The Paycheck Protection Program and Health Care Enhancement Act, passed by Congress, makes several changes to the Paycheck Protection Program, or PPP, established in March by the CARES Act (P.L. 116-136). In addition to new funding for the program, the legislation provides dedicated dollars to certified community development financial institutions, or CDFIs, that can help child care businesses better access funds needed during this crisis.
The Paycheck Protection Program offers forgivable loans to small businesses to use for specific purposes such as covering wages, utilities, mortgages or rent, paid sick or family leave, and health insurance benefits. The new legislation increases appropriations for the PPP by $310 billion, for a total of $659 billion, as the original $359 billion in funding ran out in just weeks due to high demand. For more on the specifics of this program, please see our explainer here.
Of the new funding, $250 billion is to be available for loans to businesses made by any approved lender, and $60 billion is reserved for lending by smaller institutions. Congress further split this $60 billion set-aside into two equal pots, separating which financial institutions can access each pot of funding. Specifically, two sets of $30 billion are reserved for the following categories of lenders:
- Community Development Financial Institutions, Small Insured Depository Institutions, and Credit Unions with less than $10 billion in assets; and
- Insured Depository Institutions and Credit Unions with assets of at least $10 billion but no more than $50 billion.
While CDFIs were already able to participate as approved lenders in the PPP, the changes ensure a greater role for these institutions in the coming weeks. This set-aside is important and potentially very impactful for child care providers.
CDFIs play a role in supporting small businesses, including child care businesses, in both rural and urban communities by providing credit and capital to those who might not otherwise qualify for traditional lending programs or be served by larger banks. Providing certified CDFIs with a specific pot of funding to lend through the PPP will increase access to loans for child care providers to help keep their programs in operation both now, and in the future, post-COVID-19.
The child care industry has a significant need for forgivable loans that can ensure their businesses are still operating as the economy begins to recover. A recent survey conducted by BPC and Morning Consult found that 60% of child care programs have suspended their operations amidst the coronavirus, and that three in five parents are not paying their provider during such a closure. Further, about half of parents were concerned their provider would not weather this crisis and would not be open when they are able to return. Further, the National Association for the Education of Young Children surveyed child care providers about their experiences with the PPP and found that while around half of center-based programs and one quarter of family child care programs applied for the PPP (but had not necessarily received a PPP loan), one in four faced logistical challenges related to paperwork and banks.
This is where CDFIs can play a role in supporting child care providers through the PPP application process. Many CDFIs already bring experience and expertise in child care and can serve as a resource for providers around the country looking for support during this time. An explainer on CDFIs and their role in child care can be found here.
While not all CDFIs offer expertise in child care, there are resources that child care providers can access to help them find a CDFI that might work with them. The National Children’s Facilities Network is a coalition of nonprofit financial and technical assistance intermediaries involved in planning, developing and financing child care facilities, particularly in areas that have limited access to resources. With 13 member organizations, NCFN supports child care programs in a number of states and localities across the country. Also, the Opportunity Finance Network is a national association that provides capital, advocacy, and capacity building to CDFIs throughout the country. Child care providers and businessowners can access the CDFI locator tool on their website to learn about CDFIs that can support their business.