Tuesday, January 12, 2021

Good News For Minority-Owned Businesses: Community Banks Get First Crack At The New Round Of PPP Loans

Soruce: https://tinyurl.com/y3hgvm83

Written by: Brian ThompsonSenior Contributor
Personal Finance
JD/CFP® helping LGBTQ entrepreneurs thrive in business and in life.

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The Paycheck Protection Program (PPP) reopens tomorrow, but it won’t offer the same edge to big, well-financed businesses as the first iteration did. You might remember the uproar over some very large businesses—with plenty of other sources of liquidity—swooping in to claim PPP money. This time, to promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. Then PPP will open to all participating lenders shortly thereafter. Let’s talk about why this change is happening and how to take advantage of the change if you’re one of those borrowers.

The first round had problems

The initial rollout of PPP was a mess, and it’s easy to see why. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, allotted $349 billion for the Paycheck Protection Program. Eligible business, the self-employed, sole proprietors, freelance and gig workers were all welcome to apply. Many rushed to take advantage of favorable features including no personal guarantees or collateral required and payments deferred for six months. Best of all, part of the loan could be forgiven and not counted as income as long as the money was spent on certain operating expenses during the first weeks after origination.

On Tuesday March 31st, Treasury Secretary Steven Mnuchin announced that “Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank or credit union, apply for a loan and be approved on the same day.” That gave banks four days to set up a brand-new system that would allow small businesses to apply for a loan and be approved in the same day.

Four days turned out to be too fast, and chaos ensued. Just hours before the April 3rd start date, banks began notifying customers that they wouldn’t be ready for the deadline. Then when the program got going, big banks allotted scarce funds to their best customers and faced lawsuits over the way they handled the rollout. The self-employed, sole proprietors, freelancers and gig workers were locked out for the first week—a big problem when the initial funds were exhausted in less than two weeks. Many aspects of the program had to be clarified on the fly. So far there have been almost 30 Interim Final Rules and 11 pages of Frequently Asked Questions.

Shortly after the initial funds ran out, Congress allocated an additional $320 billion to the program. By the beginning of May, the program had made over 2.5 million loans with a total value of $187.1 billion—about 60% of the funds available in round two. And by the initial end of the program, PPP had 5.2 million loans worth $525 billion to America’s small businesses, supporting an estimated 51 million jobs. According to SBA data more than 87% of the loans were $150,000 or less, with an average loan size of $101,000. Additionally, the SBA says 27% of the funds went to low- to moderate-income communities.

Despite the program’s progress, PPP still had a huge problem. Initially, an April 6th report from the Center of Responsible Lending (CRL) found that roughly 95% of Black-owned businesses, 91% of Latino-owned businesses, 91% of native Hawaiian or pacific Island-owned businesses, and 75% of Asian-owned business “stand close to no chance of receiving a PPP loan through mainstream bank or credit unions.”

A later Brookings Institution report showed that:
  • On average it took 31 days for small businesses with paid employees in majority-Black ZIP codes to received PPP loans — seven days longer than those in majority white communities.
  • For non-employer businesses, the loan delay between majority-Black and majority white neighborhoods grew to nearly three weeks.
Brookings points out that “This delay is particular acute because, according to the JPMorgan Chase Institute, in at least 90% all majority-Black and majority-Latino or Hispanic neighborhoods, a majority of small businesses have cash buffers of less than three weeks, compared to only 35% of majority-white neighborhoods.”

Minority-owned firms have been shut out for a variety of reasons. They’re less likely to have a relationship with lending banks. Their owners may not have access to financial and legal expertise. Even after the government expanded participation to FinTechs and community banks and set aside $60 billion explicitly for community finance institutions, minorities got less than their share. Brookings noted that Black business owners were more likely to be denied PPP loans compared to white business owners with similar application profiles due to outright lending discrimination.

Why this is important

This is not the first time communities of color have been left out of sweeping government reform. In fact, it’s happened repeatedly Reconstruction after the Civil War to The New Deal during the Great Depression to The Great Recession of 2008. The book The Color of Money: Black Banks and the Racial Wealth Gap by Mehrsa Baradaran, takes a deep dive into the history of discrimination in federal programs. The author demonstrates that “the hand that drives black poverty is not a natural and invisible one, but rather the coercive hand of the state that has consistently excluded black from full participation in American capitalism.”

