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Law360 (April 27, 2020, 5:08 PM EDT ) The Small Business Administration should set aside at least $10 billion of the latest COVID-19 relief funds for certain small lenders that serve minority and rural communities, a group of Democratic lawmakers said.
Minority Depository Institutions and Community Development Financial Institutions should get at least a $10 billion set-aside within the $30 billion earmarked for small lenders, six Democratic lawmakers led by House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said in a letter Saturday. A group of eight Democratic senators echoed that call Monday in another letter, saying MDIs and CDFIs should get a "significant portion" of the funds, although Monday's correspondence didn't specify an amount.
MDIs are banks or savings institutions that have either 51% of their voting stock owned by minority individuals, or a majority-minority board of directors as well as a largely minority clientele, according to guidance from the Federal Deposit Insurance Corporation. CDFIs are privately owned financial institutions that focus on lending to lower-income individuals and businesses.
Both letters outline several measures that the Democratic leaders said were important to ensuring that the latest COVID-19 relief funds are used as Congress intended. President Donald Trump on Friday signed the Paycheck Protection Program and Health Care Enhancement Act, which provides another $310 billion to the Paycheck Protection Program after the program's first $350 billion was exhausted in less than two weeks. The new law also provides additional backing for Economic Injury Disaster Loans and the disaster loans' grant program.
Specifically setting aside funds for MDIs and CDFIs will help ensure that vulnerable communities receive the federal support, the Saturday letter said.
"We must ensure that federal recovery funding reaches businesses that have been underserved by mainstream lending institutions in the past," the lawmakers said. "These institutions' specific mission to serve low-income, rural and minority small business owners and communities uniquely positions them to increase the amount of PPP loans that reach our underserved businesses," the letter said.
Saturday's letter also addressed other concerns about the use of the relief funds. The letter chastised the SBA and the U.S. Department of the Treasury for their use of emergency Economic Injury Disaster Loan Grants, saying the Trump administration wrongly limited eligible businesses to receiving $1,000 per employee. Small businesses should be allowed to receive up to the full $10,000 regardless of the number of employees, the lawmakers said.
"When SBA chose to place arbitrary limitations on award amounts and ration available funding rather than request a new appropriation (as it was willing to do for PPP), it failed small businesses and small private, nonprofits that had counted on these funds," the letter said.
Businesses that received less than the full amount should have their awards boosted to $10,000, and the policy should be changed going forward, the lawmakers said.
The lawmakers also said the emergency loan program should be made available to farmers and other agricultural enterprises, and they urged the SBA to ensure careful record-keeping and transparency about the deployment of federal funds.
"We expect SBA to treat PPP loans as it treats loans in [other lending programs] by publicly publishing the company names and addresses of borrowers and lenders, along with the loan amounts," the letter said.
The use of PPP loans has come under scrutiny following concerns that larger companies may have received preferential treatment from lenders at the expense of smaller businesses. Top congressional Democrats have asked the SBA's inspector general to investigate the implementation of the program, and the SBA on Friday published additional guidance about which businesses are eligible to receive PPP loans.
The Treasury has also tried to caution larger companies against using the program, saying Thursday that would-be borrowers should think carefully about their "economic need" for the funds.
--Additional reporting by Andrew Kragie, Jon Hill and Philip Rosenstein. Editing by Haylee Pearl.
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