Second Round of PPP Loans Prioritizes the Underserved

The second round of the federally funded Paycheck Protection Program is prioritizing “underserved” businesses — minority-, women- and veteran-owned and rural businesses — by setting aside money for them and through targeted outreach efforts.

Lenders that serve those businesses also had a week’s head start on applying to make the forgivable loans, which are designed to soften job losses from the pandemic. The Economic Aid Act, passed late last year, allocated $284 billion for the new PPP.

Businesses have been able to apply for the loans through their lenders for about a month, and the loans will cover job retention and certain other expenses through March 31.

The latest PPP launched on Jan. 11 for certain lenders and became available to all lenders on Jan. 18. As of Jan. 31, $72.7 billion in these second-round PPP loans had been approved, according to the U.S. Small Business Administration. Of that, $4.4 billion went to minority-owned businesses, $436 million to woman-owned businesses and $93.9 million to veteran-owned businesses.

“The first round of the Paycheck Protection Program failed many Black-owned businesses. The distribution of loans was done without considering the inequities that exist in the banking industry,” Benito Lubazibwa, CEO and founder of ReMix Ideas LLC, told Arkansas Business by email. ReMix’s mission is to help Black entrepreneurs start, grow and scale their businesses.

That $525 billion round of PPP ended in August.

National media outlets echoed Lubazibwa’s sentiment, and SBA Arkansas District Director Edward Haddock told Arkansas Business this new prioritization is a response to critical headlines.

“At the heart of what’s going on here is the government is stepping in to bail out businesses who can’t bail themselves out,” he said. “That’s really what we’re looking for, is to impact those hardest hit businesses.”

Billions Set Aside

Haddock said setting money aside is one way the SBA is prioritizing the “underserved,” a term that refers to small businesses that are traditionally underbanked or have reduced access to small-business loans and other funding opportunities.

So at least $15 billion of the 2021 PPP loans will be issued by “community financial institutions,” which typically cater to the underserved. CFIs include Community Development Financial Institutions, Minority Depository Institutions, Certified Development Companies and Microloan Intermediaries.

CFIs were 10% of all PPP lenders in 2020, according to the SBA. As of Jan. 31, they had made $3.4 billion in 2021 PPP loans. Banks, credit unions and farm credit system institutions with less than $10 billion in assets made $41.3 billion in loans, more than half of the approved loans.

Haddock said another $15 billion in loans had been set aside to be issued by certain small depository institutions.

On the borrower side, he said, are:

• $35 billion for first-time borrowers, of which $15 billion is for businesses with 10 or fewer employees or for loans of less than $250,000 in low-income areas, and

• $25 billion for second-time PPP borrowers with 10 or fewer employees or for loans of less than $250,000 in low-income areas.

The SBA may adjust these set-asides going forward, Haddock said.

Darrin Williams, CEO of Southern Bancorp Inc. in Little Rock, a Community Development Financial Institution, said he was part of a team that lobbied for these set-asides. “The carve-out is absolutely, absolutely critical and important,” he said.

The second way in which underserved businesses have been prioritized is that their lenders had a head start on submitting their applications for the second-round PPP.

On Jan. 11, only CFIs were able to apply to make loans to first-time PPP borrowers, those who didn’t get a PPP loan last year.

On Jan. 13, the CFIs could begin submitting applications for borrowers who received PPP loans last year but are seeking another this year.

On Jan. 15, PPP-eligible lenders with $1 billion or less in assets could start applying to make both types of loans. The SBA said that opened the PPP up to approximately 5,000 community banks, credit unions and farm credit institutions.

The SBA also launched dedicated service hours for smaller lenders after the portal opened to all lenders on Jan. 18.

Williams said he appreciated the head start, but it wasn’t that helpful “because most of our customers weren’t ready yet anyway.”

‘Aggressive Outreach’

The third way the prioritization is being implemented is through outreach efforts. Haddock said SBA Arkansas has collaborated with the Venture Center, the Arkansas Better Business Bureau, the ASBTDC, The Conductor, Arkansas Women’s Business Center at Winrock International, Arkansas Bankers Association and Arkansas Community Bankers Association to get the word out. His office has hosted half a dozen sold-out webinars as well.

Williams said a lot of outreach is coming from financial institutions like his and from designated “entrepreneurial support organizations.”

“Really good, aggressive outreach has been helpful to reach underserved markets,” he said.

Brandon Horvath, capital access specialist at the Arkansas Small Business Technology & Development Center, praised the Arkansas SBA for partnering with ESOs like his and being responsive despite its small staff of seven, including Haddock.

Brokered Trust

Haddock said the SBA is better positioned to run the second PPP because the first one presented many barriers.

He believes many businesses didn’t apply then because they were uncertain whether the loans would be forgiven and hesitant to trust an unproven government program. Also, the smallest businesses don’t have a formal structure that would allow them to readily obtain the documents they’d need to apply for and have the loans forgiven, Haddock said.

“I think the expediency of the program and how it was developed and rolled out, of course all the answers weren’t there. … We learned a lot of things,” Haddock said. “And so I think now we’re refining that and getting better at distributing funding of this size and scope. So we’ve built and brokered some trust in the first round,” he said.

Lubazibwa, with ReMix Ideas, voiced optimism about these new efforts. “Due to the strong partnership between SBA Arkansas and local Community Development Financial Institutions, I am cautiously optimistic that Black businesses will get their share this time, especially because CDFIs are well-positioned to serve under-resourced entrepreneurs,” he said.

“Many Black entrepreneurs are applying and hoping this round of PPP will be different.”