Mission-Driven Lenders Already Providing Assistance to Vulnerable Businesses During COVID-19

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Mission-Driven Lenders Already Providing Assistance to Vulnerable Businesses During COVID-19

Federal help is coming, but local lenders are filling an immediate need.

A nearly deserted Broadway in SoHo, Manhattan. (Photo by Oscar Perry Abello)

One by one, the staff at the Business Center for New Americans has been calling each of their 700 or so active borrowers, checking in on all of them during the unprecedented economic fallout from COVID-19. The nonprofit makes loans to street vendors, bodegas, ethnic grocers, restaurants, delivery truck companies, taxi medallion owner-drivers and other refugee-, immigrant- and woman-owned businesses around New York City. They started calling even before the order came to close down bars and restaurants for dine-in customers in New York, as people were already starting to participate in social distancing to help slow the spread of the virus.

Some borrowers were doing better than usual — one ethnic grocery told the group it might make an extra payment on its loan this month, thanks to a flood of customers stocking up at home to endure the crisis. Some were doing much worse — one taxi medallion owner-driver told executive director Yanki Tschering that he usually makes $400-$500 a day, but last week, his daily fares were already down to $40-$50.

Tschering is expecting additional help from the $350 billion in aid to small businesses contained within the $2 trillion relief package making its way through Congress. That’s in addition to the SBA’s Economic Injury Disaster Loans, offered nationwide for the first time. The SBA says it can take up to three weeks for approval of disaster loan applications — which is why the package also includes $10 billion for an advance of $10,000 to small businesses and nonprofits that apply for an SBA economic injury disaster loan within three days of applying for the loan. The advances don’t need to be paid back, even if the business doesn’t ultimately get approved for one of those loans.

While small businesses are waiting for the full disaster loans and other aid to come in, mission-driven lenders like Business Center for New Americans are already stepping up to see borrowers through the crisis. The center is offering to help its borrowers fill out applications for the business disaster loan program, and it offering assistance with applications for grants or small business loans offered by city government, as well as offering up to six months of deferment on loan repayments. The nonprofit also has cash on hand for new loans, if needed. Tschering reasons that her borrowers who need help need grants or loans to cover at least six months of expenses to stay afloat, but right now she can only get them about three months of the way.

“We’re trying to figure it out in a way to get the most resources for our clients, starting with grants,” Tschering says. “We have to see them through this crisis. We’ve worked with most of them for so long, our staff have this very personal relationship with them. If they don’t get through this crisis we won’t get repaid either, and nobody wants that.”

Tschering co-founded the Business Center for New Americans in 1997 as a subsidiary of a refugee resettlement group and later spun it off on its own. The nonprofit has made 3,781 loans totaling $29 million since inception, for an average loan size of $7,400 and a default rate of around two percent. These nonprofit mission-driven lenders have already been on the frontlines supporting the most vulnerable business owners in cities around the country.

The Business Center for New Americans is also one of more than 140 nonprofits around the country that are part of the U.S. Small Business Administration’s Microloan Program, which supports loans up to $50,000 for business owners who can’t get a loan from a bank because of lack of collateral, bad or no credit history, or other reasons. They’re offering to extend new microloans to businesses that might need the working capital while they are waiting for a disaster loan.

Crucially, the SBA microloan program doesn’t require SBA-approval for each individual loan — each microloan intermediary approves those loans in-house, meaning it can act much faster than the disaster loan program.

The Business Center for New Americans also recently became part of the SBA’s largest program, the 7(a) loan guarantee program, giving it the ability to offer loans up to $250,000 that are partially guaranteed by the SBA. There are ways intermediaries can approve 7(a) program loans in-house, but not every 7(a) lender has that flexibility. As a newer 7(a) lender, Business Center for New Americans still needs approval from the local SBA district office for its 7(a) loans, but Tschering has been pleased with the speed of 7(a) approvals since joining the program — usually two or three days, and never more than a week, she says.

The Business Center for New Americans is now also offering to help current and new clients apply for SBA Economic Injury Disaster Loans. The loans can go to any business with up to 500 employees or any size nonprofit, for up to $2 million, and may be used to cover fixed debt payments, payroll, accounts payable and other bills that can’t be paid because of a disaster’s impact. Typically invoked after a natural disaster such as a hurricane or tornado, this month the SBA ruled that any business suffering from COVID-19-related economic impacts can apply for a loan, after the state it’s located in makes an “economic injury disaster declaration.” All states as of this writing have made such declarations, making businesses in all 50 states eligible for a disaster loan, which have interest rates of 3.75 percent for small businesses (2.75 percent for nonprofits), on terms up to 30 years, with no prepayment penalty.

Unlike the SBA’s other programs, there are no banks or other intermediaries involved — the agency’s disaster loans come straight from the U.S. Treasury. The approvals are handled by SBA’s disaster assistance program staff, based in Fort Worth, Texas. The $2 trillion COVID-19 relief package also tweaks the disaster loan program so that worker cooperatives, consumer cooperatives and all cooperatives are eligible for disaster loans up to $200,000, and the loans do not require a personal guarantee, which has been a prohibitive barrier for other SBA loans.

“We’re looking for acceptable credit history, we don’t really have a specific credit score we look for,” says Matthew Young, public affairs specialist at the SBA’s Disaster Assistance program. “We’re a little bit more lenient than a local bank would be when it comes to these applications.”

There are no fees or closing costs from the SBA for the disaster loans, though Young points out that if collateral is required, pledging that may require a fee to a local courthouse or notary.

“If somebody only needs $25,000, that’s what they’ll be eligible for,” Young says. “If somebody needs $1.5 million and they have the repayment ability, we’ll offer them the loan. It’s really based on need and a financial forecast for when they can return to normal operations.”

After receiving applications, Young says the SBA will work with applicants on a case-by-case basis to gather documentation verifying their loss of income due to COVID-19, eligible costs the loan will cover, and financial forecasting for after the applicant is back to business as usual. He encourages any eligible business to apply as soon as they possibly can, and SBA staff will work with each applicant on verification and documentation of need. The SBA was not able to provide a rejection rate for its disaster loan program.

The SBA has provided disaster loan assistance for more than 50 years, though 80 percent of its disaster assistance has gone directly to individuals and households rather than businesses. From fiscal years 2000 to 2014, the agency made 21,862 Economic Injury Disaster loans to businesses and nonprofits, totaling $2 billion — an average loan size of around $91,500. At the end of fiscal year 2018, the SBA had around $9.6 billion in disaster loans on its balance sheet, including direct loans to households and individuals as well as businesses.

Initially, when the federal government announced that at least $7 billion in Economic Injury Disaster loans would be made available, language in the SBA’s disaster loan rules was creating confusion as to whether any other loans or grants received while waiting for a disaster loan might make a business ineligible for a disaster loan. But Young insists that is not the case — that any business should apply for the disaster loans as long as it can show its revenue has been negatively impacted by the COVID-19 health crisis and its economic fallout.

“We have a very good relationship with the SBA, and they’re extremely supportive,” Tschering says. “So when they send out this agency information that’s not very clear, what we do is we pick up the phone and we talk to them and they explain just ignore this or do it this way or that way. They’re some of the best people, at least from our experience.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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Tags: small businesscovid-19

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