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How bank relationships affect PPP loans

(fizkes /

(fizkes /

Minorities — specifically Black and Hispanic small biz owners — applied for forgivable loans in the Paycheck Protection Program at much higher rates, but received funding at much lower rates, according to a report about the impact of the pandemic on small businesses from Score, the country’s largest volunteer business mentoring network.

The report highlights a racial disparity, but race is not the sole reason for the difference, said Ken Alozie, Managing Director for Greenwood Capital Advisors, LLC. Alozie said one of the main reasons minorities had trouble receiving PPP loans is the same reason that most small business owners had trouble: lack of a relationship with their bank.

“Big banks are more likely to spend time developing relationships with larger clients,” Alozie said. “Since 2008, big banks have grown bigger and had larger deposits in their custody, so they’re more apt to work upstream.”

Still, the key finding in Score’s report is that Black (27.1%) and Hispanic (22.4%) small business owners are twice as likely to say they do not have a real banking relationship, vs. 13% of White business owners.

“It’s a multi-layered issue,” Alozie said. “In my experience, working with people of color, we’re less likely to have access from a generational standpoint to the financial sector. We’re less likely to have a financial advisor that goes back generations. You have to spend more time upfront educating about credit and how it works. A lot of people don’t even know what their credit score is. We’re also less likely to have collateral to back up a loan. Because of those issues, they’re going to have a harder time building a relationship with a banker – unless that bank has a community focus.”

So, what can a small business – minority or otherwise – do to increase their chances of being approved for a PPP loan?

“Develop a relationship with a Community Development Corporation,” Alozie said. “CDCs perform the same services as a bank, such as banking and microloans. The difference is CDCs are usually nonprofit, so they have more of a community focus instead of just a profit focus. “

Plus, there are other options: “In the first round of PPP loans, the reality was that banks were prioritizing their own clients,” said Alozie. “So, if your bank hasn’t been prioritizing your application, there are a number of institutions such as BlueVine and PayPal that you can try.”

Here are a few more tips Alozie offered to help secure a PPP loan if you don’t already have a relationship with a bank.

Get up to speed on PPP.
Most importantly, find out what the requirements are.

Once you know what they are, meet the requirements of the loan.
The best place to start as a business owner is to think about why the PPP loan exists in the first place: It’s a safety net or a cushion designed to prevent businesses from laying off people en masse. The target of the PPP loan is really companies with employees – not sole proprietors or single member LLCs. Having said that, it’s not impossible for those types of businesses to get PPP loans. It’s just that in those cases, they’ll be looking at your level of profitably. If you had a loss in the previous tax year, it’ll be harder; but in essence, it’s really driven by the number of employees.

In addition to CDCs, reach out to Small Business Development Centers.
Some of these will also help you apply.

Don’t apply to too many places.
Apply to one institution and then one backup. Having too many can slow down the process.

Search for financial institutions that will accept your application.
We all have Google, so look for Fintech lenders. A lot of lenders let you do the whole process online.

Network with other small business owners.
Ask other small business owners how they got their loans. Get some recommendations. Ask what their experiences were like. Go about it the same way you would find out how to find a CPA or an attorney.

Attend webinars on the subject.

What about credit?

“Credit score is not really a factor for a PPP,” said Alozie. “But for other loans, a good credit score, (at least 680 or better), is the price of entry. Approval is not automatic if you have good credit, but it is an important box for the bank to check off. Banks typically want to see a business has been around at least three years. They also want to know if it’s growing and what kind of collateral your business has or what kind of credit and collateral the business owner has personally. Most new business owners don’t realize how comprehensive their business credit score is. The best way a small business owner can build their business credit score is by building relationships with lenders. Social media presence and having a good website are also important factors.”


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