Across the country, the COVID-19 pandemic has led not only to dire health consequences but also an economic emergency in low-wealth and vulnerable communities. This economic impact is being felt disproportionately by communities of color in California and throughout the United States. Struggling locally-owned restaurants, salons, retailers, and other small businesses have forced millions of households to make choices between their health and that of their families, and their financial stability. Nonprofits that serve as vital community infrastructure are facing revenue uncertainty in the face of an ever-growing need for food, services and community. Many believe the uneven impact of COVID-19 on communities of color will have long-term consequences on their financial stability and wealth.

In April 2020, the Small Business Administration (SBA) created the Paycheck Protection Program (PPP) through the federal CARES Act to assist small businesses and nonprofits suffering steep declines in revenues due to the COVID-19 pandemic. Offered through participating lenders, PPP forgivable loans became available to small businesses and nonprofits who would keep employees on their payroll for eight weeks.

In California, Self-Help Federal Credit Union (Self-Help) wanted to support PPP access for the communities we serve across the state. Self-Help is a low-income designated credit union with a national presence and a mission to create and protect ownership and economic opportunity for all, but with a particular focus on those who may be underserved by conventional lenders, including people of color, women, rural residents and low-wealth families and communities. Self-Help helps them buy homes, start and build businesses, and strengthen community resources. As a SBA lender, Self-Help was well-positioned to provide PPP loans to low-income and underserved communities hard hit by COVID-19.

During the first round of PPP, Self-Help provided $52 million in loans to 282 small businesses and nonprofit organizations nationally. Despite these efforts, and similar efforts by other community development lenders, the majority of the first round of PPP funding was absorbed extremely quickly by larger financial institutions and their larger clients. As a result, most of the federal relief did not reach nonprofits and small businesses of color in low-income communities across the United States and in California.

In anticipation of Congress approving a second round of PPP lending in late April 2020, Self-Help and The California Endowment (TCE) both saw an urgent need to bend the curve on the next round of PPP funding to support nonprofits and underserved communities more intentionally. Our two organizations decided to partner and work together to support a coordinated process to increase the likelihood that more nonprofits and small businesses led by and serving communities of color in California could access federal financial support when the next PPP window opened.

Self-Help allocated $150 million of its own credit union funds for the second round of PPP lending. Based on its experience in the first round, Self-Help knew it could most effectively scale PPP assistance if it used a network approach that engaged mission-aligned partners to provide technical assistance to support PPP applicants, work closely with other PPP lenders, and gain the support of community organizations that could provide a pipeline to businesses and nonprofits who did not have existing relationships with lenders to access PPP.

To support these efforts, TCE provided Self-Help and its community-based outreach network with a significant grant to rapidly establish a wide PPP infrastructure to support outreach to nonprofits and small businesses at scale in California. Key activities included identifying a coalition of other mission-aligned lenders, including CDC Small Business Finance and Opportunity Fund; funding additional dedicated staff capacity at Self-Help and other lenders to manage the pipeline of applications and increase operational capacity; and assembling a robust referral/technical assistance partner network that was compensated for referring and packaging PPP applications.

As a result of this collaborative approach, Self-Help and its partners were able to increase access to PPP for the communities and organizations that needed it the most. In the second round of PPP, Self-Help, CDC Small Business Finance, and Opportunity Fund made 3,600 loans totaling $156 million to small businesses and nonprofit organizations in California — $100 million more than Self-Help deployed in the first round of PPP lending nationally, and $140 million more than it deployed in the first round in California. The majority of Self-Help’s loans, 66%, went to businesses or nonprofits led by people of color, and the median loan size was $23,000. Now that the program has closed again, Self-Help and its partners have been shifting towards helping borrowers have their PPP loans forgiven, and are poised to activate their network once again should future PPP funding be made available by Congress.

Reflections and Lessons Learned

It is impossible not to acknowledge the racial unrest that is simultaneously occurring in our nation in the wake of COVID-19 and during our PPP response. During this period, our country has seen the rise of a dramatic social movement, sparked by the murder of George Floyd. In addition to outrage over police violence, the protests have highlighted structural racial inequalities in income, wealth, education, housing, healthcare, civic engagement and other fundamental elements of life, further exacerbated by the pandemic’s disproportionate toll on the health and financial wellbeing of communities of color.

As Self-Help and TCE are both organizations with a strong commitment to racial equity and economic justice, we have reflected on this historic moment and our PPP experience, and what that means for the work ahead. Over the last several months of our efforts we have learned — and in many cases re-learned — the following key lessons:

Long-term Partnerships and Trust Are Important

The uncertainty and pace of both the first round of PPP and COVID-19 made early and rapid action necessary in April 2020. TCE and Self-Help were able to respond quickly to bend the PPP curve because of our long-term partnership and trusted institutional relationship. Since 2016, Self-Help and TCE have partnered to expand Self-Help’s presence in California and to respond to low-income community needs by supporting Deferred Action for Childhood Arrivals (DACA) fee renewals in 2017 and by piloting a responsible immigration bond loan product.

