Elyse Farnsworth was eagerly awaiting the rollout of the U.S. Small Business Administration’s Paycheck Protection Program.
The hair stylist and owner of Arrow Salon LLC on the East Side of Providence called her bank prior to the April 3 launch and prepared the documentation needed to submit an application. But when she hit “send” on the online submission via Bank of America Corp., she was turned down.
The reason? Though Farnsworth is a longtime bank customer, she did not have a line of credit, which Bank of America originally required when accepting applications. Farnsworth was taken aback – she was not told about this stipulation in prior conversations with the bank and had never missed a credit card payment.
Frustrated but not willing to give up, she turned to plan B – find another bank. This also proved impossible; Farnsworth called about 15 banks, none of which would accept her application because she was not a customer.
R.I. Treasurer Seth Magaziner, who soon after the program launch issued a statement calling on banks to accept applications from new customers, said his office heard from hundreds of business owners in this predicament.
While many banks loosened initial restrictions on who could apply after facing criticism, including Bank of America, the rush for funding left the $349 billion program depleted after just 13 days, too late for some of those initially turned away.
‘These are [microbusinesses] that don’t have a payroll. They don’t have a chance.’
OSCAR MEJIAS, Hispanic Chamber of Commerce CEO
Early reports suggest the program money went to large, white-owned companies at the expense of microbusinesses and those owned by women and minorities.
A report by the Center for Responsible Lending estimated roughly 90% of businesses owned by people of color “stand close to no chance” of receiving a PPP loan through a mainstream bank or credit union, citing the lack of a banking relationship, as well as the fact that they are more reliant on debt-financing, which may disqualify them.
Big banks reportedly prioritizing applicants with larger payrolls also disproportionately shut out women and minority-owned businesses, who on average have 30% fewer employees and 10% to 50% fewer sales than their white male counterparts, according to the Brookings Institution.
Mark S. Hayward, director for the SBA Rhode Island District office, said he could not comment on how this played out in Rhode Island without details of who received the 6,000-plus loans totaling $1.2 billion, information not yet available.
But existing research and anecdotal information indicates many Rhode Island businesses owned by women and minorities, as well as those super-small companies, were left out. Marcela Betancur, director of the Latino Policy Institute at Roger Williams University, named a lack of financial resources, as well as language barriers and a distrust of financial institutions, as barriers to accessing PPP loans for Latino business owners.
Cynthia Scott, vice president of the Rhode Island Black Business Association, agreed.
“The disconnect between minority microbusinesses and any formal financial structure is very real,” Scott wrote in an email. “In spite of all the media and the hype, those that call us don’t know there are public resources that are available to them.”
After criticism of the initial funding for putting certain subsectors of the business community at a disadvantage, federal lawmakers have set aside allocations in the second round of funding for community-development financial institutions and other smaller lenders better positioned to serve micro, women and minority-owned businesses.
That carve-out fails to address what many consider to be the biggest reason why this subsector of the small-business community cannot get help through federal loan programs: they don’t qualify.
“These are barbershops, beauty salons, restaurants that don’t have a payroll,” Oscar Mejias, CEO of the Hispanic Chamber of Commerce explained. “They don’t have a chance.”
This also speaks to the overly broad definition of small business under the SBA, which simply cannot serve one-person shops, as well as companies with 500 employees, said Bruce Katz, co-founder of New Localism Advisors who has written several economic reports for the state.
“Until we open up more distribution channels [outside the SBA], we’re going to see some of these very small businesses, particularly those owned by people of color, collapse,” Katz said. “We need to broaden the aperture here.”
Ultimately, Farnsworth realized that she did not qualify for PPP because the other three stylists who work in her salon do so on a rental basis, meaning they are not on payroll.
A self-described “anxious saver,” Farnsworth estimated she had enough in her account to survive another few months with no revenue. But the idea that a large company such as Ruth’s Chris Steakhouse could qualify for a $20 million PPP loan while she got nothing seemed unjust. (The restaurant chain returned the loan.)
“That’s not a small business,” she said. “It would take so much less money to help a business like mine. Instead of giving $20 million to one company, they could have helped hundreds of small businesses.”
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
