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Very Small And Minority-Owned Pittsburgh Businesses Still Shut Out Of Big Loan Program

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The Northside Community Development Fund, a community-development financial institution (CDIF) was too small to qualify to process PPP applications.

A massive federal program to aid small businesses during the coronavirus pandemic still isn’t helping the smallest, or those owned by minorities, critics in Pittsburgh and elsewhere said.

The Paycheck Protection Program, or PPP, is part of the Coronavirus Aid, Relief and Economic Security Act. It offers forgivable loans to keep workers on payrolls. But the $349 billion initial round was widely criticized because much of the money was distributed through large banks to their sizable clients – in some cases, to publicly traded companies, some of whom responded to the ensuing outcry by returning the funds.

Critics including the nonprofit watchdog the Center for Responsible Lending said that larger customers, who already had big credit lines and lots of collateral on hand, had good relationship with banks who in turn were able to quickly process their applications for this Small Business Administration program. Some even pointed to the higher fees the banks would receive for processing these larger loans as an incentive to prioritize larger borrowers.

The Center estimates that “90 percent of businesses of color stood no chance at all of getting their loans processed because the businesses typically had banking relations with smaller financial institutions … and those businesses were really being left out of the process,” said executive vice president Nikitra Bailey.

“The money’s not making it to where it’s needed the most,” said Richard Witherspoon, CEO of Pittsburgh's Hill District Federal Credit Union, which serves some 3,000 low-income customers but is not eligible to originate PPP loans.

The PPP's $310 billion second round, which went live Monday, was supposed to address such problems by setting aside $30 billion in loans for the smallest banks and nonprofit lending institutions, and another $30 billion for medium-sized lenders. But some nonprofit lenders in Pittsburgh who as recently as this past Friday thought they might be able to process PPP loans were disappointed.

One of them was the Northside Community Development Fund, a community-development financial institution, or CDFI. The Fund serves more than 100 small North Side businesses who lack the credit or capital to work with larger banks. “We deal most closely with folks that aren’t able to get a bank loan,” said executive director Mark Masterson.

The set-asides for the second round of the PPP specifically listed CDFIs among the beneficiaries, along with minority deposit institutions (MDIs) and community banks. But Masterson learned over the weekend that, as in the first round, even new PPP applications would be limited to lenders who had originated at least $50 million in loans over the past 12 months – an amount that doubles the loan volume his group has originated in the past 20 years, he said.

Masterson said the Fund works with dozens of businesses who might benefit from a PPP loan. The odds against any of them qualifying seemed long anyway: Applicants had been queuing for this second round of the PPP ever since the first ran out of money. Now the odds look even worse for his customers, most of whom have only a handful of employees.

“I guess my plea would be that banks should really make an effort to try to help these folks, because they’re going to be devastated and I’m not sure they’re going to be in line for the resources,” he said.

Another Pittsburgh-based CDFI, Bridgeway Capital, also remains too small to originate PPP loans, said president and CEO T.J. Bogdewic.

Since its rapid inception shortly after the pandemic shutdown began, in mid-March, the PPP has been a source of both assistance and confusion. In Pittsburgh, employers from the Burgatory restaurant chain to Pittsburgh Public Theater have benefited, but many smaller employers have not.

One local black-owned business that sought a PPP in the first round was Strong II Dry Cleaners, a 90-year-old family business based in Homewood. When the shutdown hit, owner Justin Strong laid off staff and cut back operations. By the time he applied for the PPP, he said, the program had run out of money. Strong said he had to apply through First National Bank because his usual lender, Hill District Federal Credit Union, wasn’t approved to process the loan. (Strong is also seeking help in the second round of the PPP.)

The PPP “actually isn’t working for many of our nation’s small businesses including many businesses of color who deserve to get their fair share of the funds,” said Nikitra Bailey, of the Center for Responsible Lending, or CLR. “Whole communities are being left out of this opportunity because of the way this program is structured.”

On Sunday, a coalition of civil-rights groups, faith-based groups and community-development organizations including the NAACP joined the CLR in signing a letter asked U.S. Treasury Secretary Steven Mnuchin to set aside $10 billion in PPP loans specifically for nonprofit lenders like CDFIs and MDIs.

The PPP, of course, is not the only aid program for businesses during the pandemic -- though because the loans of up to $10 million are forgiven if at least 75 percent of the funds are spent on payroll, it is perhaps the most attractive.

The state, the Urban Redevelopment Authority and small lenders themselves also have programs to help businesses weather the pandemic. Witherspoon, for instance, said the Hill District Federal Credit Union was creating its own version of the PPP, with 0 percent interest loans. The funds would have to be repaid, but the payments would be small and would not begin for 90 days, he said.

“There’s a lot of distress” in his community, he said. “There was distress before the pandemic, and now the distress has been amplified.”