I’ve written about the Racial Wealth Gap before, but these statistics are worth repeating
  • The financial crises of 2008 wiped out 53% of total black wealth
  • Today, black families have a median net wealth of $17,150 compared to a white family’s median of $171,000. The median net worth of Latino Households was $20,720.
  • The wealth gap exists at every income and education level. On average white families with college degrees have over $300,000 more wealth than black families.
  • Moreover, studies reveal that the gap is accelerating — over the last 30 years, the average wealth of white families has grown at three times the rate for the average black family.
Discrimination doesn’t just affect black and Latino families. In the past, California passed laws against Japanese businessmen after they became economically success. Native American had their land taken away when oil was discovered on it.

Small businesses have been touted as the backbone of the U.S. economy. Additionally, the racial wealth gap is much less significant for entrepreneurs than for any other sector of the population. Yet an October 2020 Main Street Alliance and Color of Change poll found that almost half of Black-owned small business have shut down already or will soon.

What it’s like now

Funds in the next round of PPP are limited, as they have been in previous rounds. Congress has approved $284 billion in new loans, and the deadline to apply is March 31st, 2021. Now that forgiveness and tax rules are clearer, the money is likely to go much faster. The Trump administration expects that this new round of funding will be sufficient to meet demand, but we’ll see.

The SBA is taking steps to ensure the hardest hit communities don’t miss out as they did last time. Small Business Administration (SBA) Administrator Jovita Carranza said the new “guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”

Some of those steps include:
  • Accepting PPP loan applications only from community financial institutions or at least the first two days when the PPP loan portal reopens
  • Direct Lender Match borrower inquiries to small lenders who can aid traditionally underserved communities
  • Match small businesses through Lender Match with Certified Development Companies (CDC), Farm Credit System lenders, microloan intermediaries and traditional small asset size lenders.

In its guidance, the SBA called upon its lending partners to “redouble their efforts to assist eligible borrowers in underserved and disadvantaged communities.” Some questions still exists, however, of whether institutions that have been enlisted in offering a head start will actually be ready. We may end up with a situation as we did last April where the desire to start the program doesn’t match reality.

Next steps

If you happen to be in one of these underserved and/or disadvantaged communities, now is your chance to make the most of this program before the program funds run out. Here are a few steps that you can take to make the most of this opportunity.

Get educated on the program updates

  • The Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act provides key updates to the PPP program including:
  • PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
  • PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
  • The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations;
  • The PPP provides greater flexibility for seasonal employees;
  • Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
  • · Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.

Additionally, you’re generally eligible for a Second Draw PPP Loan if you:
  • Previously received a First Draw PPP Loan and will or has used the full amount o for authorized uses;
  • Have no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
I’ve written in more detail on the updates for small businesses here, here and here. Take time to figure out if and what you’re eligible for.

If you have not applied for loan before, look for a community lender including a Community Development Financial Institution, Minority Depository Institution, certified development company or microlender intermediary. In addition to finding them online, the SBA offers a Lender Match program that can match you with smaller lenders who can aid traditionally underserved communities. You can also ask a local SBA district office for assistance.

Do yourself and your lender a favor by reviewing the application for First Draw Loans and Second Draw Loans and getting as prepared as possible.

Don’t delay

Your head start is only a few days, so don’t delay. Take advantage of this opportunity while you have it. Additionally, spread the word to your fellow entrepreneurs.

This effort is just the beginning in the much-needed work to equalize access to business ownership and support. This moment provides an opportunity for us to explore and take significant steps towards fixing a monumental problem.

Wednesday, December 23, 2020

15 Things Not to Do as an Entrepreneur in 2021

Written by: Ian Khan
Inventor of the Future Readiness Score™

Whether you're a small business owner or run a large enterprise, avoid these missteps in order to get ahead next (or any) year.

We all know the year 2020 presented the world with a number of challenges in the entrepreneurial space. The following are the 15 things to avoid as an entrepreneur in the year 2021. 

1. Lose your focus

When you forget why you got into business in the first place, you are well on the path to failure. Examples include not caring about your customers and not being able to address their concerns and needs from a product or service perspective. Always keep your customer's needs at the center of how your products and services are developed. Continuously make sure that you are reaching out to your customers and constantly evaluate if you are on the right track.

