Letter to the Editor from the GNEMSDC: on Minority Owned Business in the Supply Chain
This is a letter to the editor describing the economic impact of the PPP on minority owned businesses and recommendations on how to better support their efforts in reducing the racial wealth gap. With over 45 years of expertise in the minority business industry, Greater New England MSDC has played an essential role in the success of thousands of MBEs. GNEMSDC's MBE services include certifying MBEs, providing exposure to buyers (both corporations and larger MBEs), and educating MBEs through development programs. Our work with MBEs and Corporate Members adds economic value in our communities and increases economic opportunities for minority businesses.
NEW HAVEN, Conn., June 3, 2020 /PRNewswire-PRWeb/ -- One of the important responses of the Federal Government to the impact of COVID-19 on businesses has been the Paycheck Protection Program (the "PPP"), which provides low interest loans that can be converted into a grant. Unfortunately, even though they generate economic output, create and maintain employment and generate incremental tax revenue, minority-owned businesses ("MBEs") have realized little benefit from PPP. Initially, the rationale for the dearth of MBE participation was that banks were accepting PPP applications only from existing loan customers. The second wave of PPP funding by Congress attempted to carve out funds for Community Development Financial Institutions ("CDFIs"), smaller banks, credit unions, and minority-owned banks. MBEs across varying sectors in New England have shared anecdotal accounts that suggest that the second round of PPP funding is unlikely to result in a meaningful volume of PPP financing for MBEs.
The robust economic impact of MBEs on the US economy is a powerful motivator to find an expeditious and effective path to broaden access to PPP financing. According to the U.S. Commerce Department's Minority Business Development Agency, there are more than 8 million MBEs in America, with combined revenues of $1.4 Trillion. And over one million of these MBEs account for combined revenues of $1.2 Trillion and over 7 million employees. To achieve increased access for this group, political and business leaders need to incentivize large financial institutions to play a role, increase the pool of potential lenders, and provide them with appropriate liquidity.
A few suggestions for a meaningful increase in funding under the PPP for MBEs so critical to the US economy are as follows:
1. For bank and nonbank lenders, increase by 1.0% the processing fees for PPP loans made to MBEs: 6% for loans under $350,000; 4% for loans between $350,000 and $2 million; and 2% for loans over $2 million.
2. Create/provide access to a reliable and efficient secondary market for the repackaging and sale of PPP loans immediately following closing and funding (with sale commitments made on a preclosing basis), thereby boosting liquidity.
3. Reduce the hurdle for participation in the PPP by modifying the requirement that nonbank lenders (like CDFIs and credit unions) must have originated at least $50 million in business loans during a consecutive 12-month period.
4. Large banks should be incentivized through the Community Reinvestment Act ("CRA") to provide warehouse lines of credit to CDFIs and credit unions on concessionary terms. As with the secondary market sales, a warehouse line of credit provides nonbank lenders with valuable liquidity, which increases the volume of PPP loans they are able to close and fund.
5. Encourage larger banks to provide nonbank lenders and small banks with the software and hardware solutions on a concessionary basis (again in exchange for CRA credit) to facilitate the servicing of PPP loans.
6. Encourage the bank regulators to provide some limited leeway with PPP loans in the form of a "safe harbor" protection regarding banks' obligations under the Bank Secrecy Act.
Minority-owned businesses are critical to reducing the racial wealth gap that continues to grow across America. They make communities stronger through their economic output, impact on employment, and contribution to the tax base. COVID-19 has been especially cruel to Blacks and Hispanics, in terms of rates of contraction and death. Access to a vital source of low-cost capital like the PPP can sustain employment and access to healthcare in these communities which is critical in reinforcing the MBE role as a tidal wall against further disproportionate socioeconomic erosions.
Sincerely,
Peter F. Hurst, Jr.
President and CEO
Greater New England Minority Supplier Development Council
Sean Cogdell
Chief Executive Officer
The Panther Group
(Chairman, GNEMSDC Minority Business Enterprise Input Committee)
SOURCE Greater New England Minority Supplier Development Council
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