The move targets the very smallest businesses — often owned by women and minorities — that have had difficulty accessing loans throughout the pandemic.
WASHINGTON (CN) — In an attempt to reach minority-owned and very-small businesses suffering from the Covid-19 pandemic, the Biden administration announced a series of reforms on Monday that will expand the Paycheck Protection Program.
“Since the beginning of this pandemic, 400,000 small businesses have closed. And millions more are hanging by a thread,” President Joe Biden said during his announcement. “Black, Latino and Asian American communities are hit the hardest.”
Last March, Congress created the PPP to help hard-hit small businesses by issuing forgivable loans through lenders, backed by the Small Business Administration. But many of the smallest businesses — those who are the least likely to have relationships with banks — were left out.
“When the Paycheck Protection Program was passed, a lot of these mom-and-pop businesses got muscled out of the way by bigger companies that jumped in front of the line,” Biden said.
The PPP’s initial $349 billion ran out in two weeks after its launch in April. Congress approved another $320 billion in May, but the program expired in August with about $130 billion in unused funds.
In October, a congressional investigation showed that the Treasury Department privately encouraged banks to limit PPP lending to existing customers, excluding many of the smallest and minority-owned businesses. They also identified more than 22,500 loans worth $4 billion that may have been subject to fraud — like companies “double dipping” and receiving multiple loans.
In January, the program was relaunched with $284 billion, after Congress approved a Covid-19 relief bill at the end of December.
Now, Biden is attempting to target those who were never able to receive loans: during a two-week window starting on Wednesday, firms with less than 20 employees – which account for 98% of small businesses – will be able to apply for relief. Bigger businesses will be temporarily blocked from applying.
The reforms will also change the loan calculation formula to help the self-employed, sole proprietors and independent contractors — like house cleaners, beauticians and small independent retailers. Until now, these small business owners have been mostly excluded from loans because the loans were calculated based on the number of employees.
The program will set aside $1 billion for these businesses without employees, in low and moderate-income areas — 70% of which are owned by women and people of color.
Furthermore, the reforms remove restrictions on loans for business owners who have a criminal record in the past year, those who are delinquent on federal student loan payments, and some noncitizen residents who have visas or green cards.
The administration is also working to revamp the loan application and government websites that communicate with small businesses and deepen its relationship with lenders.