2. Lack of leadership

Organizational leadership encompasses numerous concepts and ideals, with sales, marketing, operations and personnel management just the tip of the iceberg. When organizations and leaders start making the wrong decisions, it's typically the start of a bad outcome. In 2021, take the time to focus on leadership and creating value.

3. Not caring about your employees

As an employer and as an organization, if your employees are not happy, motivated or engaged, it is impossible for them to serve your client base diligently on a daily basis. Successful organizations work on their inside game and internal structure before they start going out to generate revenue and tackling larger goals.

4. Not working with partners

Successful organizations always look for opportunities to work with others. Successful leaders understand that winning is about collaboration. Start out by seeking 10 partnership opportunities with potential partners and work on something small to start off with. Consistency is key to winning the game.

5. Build walls

Successful organizations tear down walls. Never build walls with your stakeholders. This includes competition, industry organizations, associations, the media and any other organization. Be the person who tears down the walls and helps others connect and build a better industry. Become the leader that others can look up to and ask for help because they trust that you can help tear down walls.

6. Ignore your clients

Never ignore your customers. Many times, organizations focus too much on internal happenings. One of the companies that I worked with in my career was focused on how good their products were and internal processes that were more complicated than needed. This led to them not paying attention to the voice of the customer and what the customer ultimately wanted. The result? Declining revenue and organizational degradation.

7. Not holding people accountable

Accountability is key to organizational success. Experts suggest that accountability is one of the top reasons why organizations succeed. The American Society of Training and Development (ASTD) says that we have a 65% chance of attaining a goal if we commit to it. There are many studies that prove that personal accountability, organizational accountability and using accountability coaches helps increase the possibility and chance of completing a goal. You can elevate your organization's accountability by driving a culture of being held accountable.
8. Not creating a culture of execution

Execution is probably the most important element in successfully reaching a goal. Many of us endlessly plan things, but fall short when it's time to execute. Use the pursuit of consistent execution as a tool to get ahead. Make sure you deliver on the promise that you have made to your customers, employees and other stakeholders by executing on your stated tasks and goals.

9. Not taking any risk

Many industries today are suffering because they refuse to take any risks. Service industries such as legal and accounting, for example, are battling technology and the decline of traditional business models because they refuse to adapt to a new way of conducting business. Business risk is not only a financial risk, but it's also about exploring new areas of opportunity, creating new revenue streams and exploring avenues that have not been explored in the past.

10. Not having standards

Have you ever heard of an automobile company that had zero safety standards? What about an airline that has no operational standards? It's impossible for some industries to not follow standards because a lack of standards can lead to dire consequences. Make sure that you operate with high standards. This means doing the best, expecting the best and creating a mindset of quality and a minimum level of acceptable standards within your organization, across the board.

11. Letting people get their way

Organizational bullies are people who get their way. These could be people at a strong position within your organization who have developed a habit of getting away with actions that undermine organizational standards. Keeping your organization's culture free from organizational bullies is a tough task for leaders. However, it is important that everyone who is part of your organization knows the value you create, the culture you have and respect everyone they come across within the organization. This also goes into respecting organizational policies, the vision of the leadership and what you stand for.

12. Focus too much on competition

Some industries are very focused on what the competition is doing. In a small market with many companies offering the same products and essentially targeting a very small number of customers, competition and getting ahead can be a "do or die" situation. If all your focus is on competition, you start lagging in being an innovative and out-of-the-box thinker. Do not focus strictly on the competition, but work on your inner game, making your product and solutions more valuable for your customers and raising your standards
13. Ignoring your critics

Have you ever had critics who are always on your case? If not, then you have not really made an impact on your industry. This way of thinking is a bit non-traditional. You should always have critics and those who point you in the right direction, helping you identify both areas where you face challenges and areas where opportunities exist. Pay attention to those who point a finger at you and help guide you in the right direction.

14. Being socially awkward

In 2021, you must become a socially engaged organization. This means supporting social causes, meeting other people with similar interests, helping your employees be part of social change, involving your organization in initiatives and ideas that are beyond just what you do professionally as an organization. At a local level, you may find a school basketball team that needs support or a conservation project seeking volunteers. These projects and opportunities are a means to get your employees engaged and work closely with the communities that support you as an organization. Get involved and do not be a socially awkward organization.

