The Small Business Administration is pulling more leverage to expand 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 participating in a new Small Business Administration initiative that sets aside $ 10 billion for their exclusive use to provide paycheck protection loans minority-owned businesses.
Arkansas has 19 approved community development financial institutions, including two large institutions in Little Rock: Arkansas Capital Corp. and Southern Bancorp.
Both note that the paycheck funding initiative comes with the responsibility to provide economic assistance to minority-owned businesses that suffer economic harm.
“We now have an obligation to reach out to these companies that have been underserved – for a variety of reasons,” said Sam Walls, president and chief operating officer of Arkansas Capital.
“A lot of them just don’t believe the banks will give them loans and are even reluctant to try the process. We need to contact them and let them know that we are there to help them.”
For a program that was due 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 with their payroll and keep employees on the job during the covid-19 crisis.
Funding was initially set at $ 349 billion, but it was gone within two weeks. Congress approved another $ 310 billion in April. The $ 10 billion now spent on community development lenders is part of this second round of funding.
The program originally offered eight weeks of free pay and capital to pay essential bills like rent and utilities.
Last week, Congress voted to extend that period from eight weeks to 24 weeks or until the end of the year, whichever comes first. The legislation also gives borrowers five years instead of two to repay the portion of the loan that is not repayable. In addition, the bill allows companies to use a greater percentage of the proceeds on non-salary expenses.
When the payday loan program began, lenders were inundated with requests from borrowers asking for a lifeline of financial aid. There were more requests than time and staff to process them. Funding was exhausted in 13 days.
Dedicated funding means that community development lenders can take a more measured approach and locate minority-owned businesses that have been reluctant to seek economic support.
“We need to pivot and be more proactive with the money set aside for CDFIs,” Walls said. “It behooves us to seek out companies to help in underserved markets. “
In Arkansas, the Small Business Administration reports that 40,329 small businesses have borrowed approximately $ 3.3 billion under the Paycheck Protection Program.
Southern Bancorp CEO Darrin Williams noted that his bank has made more than 1,200 paycheck loans, the majority going to businesses operating in low-income rural communities.
“We’ve argued from the start that CDFIs are in a good position to get that money where it’s needed most, and we think we’ve done a good job of proving that point,” said Williams. “The vast majority of our more than 1,200 PPP loans have gone to low- and middle-income rural communities, with a large number going to minority borrowers.”
A new survey from the National Federation of Independent Businesses reports that three in four small businesses nationwide have applied for a paycheck protection program loan.
The survey found that 77% of small business owners applied for paycheck protection program loans. Almost everyone who applied received loans – 93% of applicants.
And the results showed that companies immediately put emergency capital to work to save their businesses.
About 25% of borrowers used at least 75% of the proceeds and 4% said they had already used the entire loan. Small businesses can borrow up to $ 10 million under the program, although statistics from the Small Business Administration show the average loan in Arkansas is $ 81,500.
“This vital source of funds has proven to be essential in keeping businesses open and the Arkansans at work,” Sylvester Smith, chief of the organization in Arkansas, said in a statement.
About one in three business owners have used between 50% and 75% of their loans. Only 5% of companies said they had not yet used the new capital, according to the survey.
Manufacturing output in the United States fell 13.7% in April, the largest drop in the industrial production index’s 101-year history.
All major industries reported production declines. The production of auto parts and vehicles fell sharply with a 72% drop in production.
And the forecast for the next few months is not promising, according to the National Association of Manufacturers. The group’s survey in the second quarter of 2020 showed that only 34% of manufacturers said they had a positive outlook on their business. This is the lowest reading since Q1 2009 and down from 75.6% in Q1 2020 survey.
About 67.1% of manufacturers said they had temporarily halted part of their operations. Among large manufacturers, around 51% are in full production, and 73% of small and medium-sized businesses reported being fully operational.
The census bureau announced last week that new orders for manufactured durable goods fell 17.2%, from $ 35.4 billion to $ 170 billion in April from March. Orders have declined in three of the past four months, including a 16.6% drop 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 remained the state’s two main trading partners. Exports to the two countries reached about $ 2.3 billion. Arkansas also enjoyed a combined positive trade balance (meaning exports exceeded imports) of $ 485 million with the two countries.
Looking ahead, the mall predicts that the July 1 implementation of the trade deal between the United States, Mexico and Canada could increase trade even further.
“Arkansas has a diverse economy, which powers the state’s export ecosystem,” said Melvin Torres, director of the Western Hemisphere Trade Center. “Business partners and the diversity of the industry foster 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 grown 18% to 167 countries.
France was the state’s third partner with $ 711 million in exports, followed by Japan with $ 372 million and China with $ 191 million.
Almost half of Arkansas’ exports, 47%, were shipped to the Western Hemisphere. Europe followed with 26%, followed by Asia with 21% and the Middle East with 2.5%.
Rogers-based World Trade Center provides services that connect Arkansas businesses with potential business partners.