Today the Lowenstein Center for the Public Interest issued a letter to U.S. House of Representatives Speaker Nancy Pelosi and Minority Leader Kevin McCarthy, asking Congress to ensure that the next round of Paycheck Protection Program (PPP) funding under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) provide more equitable access to loans for nonprofits and under-resourced small businesses.
Written on behalf of organizations providing business and transactional legal services to nonprofits and under-resourced businesses, the center’s letter addresses the barriers such entities encountered in submitting applications for assistance through the PPP. Signatories include: Start Small Think Big, New York Lawyers for the Public Interest, the Rutgers Community and Transactional Lawyering and Entrepreneurship Clinics, the Rutgers Law School Pro Bono and Public Interest Program, the Rutgers Center for Corporate Law and Governance, and the Center for Social Justice at Seton Hall University School of Law.
The letter points out that national banks, instead of processing PPP loans on a first-come-first-served basis, may have initially given preference to businesses seeking larger loans. According to a survey conducted by the National Federation of Independent Businesses, nearly 80 percent of small businesses that submitted PPP loan applications were still waiting to hear from the banks on the status of their applications when the program closed last week.
The letter explains some of the issues that have surfaced through pro bono representation of under-resourced entities: “larger, well-connected businesses with long established banking relationships made their way to the front of the line, while nonprofits and smaller businesses, even when they applied early, often received no answer on their applications. The least well-connected entities often lacked solid banking relationships and therefore had to search for qualified lenders, delaying their applications or precluding them altogether from submitting an application before the program ran out of funding.“
The letter presents three recommendations to improve access:
- Congress should reserve at least one quarter of newly appropriated PPP funding for processing by community banks, which traditionally serve nonprofits and local businesses that are not as well served by national banks. Community banks are closer to marginalized populations and have shown that they can review and approve applications quickly.
- Congress should expand nonprofit access to credit by designating a portion of PPP funding exclusively for nonprofits so that organizations dedicated to addressing immediate pandemic-related problems are not pushed to the back of the line. Incentives can be provided to lenders to prioritize processing the applications of small nonprofits.
- For nonprofits and small, under-resourced businesses, Congress should reduce the percentage of funds borrowers must spend on payroll-related expenses in order to qualify for PPP loan forgiveness. Small nonprofits may have low payroll-to-rent expense ratios, and small businesses in urban areas may employ few workers but pay high rents.
The letter suggests further that the program incorporate safeguards to ensure that any flexibility in lending requirements is not abused by wealthy businesses that lay off workers in favor of using PPP loan funds for purposes inconsistent with the CARES Act.
“We are grateful to Congress and the Small Business Administration for their decisive actions in the face of the havoc wrought by COVID-19,” says Catherine Weiss, partner and chair of the center. “But the first wave of the government stimulus package too often failed to reach the underserved populations who are in the most urgent need of assistance. America’s nonprofits and small businesses, particularly those operated by women and people of color, are being left out. We ask our elected officials to create more equitable access to loan funds in the next stage of PPP so that money will reach the organizations that need it the most.”
Committed to equality of opportunity and social and economic justice, the Lowenstein Center, in collaboration with the letter’s other signatories, has launched a pro bono initiative in response to the COVID-19 pandemic, which in two weeks has already assisted nearly 60 nonprofit organizations and under-resourced small businesses in applying for loans under the PPP.
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