Our collaboration has been partly driven by the desire of TCE’s Impact Investing team to establish partnerships with critical organizations across the state that go beyond any one investment or transaction. For the last several years, TCE has been testing ways to support and grow mission-aligned organizations that focus on delivering racially just and responsible capital to low-wealth, underserved communities of color throughout the state of California. The ability to respond quickly and at scale with Self-Help around PPP has helped validate this partnership approach. This intentional relationship building fosters trust, lays the foundation for future work, and enables us – as partners – to “mobilize with urgency” when the communities we support face opportunities or threats.

Collaboration and Coordination is Essential

Many different actors Community Development Financial Institutions (CDFIs), philanthropy, small community organizations, etc. played key roles in ensuring PPP reached nonprofits serving communities of color and small businesses in California. The federal SBA lending network that was used to deploy PPP typically does not serve these groups, and it took concerted effort and care to build a network of mission-aligned partners to channel federal relief funds to these small businesses and nonprofits. To reach deeply into underserved communities, Self-Help worked with seven nonprofit technical assistance providers who conducted outreach and provided hands-on assistance to PPP applicants. These groups included Community Vision and Mission Economic Development Agency (MEDA) in San Francisco, Uptima and Alliance for Community Development in Oakland, Access Plus Capital and Asian Business Institute and Resource Center in Fresno, and City Ministries in Modesto. The partnership model with these community-based organizations proved to be pivotal to the success of reaching traditionally underserved small businesses and nonprofits. Because underserved communities often rely on local community knowledge and trust, working with community-based technical assistance providers opened doors that would have otherwise remained shut.

For example, one of our technical assistance providers helped a Black-owned CPA firm access a PPP loan, who then referred multiple clients to the Self-Help PPP network. Because tax documents from 2019 were necessary in order to apply for PPP, the CPA firm first helped these clients complete their 2019 taxes and then made a referral to one of Self-Help’s technical assistance providers for support in completing a successful PPP application. In another instance, one of Self-Help’s technical assistance providers supported a small Vietnamese business owner in accessing PPP, who then referred two family members with their own small businesses. These formal and informal referral networks of partners and communities were integral to reaching many micro-businesses that did not have pre-existing relationships with a trusted financial institution.

PPP loans also went to nonprofit organizations that would have otherwise been forced to suspend programs. Founded in 1999, Project Fighting Chance began as an amateur boxing program and has since grown into an organization that has assisted, trained and mentored over 5,000 youth. Today the San Bernardino-based nonprofit works with families, schools, municipalities, businesses and multiple community agencies. It has an integrated program model that provides athletics, healthy eating, vocational training, and education and counseling services.

We Need a Scaled Response to Address Structural Racism in Financial Services

Based on our PPP experience and learnings from our technical assistance providers, our assumption about community mistrust of financial services, even those from community development financial institutions, have been further validated. We’ve learned that many historically under-invested businesses, especially those owned by people of color, are understandably suspicious of the financial system that has systematically excluded them or dispossessed them of wealth.  One sentiment that was shared is that many of the Black-owned businesses did not think they were eligible for PPP or did not plan to apply until our technical assistance providers connected with them.

This demonstrates that the community development finance field still has more work to do and more to learn — there is a need to build greater trust with institutions that have existing deep connections to businesses owned by people of color, understand the historical facts that led to this relationship and worldview, listen to business owners’ needs, challenges, and opportunities, and seek to transform the way capital ultimately reaches communities of color. Moreover, given the scale of structural racism within our financial system, we know that continued collaboration is needed.

Where Are We Going From Here?

TCE and Self-Help are now working together to support the creation of a robust coalition of mission-aligned lenders and community-based organizations that support small businesses in California, especially those led by and working with communities of color. The newly formed California Small Business Coalition for Racial Justice, led by a steering committee including Self-Help and five other organizations from across the state, will include leading community development financial institutions, small business lenders, technical assistance providers, and racial justice organizations. The coalition will help to address the capital challenges faced by small businesses in California — particularly those owned by entrepreneurs who are underserved, immigrant, Black, Indigenous, or people of color — by evaluating barriers through a racial justice lens. That lens will help drive outreach efforts, learning goals, direct lending activity, exploration of possible system changes, and advocacy for policies and legislation that prioritize racial justice and government relief for small businesses. In doing so, it will build on lessons learned during PPP deployment and hopefully contribute to laying the groundwork for a more inclusive infrastructure where small businesses and communities of color can thrive.