Ron Busby and Brock Blake both shot plenty of criticism at the Small Business Administration last year over its handling of the Paycheck Protection Program. Now, they agree: The PPP might be experiencing its first smooth rollout.
On Monday, the SBA and the Treasury Department prelaunched the newest round of the forgivable loan program to specifically help "underserved small businesses" that were unable to secure PPP loans last year. So far, the program has been open only to lenders like Community Development Financial Institutions (CDFIs) and microloan intermediaries--which typically work with smaller businesses than traditional banks do.
To Busby, president and CEO of the U.S. Black Chambers, and Blake, co-founder and CEO of small-business lending platform Lendio, that's a breath of fresh air. Both say that while it's too soon to gauge the program's overall success--many of Monday's applicants won't get approvals until at least Wednesday--early signs for those underserved businesses are positive.
It's well-documented that the country's smallest businesses, particularly Black-owned businesses, were among those least likely to obtain PPP loans in 2020. Last summer, the New York Federal Reserve noted that in the 30 counties across the country with the highest concentration of Black-owned businesses, PPP approval rates fell significantly below the national average. And in the program's first round, the average loan size hovered around $100,000. This week, Blake says, the average loan size processed through Lendio is less than $50,000--a tentative sign of progress, since loan sizes are determined by each company's monthly payroll expenses.
That's especially important for Black-owned businesses, which have been hit particularly hard by the pandemic--and overwhelmingly qualify as "tiny" businesses with fewer than 10 employees, including many solopreneurs. Busby says that encouraging relationships with CDFIs and other community-focused lenders could help increase access for those companies. "CDFIs are more hands-on. They're willing to work with smaller businesses," he says. "Many of our businesses are going to be smaller loans, and are going to be a little more difficult and challenging [to process]."
Building new relationships with smaller lenders could be crucial for another reason: It's important to diversify beyond big banks, which will gain lending access to the PPP later this week. Some of the big banks have histories of racial discrimination against loan applicants, Busby notes, and without preventive guardrails--which the SBA has declined to create thus far--that trend could continue.
Blake sees an additional challenge. The appetite for new PPP loans appears to be strong, with Blake estimating demand at roughly 75 percent of the crazy levels that Lendio faced last year. And until the big banks arrive on the scene, the 400 currently available lenders simply won't have enough processing power to meet demand. "The majority of these smaller businesses are not going to be helped until more lenders are at the table," he says.
And even that might not help. During last year's PPP madness, banks actively lost money fulfilling loans under $50,000. This time around, the SBA tweaked its loan brackets to prevent the same mistake--but lenders will still make more money by processing larger loans. Blake's suggestion for the SBA: Before allowing big banks back into the program, issue new guidelines stating that lenders must prioritize their smallest loans first.
At the very least, Blake says, the program's newfound level of organization should give small businesses hope. "Last time, the SBA was writing the rules as they went. Every day, there would be a new rule, a new guidance. It was very much the Wild Wild West," Blake says. "We're feeling way better this time. I bet everyone is."