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Adapting Policies and Regulations for More Small Business Lending—and Greater Inclusion

Key Takeaways

  • Reform for greater inclusion of business owners of color.
  • Upgrade SBA systems and processes.
  • Expand institutional participation in government lending support programs.

On the last day of May 2021, the Paycheck Protection Program (PPP) officially ended. This initiative, created by Congress in March 2020 at the onset of the COVID-19 pandemic, was a centerpiece of the federal government’s emergency relief efforts. In total, Congress authorized just over $800 billion for small business loans through PPP.

In an event just before the end of PPP, the Bipartisan Policy Center asked, “After PPP: How Should Small Business Lending Programs Be Reformed?” Together with our partner, PayPal, we brought together several experts to explore lessons learned from the crisis. The discussion extended a highly substantive dialogue on small business finance in March.

Reflecting on the Paycheck Protection Program

PPP wasn’t perfect; there were complaints of improper payments and fraudulent applications. The Small Business Administration’s Inspector General cited other issues, too. Yet it was also effective in helping many small companies survive the crisis and sustain employment. Representative French Hill (R-AR) highlighted the bipartisan origins of the “amazing” program in the CARES Act of March 2020.

My hat’s off to the bipartisan [congressional] leadership in passing CARES and former [Treasury] Secretary [Steven] Mnuchin in crafting this concept. … Government, on a bipartisan basis, in an emergency, can step up and do something new and innovative that was very responsive to the unique crisis.

Congressman Hill is a former banker and co-founder and co-chair of the House Entrepreneurship Caucus.

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Other event participants also cited the unique and successful aspects of PPP. The program “really stretched our minds in terms of the world of possibilities with small business lending,” said Shafika Deria, senior government relations associate at JPMorgan Chase & Co. Deria pointed to “policymakers and lenders alike … asking more questions, they’re listening, and they’re even more aware of the needs of small businesses” because of PPP.

Likewise, Scott Stewart, CEO of the Innovative Lending Platform Association (ILPA), called the PPP achievement “astonishing.”

Nevertheless, for many small businesses, the pandemic hangover persists. Janice Jucker is owner and president of Three Brothers Bakery in Houston, and co-chair of the Goldman Sachs 10,000 Small Businesses Voices National Leadership Council.

Still Work to Be Done

As Jucker pointed out, many small businesses will feel the effects of COVID-19 through 2021 and into 2022. “It takes years,” Jucker said, “to recoup a 35% revenue loss.” Policymakers cannot expect to simply return capital access and loan support programs to the pre-crisis status quo. An area most in need of policy reform is inclusion, expanding capital access for business owners of color.

Citing JPMorgan Chase Institute research showing racial gaps in small business cash liquidity prior to the crisis, Deria emphasized the “need to build in inclusion from the start” for public programs.

Upgrading the SBA

For fiscal year 2020, the SBA was authorized to approve $22.5 billion in loan guarantees through its 7(a) program. PPP was a new program built atop the existing 7(a) infrastructure. Squeezing $800 billion through that infrastructure in a period of 14 months was a severe stress test. Not surprisingly, each event participant cited the need for upgrading SBA systems and processes.

Additional Policy Actions

In addition to modernization of the SBA, panelists pointed to additional policy actions that Congress and the Administration might consider.

Jucker and Stewart also pointed toward the promise of community financial development institutions (CDFIs) and their role in supporting small and young companies. Jucker suggested that perhaps the government could do more to support lower lending costs at CDFIs. Likewise, Stewart observed that deeper partnerships between fintechs and CDFIs—which are already occurring—could help expand capital access to the smallest businesses.

Exciting Developments

To conclude the event, we asked the panelists: what are you most excited about today regarding small business access to capital?