory Anderson, the chief innovation officer of the Winthrop Rockefeller Foundation, pointed out on Wade’s World recently it masks a “systemic problem.”

I had gotten a copy of the foundation’s recent report on the lack of access to capital that is experienced by minority and women-owned businesses. The study was primarily based on an Arkansas sample, but I fear the findings are broadly national, just as they are systemic. The report repeated the depressing figures reflecting the small percentage of ownership compared to the significant segment of the population that Black and Latinx represent in the state. They noted that 75% of minority and women-owned businesses were financed by other sources outside of traditional credit facilities. These were sobering, but not surprising statistics.

In the wake of the pandemic and the various stimulus programs from the CARES Act under Trump to the special Biden programs now, particularly the recent window that barred anyone but smaller businesses employing less than fifty workers, it would be fair to hope that help is on the way. Unfortunately, Anderson said the record on Payroll Protection Program or PPP loans to smaller businesses was really no better. He cited this portion of their report:

Between 2015 and 2019, Arkansas small businesses received nearly $1 billion in financing through the Small Business Administration 7(a) program. Only 1.2 percent of these investments supported Black-owned businesses, and 1.8 percent supported Hispanic-owned businesses.

On its face, that’s a horrible statistic. Essentially, the takeaway is that the SBA, which is the the financial source for smaller business, simply did not loan to Black or Hispanic-owned businesses. At 1.2% and 1.8%, we are talking about the margin of error, a rounding error, and in fact less than the bar bill for most big businesses. This is hardly more than scraps from the table.

But, when looking at pandemic relief and PPP monies, it is actually even worse. If you are lucky enough not to have been in the weeds trying to get PPP support in these terrible times, let me help you understand the problem. So, yes, the SBA is where the money flows from Congress and the President’s signature, but then it is handled by banks, and that’s the hell of it, since they are the distributors and in George W. Bush’s famous works, they are the “decider.” Their websites are down while they review regulations. They all have different requirements. You have to be their customers for one. We trade with a big bank, but initially no one knew who or where in the bank to call for any information. If you have a small, minority owned business, you have likely already been shut out of SBA loans as those horrid, piddling percentages reveal, but now to stay alive you have to be able to try and climb that mountain again. Good luck!

Anderson mentioned CDFIs as a solution, which are Community Development Financial Institutions, long a favorite of foundations and others for extending credit to rural areas and other underserved populations. Their report surveying actual small businesses found that CDFIs were way at the bottom of any of their lists as a source for funds. Anderson argued that the foundation had tried to prime their pumps with $1000 grants to assist applicants and their outreach.

Somehow that still sounded hollow to me. The problem with the big banks is that they are not doing the outreach to these credit deprived areas and businesses, so to find that CDFIs also don’t have the relationships and outreach in the communities they are designed to serve is part of the same problem, not part of the solution at least for the time being.

Given ACORN’s long history in helping pass, defend, and promote the Community Reinvestment Act, we both agreed that none of these reports made a case for the kind of compliance that the Federal Reserve should be demanding for financial institutions they regulate.

Anderson is right. This is a systemic problem. It demands a systemic solution. Tragically, while people are waiting to see that happen, they are losing their businesses. Meanwhile the gap between underserved populations and communities is widening at the same time.