NAACP, Minority Financial Institutions Call for Equity in Congressional Response to COVID-19

Pre-existing structural inequities exacerbated the impact of COVID-19 on communities of color. As has been thoroughly documented, the public health effects of the COVID-19 outbreak on people of color have been disproportionate and severe. The economic effects are similarly devastating.

On behalf of communities of color, NAACP, the African American Alliance of CDFI CEOs, National Association of Latino Community Asset Builders, First Nations Oweesta Corporation and the Expanding Black Business Credit Initiative call on Congress to:

• Require at least 50% of all loans made through any expansion of the SBA Paycheck Protection Program (PPP) go to businesses owned and nonprofits led by people of color;
• Allocate at least $60 billion of expanded PPP lending authority to Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs), including CDFI non-depository loan funds, with priority placed on MDIs and CDFIs led by people of color;
• Allocate at least $10 Billion of Expanded PPP to Businesses with 10 or fewer employees; and
• Appropriate $1 billion to the CDFI Fund to support rapid response to the economic conditions created by COVID-19, of which $833 million would be allocated to CDFIs led by people of color.

Economic Effects of COVID-19 are particularly acute among people and in communities of color. By summer of 2020, nearly 20 million United States residents are expected to lose their jobs. Unemployment will be most acute among low-wage workers, who are disproportionately Black and Latino. Additionally, 58% of Black and 58% of Latino households nationwide do not have enough income to cover three months of expenses without income, in contrast to 29% of white households. (Data are not available for Native American households.) These underlying structural inequalities have given rise to the conditions enabling COVID-19 to have a disproportionate cut into Black and Latino communities, both through loss of life and economic devastation.

Similarly, businesses owned by people of color have been the hardest hit by COVID-19. Historically, these businesses have less access to credit, and less ability to withstand the loss of income. Importantly, these businesses are not only providers of critical services in underserved communities; they also serve as primary sources of jobs and income in communities of color.

It is vital that communities of color receive extraordinary, rapid and flexible support to survive and recover from the pandemic. Failure to do so will widen already unsustainable racial disparities.

Minority-led CDFIs and depositories are well-positioned to respond to the economic inequities exacerbated by COVID-19. On a daily basis, these CDFIs address the financial service needs of communities most impacted by this crisis, supporting minority-owned businesses and nonprofit service providers led by people of color. They are located in and employ residents of these communities. Adequately resourced, they can respond rapidly, deploying resources in a prudent and impactful manner.

Many businesses and nonprofits led by people of color may lack awareness of the Paycheck Protection Program and other stimulus resources, or require assistance to navigate the requirements of these programs. Moreover, traditional lenders are less likely to serve borrowers of color. In contrast, providing such support and undertaking targeted outreach is standard fare for minority CDFIs.

NAACP: NAACP is the nation's oldest and largest civil rights organization. The mission of the NAACP is to secure the political, educational, social, and economic equality of rights in order to eliminate race-based discrimination and ensure the health and well-being of all persons.

Alliance of African American CDFI CEOs (AAA): AAA represents 35 CDFIs focused on increasing capital and financial services available to African American owned businesses and citizens in underserved communities nationwide.

National Association for Latino Community Asset Builders (NALCAB): NALCAB is the hub of a national network of more than 120 mission-driven organizations in 40 states, DC and Puerto Rico that that serve ethnically diverse Latino communities across the US.

First Nations Oweesta Corporation (Oweesta): Oweesta's mission is to provide opportunities for Native people to develop financial assets and create wealth by assisting in the establishment of strong, permanent institutions and programs contributing to economic independence and strengthening sovereignty for all Native communities.

Expanding Black Business Credit Initiative (EBBC): EBBC is comprised of seven Black-led or focused CDFIs. Member CDFIs operate in markets across the U.S., primarily in the Midwest, South, and Mid-Atlantic. They touch over 74% of the nation's Black businesses.

Despite their vital role, minority CDFIs are undercapitalized compared to white-led CDFIs, by a 6:1 ratio.

Recognizing the unique capabilities of CDFIs led by people of color to respond to the crisis we urge Congress to require that half of future PPP allocation support small business and nonprofits led by people of color; position and equip MDIs and CDFIs led by people of color to respond rapidly.

