Were NJ’s Minority-Owned Firms Shortchanged on COVID-19 Recovery Loans?

Some officials are raising questions and asking banks for detailed demographic data about who got the money, but many lending institutions say they never collect that sort of information
Credit: Gage Skidmore via Creative Commons (CC-BY-SA-2.0)
U.S. Sen. Cory Booker (D-NJ)

New Jersey’s small businesses have fared better in the second round of the federal government’s main COVID-19 recovery program than they did in the first, but officials are raising questions over whether minority-owned firms have been shortchanged.

On Wednesday, U.S. Sen. Cory Booker sent a letter to the chief executives of about a dozen banks that do business in New Jersey, asking for detailed information about the Paycheck Protection Program (PPP) loans they have written to date, including how many went to small businesses owned by minorities, women and veterans. New Jersey has between 240,000 and 300,000 minority-owned businesses, many of which are very small and struggle during good times, but it’s unknown how many may have gotten federal help.

“It is critical that the funding allocated by Congress for PPP reach the businesses for which they were intended — those in most need,” Booker wrote. “I am deeply concerned by conversations with constituents and media reports that lending institutions have largely turned away many minority-owned businesses, thereby barring access to PPP’s critical emergency financing.”

Several New Jersey officials attested to that.

Minority businesses looking for help

“There were a number of businesses that came to us and stated that they could not gain access to capital through their own banks,” said John Harmon, president and CEO of the African American Chamber of Commerce of New Jersey. “They were like orphans trying to find someone to take in their applications and help them navigate the process of getting funding.”

Newark Mayor Ras Baraka, who estimated the city has about 9,000 small businesses, echoed those sentiments.

“They have been having trouble,” he said. “There’s a lot more that needs to be done and a lot of businesses will suffer.”

On Monday, the U.S. Small Business Administration released new loan totals by state that showed close to 91,000 New Jersey firms getting more than $8 billion through the second round of the program, the fifth-largest total in the nation. Including first-round awards, more than 124,000 New Jersey businesses have gotten $17.5 billion, or an average loan of about $141,000.

To date, nationally, the SBA has administered more than 4.2 million PPP loans totaling $533 billion to small businesses and nonprofits, said Matt Coleman, spokesman for the SBA’s New York and New Jersey region.

Demographic data not collected

The language in the CARES Act that created the PPP did not give any preference to businesses owned by African Americans, Hispanics or any other group but just made the loans available to businesses with fewer than 500 employees. Coleman said the loan application does not ask for any demographic information, “so it is unclear how someone can say a certain group/type of business did or didn’t get PPP loans.”

The SBA has not provided any specific data on who has gotten loans yet, but Coleman said that the administration will release more information once the loan process is complete.

In the meantime, Booker is asking banks directly for that information. He is seeking the total number and value of loans made; a breakdown of loans to minority-owned, women-owned and veteran-owned businesses; the racial and ethnic makeup of business owners approved for loans; a breakdown of loans by size of business; the percentage going to very small firms — 20 workers or fewer — and the number of loans by ZIP code.

Officials with several banks said they could not necessarily answer all those questions.

“Because the SBA PPP application does not require a borrower to identify whether they are minority- or woman-owned, and because fair lending laws generally prohibit lenders from seeking this type of information when making loans, we simply do not have the specific data,” said Marcey Zwiebel, a spokeswoman for PNC Bank. “We took our obligations with respect to each application very seriously, and we fully processed every one as quickly as possible. We also took special care to ensure that nonprofits and small businesses operating in low- or moderate-income (LMI) geographies were not left behind. In fact, more than 20% of all of the loans registered by PNC went to small businesses in LMI communities and more than 4,500 of PNC’s registered loans went to nonprofit organizations.”

David Samberg, a spokesman for M&T Bank, said the bank has provided loans to 790 New Jersey companies employing 23,000 and about 63% of businesses getting loans in all states have 10 or fewer employees.

“While access to PPP loans were first come, first served without regard to race, gender or any other factors, M&T Bank did extensive outreach to clients to help them prepare for the application process,” Samberg said. “This outreach included many minority- and women-owned and operated businesses.

Problems with PPP rollout

There were a number of now well-documented problems with the rollout of the PPP, including an overwhelming number of applicants, computer difficulties and confusion over application requirements. Many banks also appear to have favored their best clients, which made it hard for the average small business to get a loan. A number of large, high-profile companies — including Ruth’s Chris Steak House and the Los Angeles Lakers — wound up getting loans but reported returning the money after public outcry.

An analysis of SBA loan data on the website FactSquared shows that 17 New Jersey-based publicly traded companies got more than $37.5 million. Four are returning 58% of that money, with the best-known being Newark-based IDT Corp., which filed documents with the federal Securities and Exchange Commission reporting it will return a $10 million SBA loan.

Truly small businesses, and those in states like New Jersey and New York that have had the most cases of the virus, seem to have fared better in the second round.

According to the SBA, New Jersey had more than 237,000 minority-owned small businesses, about 28% of all small businesses in the state. Harmon said the number is likely closer to 300,000. Carlos Medina, chairman of the Statewide Hispanic Chamber of Commerce of New Jersey, said there are 120,000 Hispanic-owned businesses that contributed about $20 billion annually to the state economy.

Still, it has been difficult for minority-owned businesses in particular to get loans.

“This CARES Act put some money on the street and, unfortunately, a lot of our businesses have not gotten access to those resources,” Harmon told an online forum exploring issues surrounding the reopening of the state and Newark, in particular.

Harmon and Medina both said their organizations each helped 200 or more business owners through the loan process. Both groups got some funding from the New Jersey Economic Development Authority to provide assistance to businesses seeking loans.

Baraka said Newark worked with a number of larger companies to help small business owners, as well, and that without that assistance, “these businesses would not have had the opportunity to get any of this money.” Still, he said, the city was only able to help “a small amount.”

The PPP lifeline

The PPP loan program could be a lifeline for businesses that have been forced to close for almost two months as COVID-19 has ravaged the entire state, killing more than 9,700. While the money can be used for a number of purposes, the loan will become a grant and not need to be repaid for businesses that keep all workers on the payroll for eight weeks and use the proceeds for salaries, rent, mortgage interest or utilities.

In the meantime, coming back from the closures is going to be difficult, particularly since many small, minority-owned businesses typically are unable to keep a cushion — enough to pay about two months’ worth of expenses — in the bank.

Dr. Omar Bey, a pulmonologist and trustee of the New Jersey Medical Association, said many doctors and health care providers in inner cities may wind up out of business, as well.

“There will be physician’s offices that will not reopen because they can’t afford it,” he said. Bey said the association has been encouraging members to apply for PPP loans, “but the problem is because you have practices that are in inner cities, these practices don’t have lucrative patients coming in. They may not have the best relationship with banks or the best credit — and understand that a lot of times to get the PPP you have to an association in good standing before they’ll really consider your application.”

Booker said in his letter to banks that he wants to make sure that future assistance and stimulus programs are well-designed so that they help those who most need it.

“As Congress considers additional funding for PPP and contemplates new small business programs, it is critical that we gain a greater understanding of who is benefiting from existing financing tools, and who has been left out,” he wrote.