The current system is not working for small and micro businesses – as documented in the New York Times and other media. Yet recent studies show that many small businesses will be wiped out in a few months if current conditions continue.
Lately in an attempt to achieve better equity, various assistance programs, including government, business and nonprofit, distributed funds via lottery. Here are some of the challenges for such a strategy:
It does not address the fact that those with the least power are practically shut out of the existing programs. Instead of focusing on these businesses with a targeted approach we offer “a level playing field” where the probability of them getting the funds may not be much higher than their original situation.
I know businesses who have a bad case of “lottery fatigue” – they apply for grant programs spending time and effort at the application. Massive media publicity is provided to the “giving” organizations and then radio silence. No one knows who won the lottery. These are small businesses trying to survive the Covid crisis.
Programs like the SBA’s Paycheck Protection Program work best for businesses with a prior and strong connection to a bank or lending institution.
The American Survey of Entrepreneurs, 2016, revealed that in Minnesota, only 22 percent financed their business through banks or financial lenders and only 3 percent through a government program.
Changes need to be made – and with new funding delivered the right way.
Here are some suggestions.
- There should be separate categories within the economic relief programs, including lotteries for:
- Sectors most impacted by the Covid Crisis
- Small businesses with less than 20 employees
- Micro businesses with less than 5 employees and annual revenue less than $150,000
- Sole proprietor and independent contractors
- Applicants served by CDCs serving underrepresented groups
- Programs offered should have a simple application process and key requirements of the program be available in multiple languages.
- Lenders should be clearly identified in two categories
- Those accepting noncustomers and new clients with equal priority and adequate staffing
- Those accepting only existing customers
- Lenders should ensure their loan officers are properly trained on the new programs, are culturally intelligent to serve a diverse customer base, and treat every applicant with respect. They should post dashboards on applications received and processed so the public has some information on the process and outcomes.
- More products should be offered during this time when small businesses face both a drop in revenue as well low debt capacity. Programs needed are:
- Grants
- Forgivable loans
- Equity
- Lenders should partner with local CDCs especially CDCs serving underrepresented groups. Funding should be allocated to these CDCs to help with preparing application by small businesses they serve.
- Information of the programs should be available on a public dashboard with data disaggregated by business categories and sectors (above) and by race, ethnicity and gender.
It is time for state and local government to take the lead as national efforts are failing to reach those with the least power.
