Center for Responsible Lending: Black, Latino and Immigrant Business Supporters Call for Immediate Improvements to Small Business Relief Program

DURHAM, North Carolina, Feb. 15 — The Center for Responsible Lending issued the following news release:

100 organizations supporting African American, Latino and immigrant-owned businesses called on the Department of Treasury, the Small Business Administration and Congressional leaders to enact immediate changes to ensure that relief through the Paycheck Protection Program (PPP) gets to the business owners who need it the most.

Organizations signing on include the Center for Responsible Lending, Local Initiatives Support Coalition, American Business Immigration Coalition, Asian/Pacific Islander American Chamber of Commerce and Entrepreneurship (National ACE), U.S. Haitian Chamber of Commerce, Inc., United States Hispanic Chamber of Commerce, U.S. Black Chambers, Inc., Opportunity Finance Network and dozens of other organizations.

The letter was sent to Secretary of Treasury Janet Yellen, SBA Administrator-Designate Isabel Guzman and Congressional leaders and articulates a particular concern. Despite improvements to the structure and implementation of the PPP, sole proprietors, independent contractors and self-employed people continue to have difficulty accessing sufficient relief because of the way loan amounts are determined for microbusinesses.

Changes in the rules for the latest round of funds provided a remedy for this issue for the small farmers and ranchers who faced this same challenge, but other microbusinesses are still not able to take advantage of this fix.

The $800 billion PPP had structural flaws since its inception that favored larger, more well-resourced businesses. While recent rounds of funding have included improvements that removed some barriers, others still remain that present challenges for the smallest businesses, disproportionately owned by people of color. The organizations are asking for a simple fix to the rules to address this lingering barrier.

From the letter:

* In this public health and economic emergency, we must do all we can to make sure our small businesses have the support and assistance they need to weather the crisis. That must be especially the case for our very small and underserved businesses, including in communities of color…

* Businesses of color are a substantial source of income and employment in communities of color–accounting for 8.7 million jobs at total annual payroll of $280 billion, and $1.3 trillion in revenue–yet they were almost entirely excluded from the first round of funding in the PPP due to structural flaws with the program.

* * *

To: The Honorable Janet Yellen, Secretary of the Treasury, 1500 Pennsylvania Avenue, NW Washington, D.C. 20220

The Honorable Tami Perriello, Administrator (Acting), Small Business Administration, 409 3rd St., SW Washington, DC 20416

The Honorable Isabel Guzman, Administrator-Designate, Small Business Administration, 409 3rd St., SW Washington, DC 20416

The Honorable Ben Cardin, Chairman, Senate Small Business and Entrepreneurship Committee, 509 Hart Senate Office Building Washington, DC 20510

The Honorable Rand Paul, Ranking Member, Senate Small Business and Entrepreneurship, Committee, 167 Russell Senate Office Building Washington DC, 20510

The Honorable Nydia Velazquez, Chairwoman, House Small Business Committee, 2302 Rayburn House Office Building, Washington, DC 20515

The Honorable Blaine Luetkemeyer, Ranking Member, House Small Business Committee, 2230 Rayburn House Office Building Washington, D.C. 20515

February 12, 2021

Dear Secretary Yellen, Chairman Cardin, Ranking Member Paul, Chairwoman Velazquez, Ranking Member Luetkemeyer, Acting Administrator Perriello, and Administrator-Designate Guzman,

We, the undersigned organizations supporting African American, Latino and immigrant-owned businesses across the country, respectfully request that you enact changes immediately to the Paycheck Protection Program (PPP) to increase meaningful access for sole proprietors, independent contractors, and self-employed individuals. While the Economic Aid Act addressed many of the impediments to access for business owners of color, barriers remain. Of urgent concern is the continued exclusion of microbusinesses, many owned by people of color in rural and urban communities alike, that cannot access the amount of relief necessary to navigate this ongoing public health and economic emergency.

Sole proprietors, independent contractors and self-employed individuals (most of whom typically file their business income taxes on IRS Form 1040, Schedule C) have reported significant challenges in accessing the necessary relief. Current provisions in program rules link the loan amount related to owner-employee payroll to “net profit” listed on line 31 of the owner's IRS Form 1040 Schedule C, which prevents these micro-businesses from accessing meaningful amounts of aid. As has been widely reported, this effectively excluded many of the smallest businesses from participating in PPP. Indeed, many of these businesses applied for PPP loans only to find out they were ineligible under this formula, or would receive a PPP loan of less than $100.

It is particularly concerning that this rule remains in effect given the Economic Aid Act provided relief for small farmers and ranchers who file Schedule F forms. Prior to the enactment of this package, Schedule F filers and Schedule C filers were treated the same under SBA guidelines. As a result of this package, however, Schedule F filers may now utilize “gross income” as opposed to “net profit” in calculating owner-employee payroll. We understand that this distinction between microfarmers and other microbusinesses may have been unintentional; however, the effect is to further existing inequities. This becomes readily apparent when you consider that microbusinesses account for 95% of Black-owned businesses and 91% of Latino-owned businesses, who remain unable to fully access relief.

