Update: 4/10/20 5:00pm: This week, Hot Bread Kitchen was able to begin working with our lender on a Payroll Protection Program application that is now open to us. However, we were only able to start this process because we have an established banking relationship. Not all small businesses are in our fortunate position, and they continue to need additional support beyond what the CARES Act currently provides.
Last week, the president signed into law the CARES Act, a historic $2 trillion emergency spending measure, which allocates $349 billion for small businesses facing extreme economic uncertainty due to COVID-19. Unfortunately, these critical funds will not reach the small businesses that need help most: low- to moderate-income businesses that typically access loans through Community Development Financial Institutions (CDFIs) because they do not meet the traditional criteria of the Small Business Administration and banks’ lending requirements.
As banks and major lending institutions struggle to establish processes for emergency funding flowing through the SBA, the systems traditionally in place for accessing loans are either overwhelmed or inaccessible to LMI businesses.
At Hot Bread Kitchen, we learned this the hard way. On April 2, 2020, along with many of the estimated 1.5 million other non-profits that qualify for the Payroll Protection Program, Hot Bread Kitchen scrambled to find a lender that was prepared to process applications. Our usual business banking institution was not ready; neither were the other major U.S. lenders. As we called around to all the lenders that support our work philanthropically, one bank told us yesterday they received 11 times as many inquiries in one day than they get in a year.
If a $5M nonprofit organization with an established banking relationship can’t access funding, how will these critical dollars ever reach the millions of small businesses who need help? Businesses like the caterers, bakers, cafes, small craft producers Hot Bread Kitchen serves, or the other 89% of small businesses that have fewer than 20 employees and less than $1M in revenue? Under the current program structure, the first run of funding is likely to run out before the businesses most in need can access it.
“So we said for the next [round of stimulus], we really need to have a percentage of that [go] to something called community development financial institutions. It’s really important because we cannot solidify the inequality to access to capital that exists in our economy at a time when we are addressing the coronavirus crisis.”Nancy Pelosi
NPR, April 8, 2020
We are heartened to see institutions like Opportunity Finance Network and the Aspen Institute continuing to advocate for $1 billion in supplemental funding for the CDFI Fund and for other programs that will bring needed resources to low-income people and communities. The strategies the CDFI community has put forth will ensure COVID-19 emergency funding supports these lenders in doing what they have always done: reaching the smallest of the small businesses, the ones that have historically been most excluded, so they too have a chance at recovery.
Shaolee Sen is the CEO of Hot Bread Kitchen. She lives in Jersey City Heights with her family.
Pictured: Small business owner Rahim of Ginjan, member of Hot Bread Kitchen’s Incubator, pictured at his cafe in East Harlem, New York.