The Legal Intelligencer - SBA Boosts Efforts to Help Minority, Women-Owned Businesses Obtain COVID Relief

It is axiomatic that small businesses drive the U.S. economy. According to the Small Business Administration (SBA), the United States has 30.7 million small businesses, employing almost 50% of the private workforce as of 2019. Furthermore, small businesses create 1.5 million jobs annually and account for 64% of new jobs in the United States.

SBA defines a small business as an entity that is independently owned and operated, exerts little influence in its industry, and (with minimal exceptions) has fewer than 500 employees. Small businesses in the United States generate about 50% of our GDP. In particular, women-owned businesses represent a significant portion of our economy. There are nearly 13 million women-owned businesses in the United States, employing about 9 million people and generating $1.9 trillion in revenues. Total employment in women-owned businesses grew by 8% between 2019 and 2020, while the total for all businesses was only 2%. Similarly, over the last 10 years, minority business enterprises accounted for more than 50% of the 2 million new businesses started in the United States, and created 4.7 million jobs. There are now more than 4 million minority-owned companies in the United States, with annual sales totaling close to $700 billion.

Yet, despite that growth, there is still a disparity in access to capital, contracting and other entrepreneurial development opportunities for women and minority-owned firms. Though minorities make up 32% of the U.S. population, they own only 18% of businesses. Additionally, even though the number of minority-owned firms has grown by 35%, the average gross receipts for those firms dropped by 16%. Obviously, while the growing number of minority-owned businesses are a source of optimism and hold promise for the future, more still needs to be done to encourage and strengthen the minority business community. Diversity is one of the nation's greatest strengths, and diverse small-business ownership is essential to our nation's economic success and growth.

As part of the federal government's response to the economic impact of COVID-19, the SBA has been tasked with administering various funding programs such as the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL) and other similar grant programs. As of May 2, the SBA approved a total of over $780 billion through over 10 million PPP loans. Similarly, as of April 29, the SBA approved over $205 billion through nearly 4 million EIDL loans for COVID-19 relief. Until recently, these two programs were administered on a first-come-first-served basis, which would logically benefit larger, more organized, fully staffed establishments.

In the first quarter of 2021, two primary changes to the SBA's administration of COVID relief programs were made to provide more access to capital for women and minority-owned businesses. First, in January, the SBA commenced the EIDL Targeted Advance program. Second, in March, Congress passed the Restaurant Revitalization Act (RRF). These funding programs serve as examples of programs focused on providing COVID-19 economic relief to minority and women-owned businesses.

P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act of 2021), enacted on Dec. 27, 2020, among other provisions, appropriated $20 billion for an EIDL Targeted Advance payment (grant) program that provides a $10,000 advance payment to borrowers located in low-income communities that have suffered a revenue loss greater than 30% over specified time periods and have no more than 300 employees. Applicants that meet these requirements and received an Emergency EIDL advance payment previously are eligible to receive an amount equal to the difference of what the borrower received and $10,000. The SBA is required to provide first priority in awarding the grants to eligible borrowers located in low-income communities that received an Emergency EIDL advance payment of less than $10,000 previously, and second priority to eligible first-time applicants located in low-income communities. P.L. 117-2, the American Rescue Plan Act of 2021, appropriated another $15 billion for this program.

As of April 28, the SBA reported that it had only approved approximately $733 million of the $35 billion appropriated for EIDL Targeted Advances. To administer the program, the SBA sent follow up emails to businesses within certain geographical areas defined as "low-income," where the businesses had previously applied for an EIDL Loan and/or received an initial grant of less than $10,000. The initial grants were usually about $2,000. The SBA published a map of the geographical areas eligible for the targeted advances. Eligible small businesses that received the initial $2,000 grant would be entitled to receive an additional $8,000 grant under this program, for a maximum of $10,000. While not specifically focused on minority or women-owned businesses, to the extent such businesses may be located in the defined geographical areas, they would be eligible for this much-needed infusion of cash.

More specific relief based on gender and race can be found in the Restaurant Revitalization Act, where Congress actually provided a priority for businesses owned 51% or more by women, veterans and socially and/or economically disadvantaged individuals. The priority allocated $5 billion and a 21-day "head-start" in review, approval and funding of the applications submitted by eligible businesses. Importantly, evidence gathered from the administration of the PPP loan program clearly pointed to the need for prioritization of applications from these historically disadvantaged owners of hospitality businesses. As of May 5, the SBA reported that the number one industry sector awarded PPP loans (by dollar amount) was "accommodation and food services." However, loans to businesses identified as women owned only accounted for $28.5 billion of the total $780 billion approved. Furthermore, loans to businesses identified as Asian or African American owned only accounted for $19 billion, and loans to businesses identified as Hispanic or Latino owned only accounted for about $8 billion.

The Restaurant Revitalization Act appropriates $25 billion to bars, restaurants and other hospitality businesses through grants equal to their pandemic-related revenue loss (gross revenue from 2019 compared to gross revenue from 2020) up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding as long as funds are used for eligible purposes no later than March 11, 2023. Applications for these grants opened for the first time on May 3.

The act requires priority be given to small business concerns that are at least 51% owned by one or more individuals who are women, veterans, or socially and economically disadvantaged and where management and daily business operations of the applicant are controlled by one or more women, veterans, or socially and economically disadvantaged individuals. Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. Economically disadvantaged individuals are those whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area.

In order to be eligible for the priority, applicants must self-certify on the application that they meet these requirements. For example, if an applicant has five owners who each own 20% and two owners are veterans and one owner is a socially and economically disadvantaged individual, then the SBA will consider this applicant to meet the requirement that at least 51% of the applicant is owned by a priority group. If an individual meets the requirements of more than one priority group category, that individual is only counted once. So, if an applicant has five owners who each own 20%, and one of the owners is a woman veteran who is also socially and economically disadvantaged individual but none of the remaining four owners  are women, veterans, or socially and economically disadvantaged individuals, then this applicant is not eligible to file an application as a priority group. However, the business may still apply as a non-priority applicant.

For the first 21 days of the application period (which started on May 3), the SBA will accept applications from all those eligible to apply. During this period, the SBA will distribute funds only to approved applications that have self-certified that they meets the eligibility requirements for a small business concern at least 51% owned and controlled by women, veterans, or socially and economically disadvantaged individuals. For the remaining application period (22 days into the application period through the end of the program), the SBA will accept applications from all eligible small businesses and distribute funds in the order in which they are approved by the SBA.

Beefing up the ability of women - and minority-owned small businesses to access COVID-19 economic relief is a big step in ensuring that diverse small business owners are not disproportionately affected by the pandemic. Targeted EIDL grants and priority in awards under the Restaurant Revitalization Act are steps in the right direction, however, many may feel they do not go far enough. More can be and should be done to ensure the survival of this important class of small businesses after the impact of COVID-19 restrictions has been comprehensively assessed. Industry groups, private-public partnerships and other stakeholders should continue to focus on providing support throughout the recovery and afterward. Similarly, consumers can bolster the combination of governmental and philanthropic support by their intentional patronage of women and minority-owned small businesses.

Reprinted with permission from the May 13, 2021 issue of The Legal Intelligencer. © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.