By Tanu Henry | California Black Media
Last Thursday afternoon, Gov. Newsom announced a new $50 million emergency California micro-loan program targeting the smallest, most vulnerable corporations among the state’s small businesses.
The taxpayer-funded program will benefit California companies with 750 employees or less, according to the program’s website.
Gov. Newsom said the state set up the Small Business Loan Guarantee program, which falls under the California Infrastructure and Economic Development Bank (IBank), to help prop up smaller firms suffering losses due to the COVID-19 global pandemic. Businesses that benefit from California’s program would be firms that do not qualify for the $349 billion the federal government plans to dole out to small businesses in forgivable loans across the country.
“Not everybody has the capacity to get an SBA loan. And as a consequence of that, we’re announcing today the state of California is putting $50 million into our IBank, our infrastructure bank, to create micro-lending opportunities for people that otherwise would not be eligible for SBA relief,” said Newsom when he announced steps his administration is taking to shore up the state economy through the crisis.
“So it’s an additional contribution for the state to address those that may otherwise fall through the cracks,” the governor added.
But some African-American business people as well as researchers and small business advocates worry that Black-owned businesses could be squeezed out of the loan program, preventing them from blunting the economic hit the coronavirus crisis is having on African–American businesses, families and communities across California. They cite four potential problems with the California IBank program.
First, although the state created IBank to finance public and private development projects that help to create jobs and boost local economies, the bank has not made significant investments in African-American owned businesses.
“Based on some data from IBank records, less than two percent of their guaranteed loan funds went to African American businesses,” said Walter Hawkins, senior research associate at NewHawk, a Rialto-based consulting firm specializing in demographics and policy analysis.
“Black-owned businesses received 30 of the 259 loans in fiscal year 2018-19,” Hawkins said.
Those numbers point to under-representation in IBank financing to small Black businesses, leading to concern among experts that small African–American entrepreneurs may get the short end of the stick when the state COVID-19 emergency funding is disbursed.
“Measures like these may have the noblest intentions, but if they fail to address the pre-existing economic, institutional, and systemic inequities that disproportionately put truly small businesses, without full-time accountants, lawyers, and consultants on hand, at a disadvantage in competing for these funds, they are not likely to meet their goals,” said Betty Jo Toccoli, President of the California Small Business Association.
Toccoli said those smallest of small businesses include the local bakery, gas station, pharmacy, dress shop, health clinic, medical offices, food franchises, auto repair, and manufacturers who are on the front-line providing services during these dangerous times. They are also the contractors who support the larger companies with more than 500 employees.
Small business advocates also say the state did not establish clear criteria for the use of the funds.
To be effective, policy that is designed to impact communities has to have criteria attached to it, said Michael Carter, a policy consultant in Sacramento.
“You have to establish clear guidelines for the use of the money,” said Carter. “And there has to be accountability. Is the money going to be used according to the criteria? What are the consequences if it is not?”
Another area of concern is that the state is leaving it to local lenders to determine all the terms of the loans, including interest rates, and the kinds of businesses that will qualify for them.
“There is a well-documented history in this state and definitely around this country of banks and other financial institutions discriminating against African Americans,” said Toccoli. “This is not fiction. This is not ancient history. It’s happening now. This is the reality and we have to face it.”
Their final point of concern: Is the $50 million fund enough? There are an estimated 4 million small businesses in California. Although many of them may qualify for federal Small Business Administration (SBA) relief programs, there are still a lot of needs to be met, particularly for smaller establishments that don’t have rainy-day funds and are already a month into deep revenue losses.
“Larger small businesses began the application process weeks ago and will most likely commandeer the lion’s share of the SBA loans, while smaller firms are still in line,” said Toccoli.
“A good number of our businesses in the African-American community are family-owned or are sole proprietorships,” said Hawkins.
“Many of them are located in the most under-served places in the state,” said Hawkins, who recently created a map of the hardest-to-count census tracts in the state. “We have to make sure those hardworking, entrepreneurial minority Californians are not overlooked or excluded.”
Take Apryl Sims, an operations manager in the Los Angeles area. Sims manages Simply Wholesome, a health food restaurant and store on Slauson Ave. in the Windsor Hills neighborhood. She said the COVID-19 crisis has decimated the business’ bottom line.
“We’re grateful our customers can support us when they can,” said Sims, who keeps her doors open for takeout only now. She says her daily revenue has dropped by more than half, forcing her to slash the hours of most of her employees and shorten the business’ hours of operation.
Small businesses like Simply Wholesome could qualify for two federal loans. The Federal Economic Injury Disaster Loan (EIDL) program which carries an interest rate of 3.75 percent (2.75 percent for non-profits) can be used to cover existing expenses. This loan offers a $10,000 advance that does not need to be paid back if the loan is denied. The federal Paycheck Protection Program can be used to keep employees on the payroll whether they work or not during the crisis. The federal government may forgive those loans if 75 percent of it is used to keep people hired.
Starting Friday, April 10, independent contractors and self-employed individuals — including faith-based organizations — will be eligible to apply for the federal SBA loans to cover their payroll and other expenses through major lending institutions with local community branches.
On Friday alone, the day major lenders across the United States opened up the SBA emergency loan application process, Bank of America announced more than 85,000 small business owners applied for $22.2 billion in emergency relief loans. The bank immediately gave priority to its existing customer base even though it has now opened up the application process to borrowers who are not clients.
If they can’t secure one of those loans, California small businesses can join a crowded pool of applicants across the state applying for an IBank loan.
To make sure the disbursement of the funds are equitable and inclusive, Toccoli recommends a targeted approach in terms of size of the size of a small business.
“The $50 million IBank funding will most likely be absorbed by companies with full-time financial staff with the resources to be among the first to apply for these funds,” said Toccoli.
“State leaders should consider additional ways to assist small businesses and encourage them to set aside funding for smaller small businesses with 0-100 employees, gross incomes less than $25 million, and are not trading on the stock exchange.”
“This would guarantee that the larger ‘small businesses’ with upward of 500 employees do not absorb the majority of these limited funds,” she added.