Friday, May 27 2022

The paycheck protection program is the federal government’s primary tool to keep small businesses afloat and their employed workers during the coronavirus crisis, but critics say it isn’t helping the type of small business the most current – one without employees – and this disproportionately harms women and minority entrepreneurs.

In a class action lawsuit filed earlier this month, business owners without employees allege that the Small Business Administration and the Treasury Department denied them access to the program for a critical 12-day period when their Initial funding of $ 350 billion was being disbursed and exhausted. Even now that Congress has allocated an additional $ 320 billion for PPP, they say the benefits given to companies without employees are less generous than their biggest rivals.

“It doesn’t seem fair to say that we’re going to take this whole class of business and say you can’t participate until the money is actually lost,” said Matt Kraeuter, partner at the firm of Frost lawyers. & Associates, who filed a class action lawsuit against the government.

Even after PPP funding was replenished last week, these businesses remain at a disadvantage as sole proprietors and independent contractors are not allowed to include healthcare and 401 (k) contributions when calculating loan amounts, Kraeuter added.

The delay in accessing funds and the unequal treatment of these businesses create a disparate impact for women and people of color, as these groups are more likely to own businesses without employees, according to the lawsuit. Kraeuter cited statistics from the SBA that found 89.5% of women-owned businesses 96% of black-owned businesses are not employees, compared to 79% of white-owned businesses.

The lawsuit cites the example of Alvin Vaughn of Silver Spring, Md., Who owns a sole proprietorship in insurance and financial services. Vaughn said he contacted his bank during PPP launch week to apply for a loan, but was initially told his request could not be processed because the SBA had not issued guidelines on how to treat individual businesses. Vaughn was then unable to find another lender until the PPP ran out of initial funding.

In the United States, more than 24 million businesses that have no employees face it, as it would be less profitable for banks to prioritize PPP loans to these businesses because they generate lower fees and , often, they do not have credit relations with the banks.

See:Pelosi suggests banks that give PPP loans shouldn’t be paid more to serve large corporations

And read:These state-owned enterprises repay emergency loans for small businesses

“There has been no guidance from the SBA on the order of priority in which claims should be dealt with first,” said Alan Wink, managing director of tax and accountant firm Eisner Amper.

“A lot of people have been told it will be on a first come, first served basis, but the banks have done so, in the absence of guidelines to the contrary, which most capitalist institutions would do, they have had to say. ‘First processed loans from their existing borrowers, “Wink added.” The banks were smart. If they had any businesses that were going to have problems because of COVID-19, if they got that money from the government, their chances of repaying the banks on the previous loans would be better. ”

While making sense from a business perspective, this type of behavior hurts the businesses and communities that need money the most, said Ashley Harrington, an attorney at the Center for Responsible Lending. “Communities of color haven’t even recovered from the Great Recession,” she said. “They were still rebuilding, and these are the communities hardest hit by the pandemic. ”

Related:According to a study, emergency loans for small businesses “accessed in areas less severely affected” by the coronavirus

According to Centers for Disaster Control and Prevention, “Current data suggests a disproportionate burden of illness and death among racial and ethnic minority groups,” with a recent study showing that 33% of hospital patients were black, compared to 18% for the surrounding community.

In an effort to “ensure special access” to PPP funds for companies that have so far been excluded from the program, the SBA on Wednesday announced a special eight-hour window during which the government would only accept loans. lenders with an asset size of less than $ 1 billion.

“The SBA is working to ensure that all eligible small businesses have access to this funding to support their businesses and keep their employees on the payroll,” said Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza in a joint statement.

Harrington said such measures would not be enough, however, and the Center for Responsible Lending is calling on the Treasury Department and the SBA to set aside $ 10 billion of the $ 320 billion recently allocated specifically to community development finance institutions. and minority depositories, which have a strong track record of serving borrowers of color and are the least likely to be successful as PPP lenders “in its current structure”.

“As long as there are funds left, Treasury Secretary Mnuchin has time to set aside this reserve,” Harrington said. “We need to bring this relief to those who need it most. “

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