The CARES Act specifically gives the Administrator authority to promulgate rules as necessary to carry out the PPP and to exercise its authority. It also notes on page 30 that loans to businesses “owned and controlled by socially and economically disadvantaged individuals” should be prioritized. To fully realize this directive, the rule for Schedule C filers must be changed. To that end, we urge the SBA to adjust these criteria to align loan amount requirements with the approach recently taken by Congress to support small farmers and ranchers by linking loan amounts to the “gross income” entry on line 7 of the Schedule C. This change will meaningfully increase the amount of PPP support available to microbusinesses. Average loan amounts would remain low as other program rules place reasonable caps on the amount of owner income that can be included in determining the loan amount. Absent this fix, PPP will continue to primarily benefit predominantly white, well-capitalized businesses.

In this public health and economic emergency, we must do all we can to make sure our small businesses have the support and assistance they need to weather the crisis. That must be especially the case for our very small and underserved businesses, including in communities of color. Oftentimes these microbusinesses lack the resources of larger businesses and in many cases, have faced long-standing economic and process inequities that have only been exacerbated by COVID-19. Businesses of color are a substantial source of income and employment in communities of color–accounting for 8.7 million jobs at total annual payroll of $280 billion, and $1.3 trillion in revenue/i–yet they were almost entirely excluded from the first round of funding in the PPP due to structural flaws with the program. The design of PPP strongly disfavored businesses owned by people of color, who generally do not have established banking relationships and face greater obstacles in capital access. Moreover, the incentive for lenders to fund larger loans, which yielded larger fees, has proved to be a barrier to entry for the vast majority of businesses of color. It is imperative that action is taken to improve PPP accessibility and equity, and ensuring Schedule C filers and Schedule F filers are afforded the same set of rules is critical.

We urge you to immediately adjust the criteria for Schedule C filers as outlined above and refrain from denying business owners the relief they need simply because of the tax forms that they file and arbitrary rules favoring one set of microbusinesses over another. We appreciate your immediate attention to this request and thank you for your continued work to mitigate the impact that this public health crisis is having on the backbone of on our economy, our American small businesses.

Sincerely,

1863 Ventures

Access Plus Capital

Accion Opportunity Fund

Adirondack North Country Association

African American Coalition of Indianapolis

Alianza Americas

American Business Immigration Coalition

AmPac Business Capital

Amplify Latinx

Artmorpheus, Inc. d/b/a Fairmount Innovation Lab

Asian/Pacific Islander American Chamber of Commerce and Entrepreneurship (National ACE)

Audacity

Bankable

Boston Impact Initiative

CAMEO – California Association for MicroEnterprise Opportunity

Carolina Community Impact, Inc.

Carolina Small Business Development Fund

CASA

CDC Small Business Finance

cdcb

CDFI Coalition

Center for Responsible Lending

Central Indiana Community Foundation

Chicago Urban League

Children's Investment Fund

City Heights Community Development Corporation

Colorado Enterprise Fund

Common Future

CommonWealth Kitchen

Communities Unlimited, Inc.

Community Development Partnership

Community Development Venture Capital Alliance

Community Reinvestment Fund, USA

Hispanic Interest Coalition of Alabama

Hope Enterprise Corporation/Hope Policy Institute

Human Capital Strategies & Solutions

Edna Martin Christian Center

Entrepreneurship Center @CTI

FAHE

Franklin County Community Development Corporation

Greater Auburn Gresham Development Corporation

Gusto

Human Capital Strategies & Solutions

Impact Hub Houston

Indiana ATM Services

Innopower

JPNDC

Latino Coalition

Latino Economic Development Center

Local Initiatives Support Coalition (LISC)

Main Street Alliance

Massachusetts Association of Community Development Corporations

Massachusetts LGBT Chamber of Commerce

M&F Bank

Mission Economic Development Agency (MEDA)

NAACP

National Association of Development Companies (NADCO)

National Association for the Self-Employed

National Association for Latino Community Asset Builders

National Community Investment Fund

National Cooperative Bank

National Fair Housing Alliance

National Urban League

Natural Capital Investment Fund, Inc.

New Capital

NewVue Communities

Next Street

Northeastern Community Business Clinic

NYIC

Opportunity Finance Network

Oweesta Corporation

PACE Finance Corporation

Pacific Community Ventures

Page 30 Coalition

Partners for Rural Transformation

Prosperity Center

Prosperity Now

RCAC

Seaway Credit Union

Second Federal Credit Union

Self-Help Federal Credit Union

Self-Help Ventures Fund

SISG

Small Business for America's Future

Small Business Majority

SOURCE Entrepreneurship Center, Inc.

South Holland Business Association

Storie Co. Development

The Alliance

The Alliance for Community Development

The Resurrection Project

The Startup Ladies

Uptima Entrepreneur Cooperative

U.S. Haitian Chamber of Commerce, Inc.

United States Hispanic Chamber of Commerce

U.S. Black Chambers, Inc.

Virginia Asian Chamber of Commerce

UnidosUS

wiseHer, Inc.

XXcelerate

Footnote:

i/ Census Bureau's Annual Survey of Entrepreneurs, 2016.

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