15. Stop learning

If you have stopped learning as an individual and as an organization, then there is nothing much that can be done. Look at some of the industries that are dying a slow death today, including the accounting industry. Traditional accounting firms are facing an uphill task in surviving as technology is crushing firms that refuse to change and adapt to a new way of doing business. Always stay hungry as an organization and ensure that everyone within your company is learning something new.

Success as an organization, as a leader or as an individual contributor, is a blend of many different things, but there are plenty of opportunities to you can make headway and succeed in 2021 as an entrepreneur and as a business.

Thursday, December 17, 2020

2021 Small-Business Economic Outlook


Prepare now so your business can grow after the pandemic ends.

Just weeks from now, 2021 arrives, and business leaders must be prepared for abrupt shifts in the needs of their customers. For example, if your business boomed during the pandemic, are you prepared for a post-pandemic slowdown?

Investor fear that Zoom might not be prepared for this has cost its shareholders. Since peaking at $588 a share in October, Zoom's stock had lost 32 percent of its value by early December.

Why? I'd guess part of it is due to good news about Covid-19 vaccines from Pfizer, Moderna, and others and means that investors are betting the pandemic will end and people will go back to the office and not use Zoom as frequently.

Zoom's stock fell on November 30 when the company announced a growth slowdown. More specifically, for the third quarter Zoom reported 367 percent revenue growth while forecasting still blistering 329 percent growth for the fourth quarter ending this month, according to CNBC. Between then and December 9, Zoom stock fell 17.7 percent.

The point? Regardless of how the pandemic has affected your business, its end is likely to change things. You should prepare now to change your business strategy to take advantage of the new forces that could propel company growth after the pandemic.

2021: A Sideways-W-Shaped Recovery

Bearing in mind the idea that the pandemic has been great for some industries, terrible for others, and a tossup for ones in the middle, I think 2021 will feature a sideways-W-shaped recovery.

You should be able to find your industry in one of the three prongs of the W below. For each one, I describe how things have been going for your industry this year, what is likely to change in 2021, and the questions you should be thinking about now.

1. Covid-19 winners like Zoom and Wayfair boomed in 2020. Can they keep growing?

The first prong of the W is companies like Zoom, Shopify, Wayfair, and others that have boomed during the pandemic -- thanks to the surge in people working from home.

In 2021, these companies will need to decide how to adapt to a world in which the pandemic ends and people return to a mixture of how they lived in 2019 while continuing to practice some of the new habits they adopted during the pandemic.

Business leaders in this category ought to initiate close conversations with at least 100 users of their service. Discussion topics might include:
  • Will you go back into the office when the pandemic ends?
  • If so, how will you split your time between working from home and in the office?
  • How will that change affect how you will use our product?
  • What new services or modifications to existing ones will you need as your work-style changes?
On the basis of the responses, leaders should reimagine their business strategy, develop prototypes of new services customers demand, get feedback, and refine the services so they can launch them as the pandemic ends.

2. Covid-19 pivoters won by aiming their product at surging demand. Will they tack in the right direction?

The second prong of the W will be companies that adapted their strategies to take advantage of the increase in demand due to the pandemic. What comes to mind here is a company that provided ultraviolet lighting for diamond retailers that enjoyed a surge in demand when it changed its ultraviolet light to kill airborne viruses and bacteria.

As I wrote this August, Eden Park is a maker of ultraviolet lights designed to distinguish fake from real diamonds. Within weeks of the pandemic's starting, Eden Park was able to retool and launch a product that used UV light to kill the novel coronavirus that causes Covid-19 in crowded spaces.

Eden Park shipped 1,000 prototypes within weeks of launching them, and, by August, the company had grown 10-fold and was making a profit. However, will such companies be able to sustain their growth when the pandemic ends?

My advice would be for their leaders to research their current customers to gain insight into how their needs are likely to evolve and revamp their strategies as the pandemic ends.

3. Covid-19 losers like airlines and movie theaters are barely surviving. Can they ramp up when demand surges?

The third prong of the W is companies that lost 90 percent of their business during the pandemic -- such as airlines, cruise ship operators, restaurants, and movie theaters. While they cut back costs to survive during the pandemic, they will need to quickly add capacity and staff later in 2021 as the pandemic ends to meet what could be a surge of pent-up demand.

Once the pandemic is under control, such companies will hire back people and order supplies to handle those who return to these businesses. Make sure you've lined up the financing you'll need to do that quickly.