As Paycheck Protection Program funds end, small businesses need more capital; Black-owned small businesses face larger hurdles than their white peers in accessing capital

A new report released today by Goldman Sachs 10,000 Small Businesses Voices in conjunction with the Bipartisan Policy Center shows the strain small business owners across the country are feeling as federal Paycheck Protection Program (PPP) funding is depleted. The report offers urgently needed policy solutions to put main street businesses back on the road to recovery.

In June, 82% of small business owners in a Goldman Sachs 10,000 Small Businesses Voices survey said their PPP funds would run out by the end of July. Yet just 24% said they were confident they could maintain payroll after depletion of PPP funds. Many small businesses say they are in a precarious position: emergency assistance is dwindling, and debt needs to be repaid—yet revenues have not fully recovered. For those seeking new sources of credit, pandemic disruptions are hindering their ability to secure financing.

The report also highlights a troubling fact: Black-owned businesses have significantly more difficulty accessing capital than their white peers. While PPP was broadly effective in sustaining employment at small businesses, its design reflected underlying disparities in access to finance. Challenges faced by Black small business owners include:

• Black-owned businesses that are low credit risks are half as likely as white-owned firms to receive all the financing they seek, found a 2021 Federal Reserve Banks Small Business Credit Survey.
• And white-owned businesses are twice as likely to receive all financing sought even when they are medium/high credit risk.
• Research also finds racial differences in the decision to apply. Black small business owners with high credit scores are more than twice as likely to report a fear of denial than white founders with below median credit.

“As July comes to a close, small businesses across America face a grim reality: their Paycheck Protection Program funding is running dry, but our economy hasn’t fully recovered, the cost of doing business is increasing and their debts are coming due,” said Joe Wall, national director of the Goldman Sachs 10,000 Small Business Voices program. “Together with the Bipartisan Policy Center, our policy recommendations will help ensure a main street recovery continues.”

Policy actions recommended in the report include:

• Create a long-term, low-interest loan guarantee program to provide flexible, patient credit to allow small businesses to rebuild balance sheets as they restore revenues.
• Direct the Small Business Administration (SBA) to re-evaluate policies regarding financial performance in previous years to account for the impact of 2020 on small business balance sheets.
• Make SBA subordination agreements as easy as possible regarding Economic Injury Disaster Loans (EIDL).
• Consider actions that will expand the lender base in government guarantee programs.
• Strengthen the capacity of CDFIs to distribute more small business credit in their target communities.
• Prioritize small business financing as federal, state, and local governments distribute American Rescue Plan relief funds.

“Many American small businesses are still struggling to recover from the pandemic. Federal relief programs were crucial in helping them stay afloat,” said Dane Stangler, Director of Strategic Initiatives at the Bipartisan Policy Center. “Now, new actions are needed to help expand access to the credit they will need to invest and create jobs for their communities.”

The full report with detailed policy recommendations for increasing small business access to capital can be found here.

ABOUT 10,000 SMALL BUSINESSES VOICES

Goldman Sachs 10,000 Small Businesses Voices is an initiative for program participants to organize and advocate for policies that matter to them. It builds on Goldman Sachs 10,000 Small Businesses, which over the past decade has provided access to education, capital, and support services to more than 10,000 small business owners across all 50 states, Puerto Rico, and Washington D.C.

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