Firms left behind in quest for pandemic aid

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Nearly 19,000 businesses in Western New York received a federal loan to help them through the pandemic. Laythanette Shine’s firm wasn’t one of them.

Shine’s business, USA Occupational Services on Jefferson Avenue, provides drug and DNA testing services and background checks for employers. There’s a memorial in the front window to the man who helped her set up the office, one the earliest victims of COVID-19 in Buffalo. 

Shine couldn’t access the Paycheck Protection Program because her business is a sole proprietorship with insufficient profitability. Those factors are common for new small businesses, but disqualified her from getting aid. She was incensed as she watched far bigger businesses obtain loans.

“We couldn’t even get a lousy $5,000?” she told Investigative Post.

Sue McCartney, director of the Small Business Development Center at Buffalo State College, said her office was flooded with clients desperate for aid.

“I don’t think these bigger boys are doing badly at all,” McCartney said. “This COVID-19 is an entrepreneurial crisis.”

Who got what: Search our database of WNY recipients

The program was successful in helping the country avoid an even worse economic crisis, according to many of the experts who spoke to Investigative Post. But several of them faulted the program for not better targeting the loans to assist the types of businesses most at risk or those located in low-income communities.

An Investigative Post analysis of $2.4 billion in loans made to businesses and nonprofits in the eight counties of Western New York found that doctors and lawyers, along with restaurants, received the most loan money.

Mark Nickerson, an accountant and business consultant, said many of his clients have operations like Shine’s. For entrepreneurs, it’s often the first stage of building a company. The federal government calls them “sole proprietorships” and the Small Business Administration says they account for 80 percent of firms with fewer than 500 employees. 

“Those individuals were completely left out,” Nickerson said. 

Larger firms had advantages

Nationally, loans worth $523 billion were disbursed through the Paycheck Protection Program. Funds went primarily to companies and nonprofits with up to 500 employees. Sixty percent of the loan was earmarked to cover 2.5 months of payroll, the balance to other operating expenses, including rent. The loans are forgivable, if spent according to the rules. 

The program’s primary success in the eyes of experts who spoke to Investigative Post was how fast the money was distributed. Fred Floss, a professor of economics at Buffalo State College, said the swift distribution through the banks put a tourniquet on an economic wound.

The absence of a similar system helped propel the country into the Great Depression in the 1920s, Floss said. 

“We didn’t have the federal government set up in a way that it would be easy to get money out to communities.” 

The mechanism wasn’t without its faults. Using lending institutions advantaged businesses with better banking connections, Floss said. That’s what a Congressional report released in October found, as well. The report also criticized the program for neglecting poorer areas, particularly minority communities, and prioritizing loans for businesses with larger payrolls.

In the eight counties of Western New York, 18,768 small businesses obtained loans. The loans ranged from less than $1,000 to $10 million. 

Five percent of companies obtained half the loan money. They had an average workforce of 111 and obtained loans that averaged $1.2 million. Firms that obtained loans valued at under $150,000 — an average of $35,800 — had an average of six employees. 

East Side obtained few loans

Comparatively little money was distributed to poorer neighborhoods, including those on Buffalo’s East Side. That’s not surprising given the program’s design, said E.J. McMahon, a senior fellow at the Empire Center for Public Policy, an Albany think tank and research organization. 

“It simply reflects the distribution of where businesses are, particularly professional firms,” he said.

Accountable US, a nonpartisan watchdog group, compared funding levels in ZIP codes nationally with the densest population of white and Black residents in a report this year. There were racial disparities in where the loans were awarded. 

“Buffalo is emblematic of a PPP program that left too many communities behind, while enabling the wealthy and well-connected – no matter their record – to receive government money,” the organization said in its report.

An analysis by Investigative Post of PPP loans in Western New York shows a big difference between loans made to businesses in predominantly white suburbs and firms located in Buffalo’s East Side. The five suburban ZIP codes that received the most loans obtained a collective $522.5 million. The five ZIP Codes that comprise the East Side received $82.5 million.

“The money went where the money is,” said Ted Schmidt, an economics professor at Buffalo State College.

Loans made to suburbs and city’s East Side

Source: Small Business Administration, Census Bureau.

Khalil Cottman, the former president of the now defunct Greater Jefferson Avenue Business Association, said inner-city neighborhoods have long suffered from a lack of investment and redlining. Those factors, along with high poverty rates, have withered the business community on the East Side, which he said lacks a business group akin to a chamber of commerce that could assist firms in securing PPP loans.

“There’s no foundation in place,” Cottman said.

Local officials seem to recognize the program’s shortcomings. In October, Erie County government rolled out a $20 million “Back to Business” fund in response. It made grants to about 1,4000 businesses employing 50 or fewer people, many of them owned by minorities and women. Grants ranged from $2,500 to $45,000, most of them in “economically distressed” ZIP Codes in Buffalo and Lackawanna.

Failing to track diversity

The Paycheck Protection Program didn’t require business owners to include race and gender information on their application. However, the legislation that authorized PPP asked federal officials to prioritize underserved areas, like minority and rural communities. 

That didn’t happen, according to the October Congressional report. It said the government “and many big banks failed to prioritize small businesses in underserved markets, including minority and women-owned businesses.”

Shine, a minority-woman business owner, ultimately found aid at the Westminster Economic Development Initiative, which assists people with low incomes establish and run businesses, among other services. It previously helped her set up her firm.

Carolynn Welch, director at the initiative, said its clientele are predominantly Black business owners and, in smaller numbers, immigrants. Just over half are women. These entrepreneurs struggled to access the PPP due to a variety of barriers, Welch said.

“It was not designed for people who have typically been left behind in your traditional financial institutions.”

Some race and gender data will be gathered as the loans are reviewed for forgiveness, according to Amanda Fischer, a policy director at the Washington Center for Equitable Growth. That will still leave gaps, like a tally of rejected businesses, where they’re located and who owns them. In the end, Fischer’s expectations for equity aren’t high.

“We pushed all this funding through the plumbing we have, and the plumbing is biased and broken,” she said. 

Experts recommend improvements

Congress is debating another stimulus package, but it probably won’t include a second phase of the PPP. But if the program is eventually extended, experts told Investigative Post there’s a number of ways to improve it.

Schmidt said keeping businesses open and employees paid was a sound starting point for the program. However, the criteria for allowable expenses should be narrowed, he said. Other countries required businesses to expend as much as 90 percent of their pandemic aid on payroll.

“Some of the more successful economies in terms of recovering were ones that took a much more aggressive approach to doing that,” he said.

Mellissa Chang, a research analyst at Good Jobs First, said equity concerns — be they gender, race or wealth — should be addressed. She also advocated for smarter targeting.

“We should focus on the industries that are hurting the most and being affected the most by the pandemic,” Chang said.

Rather than providing loans to businesses, Chang said research shows direct payment to employees, like the stimulus checks delivered earlier this year, are a more effective way to promote an economic recovery. 

U.S. Rep. Brian Higgins, a Democrat from Buffalo, shares a similar position. He proposed the stimulus check distribution as a template for a new iteration of the PPP prior to the ongoing negotiations.

“I believe strongly that the direct payment would result in a fairer distribution focused on the individual and not businesses,” he said.

Phil Gambini