Getting Capital to Small Businesses
The article below is from our BRIEFINGS newsletter of 19 May 2020
Bill Bynum is the CEO of HOPE, a Community Development Financial Institution in Jackson, Mississippi, with whom Goldman Sachs is partnering to get capital in the hands of small businesses. Margaret Anadu, head of the Merchant Banking Division’s Urban Investment Group (UIG) at Goldman Sachs, spoke recently with Bynum about the status of those efforts.
Margaret Anadu: Through 10,000 Small Businesses and UIG, we have partnered with CDFIs for over a decade to create stronger, more inclusive communities. Bill, as the CEO of a CDFI in Jackson, Miss., can you explain what makes CDFIs different from traditional banks?
Bill Bynum: CDFIs can take on many forms—from nonprofit housing and business loan funds, to regulated banks and credit unions. Some are small and hyper-local, while others are large, complex national intermediaries. What sets them apart from traditional financial institutions is a primary focus on providing tailored products and services designed to improve conditions for low-income, minority and other financially underserved people and places. CDFIs commonly serve as financial advisors for their customers, providing a range of assistance such as starting a banking relationship, securing financing, and saving for the future. CDFIs have existed for generations, but took a major step forward in 1994 with the establishment of the US Treasury Department’s CDFI Fund, which has certified more than 1,000 CDFIs across the nation.
Margaret Anadu: Bill, can you talk about who HOPE serves and how the crisis has impacted your community?
Bill Bynum: Over the past 26 years, HOPE has worked to reduce the extent to which race, gender and birthplace limit one’s economic potential, in total reaching over 1.5 million people across Alabama, Arkansas, Louisiana, Mississippi and Tennessee. The pandemic has exacerbated this region’s long history of poverty and racial disparities. For example, in Mississippi, more than half of all households, and 70% of black households do not have savings to make ends meet. Moreover, the Economic Policy Institute estimates that private sector losses in the Deep South will exceed the national average, driven by the disproportionately high number of leisure, hospitality, and retail jobs, which already pay far less than other industries in the region. Without help, including the basic financial resources we provide, these already fragile families and their communities will struggle to survive.
Margaret Anadu: What were the biggest hurdles in getting Paycheck Protection Program (PPP) capital out and how did you overcome them?
Bill Bynum: The stresses and strains of implementing a mammoth new program in a short time left no one untouched, from the Small Business Administration and lenders, to the employers seeking assistance. One key lesson learned is the importance of clear, widely circulated guidance for small businesses. According to the National Minority Supplier Development Council, more than a third of minority businesses cited inadequate information or a lack of clarity as an impediment to the PPP application process. Potential borrowers received varying interpretations regarding their eligibility and forgiveness. Several PPP applicants to HOPE reported being left in limbo after other lenders prioritized existing and larger customers, set minimum loan amounts, or failed to notify them of their status. Smaller businesses and sole proprietors faced even bigger challenges, as many lacked ready access to the necessary records, or otherwise needed help navigating the application process. In response, HOPE collaborated with elected officials in New Orleans, Birmingham, Jackson and Montgomery, and nonprofit organizations across the South to mobilize a rapid response team that provided technical assistance to hundreds of PPP applicants. As a result, through May 11 HOPE had approved more than 1,000 PPP loans to small businesses, churches, private colleges and other vital employers across the Deep South. Our median loan size is less than $12,000, and 75% are smaller than $25,000.
Margaret Anadu: What more do you think needs to be done and what’s your view on how businesses in your community will be able to manage through the crisis?
Bill Bynum: While PPP has helped many employers, tens of thousands more are in need of a financial lifeline. This is particularly true for mom-and-pop businesses and nonprofits that provide critical services in low-income communities, and businesses owned by people of color. Traditional financial institutions often acknowledge that they are not always well structured to serve low-income markets. This is why CDFIs exist—to be the first responders in the financial system for underserved people and places. And federal policymakers should follow suit by allocating funding that equips CDFIs to do what they do best—serve those who teeter on society’s financial edge. Bold actions such as these would be a major step forward in building an economy that truly works for all Americans.