Last week, legislators approved of another round of small business loans after funding failed to reach thousands of companies the first time. Unfortunately, many of these desperate businesses are encountering the same problems as they did a few weeks ago. Shortly after going online on Monday, the Small Business Administration’s electronic loan portal crashed due to high demand. “The SBA’s systems were not designed to and are not capable of handling the volume of loans banks processed over the last several weeks for small businesses,” said Richard Hunt, CEO of the Consumer Bankers Association. 

At Resource Bank in Illinois, the small community lender was able to access the system for about an hour until it went down. “This is very frustrating,” said Kevin McArtor, Resource Bank’s director of business services. “I have a sense that money is going to go quickly, and here we are, we are locked out somehow while others drain the bucket.” After all, the initial $350 billion Paycheck Protection Program that went into effect on April 3rd went dry just a few weeks later. Critics fear that this latest round of $310 billion is already insufficient to properly deal with the crises that many small businesses face. Larger companies could also siphon out much-needed cash like they did earlier in the month, although chains like Shake Shack and Ruth’s Chris Steakhouse eventually returned their loans. 

But perhaps the most alarming problem about the recent loan programs concerns who has not received money, rather than who has. Since minority- and women-owned companies are less likely to have established relationships with commercial banks, these businesses are extremely unlikely to receive relief during the current crisis. “Based on how the program is structured, we estimate that upwards of 90 percent of businesses owned by people of color have been, or will likely be, shut out of the Paycheck Protection Program,” said Ashley Harrington, director of federal advocacy for the Center for Responsible Lending. “”[If] participating banks are requiring that applicants have a credit relationship — to already have some type of loan out — that already cuts many of these businesses out.”

Questions:

1. If this current round of small business loans fails to reach many desperate companies, should legislators provide another round of funding? Why or why not?
2. Why are many minority- and women-owned businesses effectively shut out from the Paycheck Protection Program?

Sources: Yuka Hayashi, “Small-Business Loan Program Resumes With Reports of Delays,” The Wall Street Journal, April 27, 2020; Megan Cerullo, “Up to 90% of Minority and Women Owners Shut Out of Paycheck Protection Program, Experts Fear,” CBS News, April 22, 2020.