The Small Business Administration is pulling more levers to broaden the reach of its popular Paycheck Protection Program, which provides emergency capital to small businesses battling the pandemic.
Community Development Financial Institutions, mission-based banks that target underserved communities, are taking part in a new Small Business Administration initiative that sets aside $10 billion for their exclusive use to offer paycheck protection loans to minority-owned businesses.
Arkansas has 19 approved Community Development Financial Institutions, including two leading Little Rock institutions: Arkansas Capital Corp. and Southern Bancorp.
Both note that the paycheck funding initiative brings along with it a responsibility to grant economic relief to minority-owned businesses suffering economic harm.
“We now have an obligation to reach out to these businesses that have been underserved – for various reasons,” said Sam Walls, president and chief operating officer of Arkansas Capital.
“Many of them just don’t believe that banks will make loans to them and have a reticence to even try the process. We have to reach out to them and let them know that we’re here to help.”
For a program predicted to expire a month ago, the paycheck protection initiative is finding new life. The loan program was established by Congress in March to help small businesses make payroll and keep employees on the job during the covid-19 crisis.
Funding originally was set at $349 billion, but that was gone in two weeks. Congress approved another tranche of $310 billion in April. The $10 billion now dedicated to community development lenders is part of that second funding round.
The program originally provided eight weeks of free payroll and capital to pay essential bills like rent and utilities.
Last week, Congress voted to extend that eight-week period to 24 weeks or until the end of the year, whichever occurs first. The legislation also gives borrowers five years rather than two to repay the portion of the loan that is not forgivable. In addition, the bill allows businesses to use a greater percentage of the proceeds on non-payroll expenses.
When the paycheck loan program began, lenders were overwhelmed with requests from borrowers clamoring for a financial-aid lifeline. There were more requests than time and personnel to process them. Funding was depleted in 13 days.
Dedicated funding means community-development lenders can take a more measured approach and locate minority-owned businesses that have been reluctant to seek economic support.
“We have to pivot and be more proactive with the money set aside for CDFIs,” Walls said. “The burden falls on us to go out and find businesses to help in underserved markets.”
In Arkansas, the Small Business Administration reports that 40,329 small businesses have borrowed about $3.3 billion under the Paycheck Protection Program.
Southern Bancorp Chief Executive Officer Darrin Williams noted that his bank has provided more than 1,200 paycheck loans, with the majority going to businesses operating in rural, low-income communities.
“We’ve advocated from the beginning that CDFIs are well-positioned to get this money where it’s needed most, and we think we’ve done a fair job of proving that point,” Williams said. “The vast majority of our 1,200-plus PPP loans have been in rural, low- to middle-income communities, with a large number going to minority borrowers.”
A new survey from the National Federation of Independent Businesses reports that three out of four small businesses nationwide have applied for a Paycheck Protection Program loan.
The survey found that 77% of small-business owners have applied for Paycheck Protection Program loans. Almost all who applied received loans — 93% of applicants.
And results showed that businesses are putting the emergency capital to work immediately to save their companies.
About 25% of borrowers have used at least 75% of the proceeds, and 4% reported that they have already used the entire loan. Small businesses can borrow up to $10 million under the program, though Small Business Administration statistics show the average loan in Arkansas is $81,500.
“This vital source of funds has proven critical to keeping businesses open and Arkansans working,” Sylvester Smith, head of the organization in Arkansas, said in a statement.
About one in three business owners have used between 50%-75% of their loans. Only 5% of businesses said they have not used the new capital yet, the survey said.
Manufacturing output in the U.S. dropped 13.7% in April, the steepest decline in the 101-year history of the industrial production index.
All major industries reported declines in output. Production of auto parts and vehicles fell sharply with a 72% decline in output.
And the forecast for the next few months is not promising, according to the National Association of Manufacturers. The group’s second quarter 2020 survey showed that only 34% of manufacturers said they have a positive outlook for their companies. That’s the lowest reading since the first quarter of 2009 and down from 75.6% in the 2020 first-quarter survey.
About 67.1% of manufacturers reported temporarily halting part of their operations. Among large manufacturers, about 51% are in full production, and 73% of small and medium-sized firms reported being fully operational.
The census bureau announced last week that new orders for manufactured durable goods fell 17.2%, or $35.4 billion to $170 billion in April from March. Orders have been down in three of the past four months, including a 16.6% decrease in March.
Arkansas exports contributed $6.2 billion to the economy and supported more than 25% of the state’s workforce in 2019, according to the World Trade Center of Arkansas.
Canada and Mexico continued as the state’s top two trading partners. Exports to the two reached about $2.3 billion. Arkansas also enjoyed a combined positive trade balance (meaning exports exceeded imports) of $485 million with both countries.
Looking ahead, the trade center projects that the scheduled July 1 implementation of the trade agreement between the U.S., Mexico and Canada could increase trade even more.
“Arkansas has a diverse economy, which propels the export ecosystem of the state,” said Melvin Torres, the center’s director of Western Hemisphere trade. “The trade partners and industry diversity promote a fertile environment for small business exports in Arkansas.”
Last year, international trade in Arkansas supported nearly 350,000 jobs. Over the past 10 years, Arkansas’ exports have increased by 18% and reached 167 countries.
France was the state’s third-largest partner with $711 million in exports, followed by Japan at $372 million and China at $191 million.
Nearly half of Arkansas’ exports, 47%, were shipped to the Western Hemisphere. Europe followed with 26%, then Asia at 21% and the Middle East trailing at 2.5%.
Based in Rogers, the World Trade Center provides services that connect Arkansas businesses with potential trading partners.