50% of Lending Through an Expanded PPP Must Go to Businesses of Color. Businesses owned by people of color are being hardest hit by COVID-19, historically have less access to credit and government-funded programs, and have the least amount of cushion to withstand losses of income. Additionally, these businesses are not only channels for critical services needed by these communities, but also serve as important sources for employment, income, and wealth-building in communities of color. It is critical these businesses receive the necessary resources, quickly, to keep their operations and employees afloat during this time. A failure to do so will further widen the racial and economic wealth gaps in this country. Black CEOs recently called for a minimum of 25% ($68 billion of a proposed $250 billion) of the expanded PPP, go to Black-owned businesses. As important are funds to ensure that Latino-owned, Native-owned, and other minority-owned and led businesses have the resources needed. As such, this coalition urges that at least 50% of the loans extended by all lenders through the expanded PPP go to businesses owned by people of color. Ensuring that at least 50% - or $125 billion of a proposed $250 billion expanded PPP – would equate to about 21% of the total possible $599 billion PPP allocations ($349B in the first round plus potentially $250B in the second round). Small businesses of color represent 30% of all U.S. businesses, according to the most recent data available (2012).

$60 Billion of Expanded PPP Must Go to CDFIs and MDIs. CDFIs, particularly those led by people of color are most well-positioned to meet the unique needs of small businesses and nonprofits led by people of color. Many businesses and nonprofits led by people of color may lack awareness of the program or require assistance with paperwork to participate in the program. As a result, traditional lenders will not or be much less likely to serve borrowers of color. More time will be needed to conduct outreach and to process applications. To ensure that businesses and nonprofits led by people of color can access PPP resources through institutions most in tune with the needs of their operations, this coalition calls on Congress to allocate $60 billion in lending authority to CDFIs and to MDIs. Priority should be placed on MDIs and CDFIs led/owned by people of color, including non-depository loan funds.

$10 Billion of Expanded PPP Must Go to Businesses with 10 or fewer employees. Very small businesses were significantly less likely to be served by the first round of the PPP program. Analysis published by the website SBA Lenders found larger small businesses, those with over 200 employees, were "3 times more likely to have their loan process and approved than small companies with 15 or fewer employees." Nearly four out of five businesses of this size that applied for a PPP loan received an approval. Only one out of four businesses with fewer than 15 employees were approved for a PPP loan. Notably, small firms and sole proprietors were less likely to be fully banked - a critical factor in receiving an approval. With banks prioritizing applications for existing customers and the rapid pace at which dollars were deployed, any time spent searching for a lender greatly hindered the likelihood that an application would be taken, completed and sent to the SBA for approval before the PPP resources were depleted.

$833 Million of a $1 Billion Emergency CDFI Appropriation Must Go to CDFIs Led by People of Color. Once additional PPP resources are made available, MDIs and CDFIs of color need the resources to implement the program. Currently, MDIs and CDFIs led by people of color are managing portfolios encountering significant stress as requests for forbearance among small business owners, homeowners and individuals have been deep and widespread. As forbearances are granted, the MDIs and CDFIs encounter reductions in interest income relied on to pay staff and cover operations to manage programs. The CDFI industry as a whole is rightly calling on Congress to allocate $1 billion of emergency assistance to CDFIs. Now is the time to ensure that allocation reaches the communities disproportionately harmed by the COVID-19 crisis and the Great Recession. As such, this coalition is calling for $833 million of this $1 billion to be allocated to CDFIs led by people of color so our communities have access to a financial infrastructure to both survive and recover from this crisis. Without an explicitly designated allocation, it is likely that these funds will be distributed in a way that perpetuates existing disparities, and leave CDFIs closest to communities of color without sufficient resources to serve them. Funding should prioritize Black, Latino and Native American-led CDFIs/MDIs, and allocated proportionately based on population, % of unemployment and the impact of this crisis. Consideration should also include CDFIs/MDIs in Puerto Rico and the U.S. territories.

Urgent Congressional action on these matters will achieve several important outcomes. First, enactment of these recommendations will enable CDFIs/MDIs to connect thousands of minority-owned and led businesses, independent contractors, and nonprofits with PPP loans and other flexible credit facilities. Second, stabilizing these businesses and nonprofits will preserve employment and vital services for vulnerable workers and their families. Finally, investments called for in this letter will bolster the capacity of an essential component of America's financial service infrastructure, enabling CDFIs and MDIs to proactively address the recovery and rebuilding needs of communities of color.

Sincerely,

Derrick Johnson, NAACP

Donna Gambrell, African American Alliance of CDFI CEOs

Noel Poyo, National Association for Latino Asset Builders

Chrystel Cornelius, First Nations Oweesta Corporation

Bill Bynum, Expanding Black Business Credit Initiative