With Federal Aid for Small Business Stalled, Local Institutions Try to Plug the Gaps

Weeks before applications opened for the Paycheck Protection Program (PPP), and even after the funding for that Federal program was exhausted, Damian DeStefano oversaw new grants every day to small businesses in Delaware.

$10,000 at a time.

DeStefano, the Director of the Delaware Division of Small Business, oversees the state’s Hospitality Emergency Loan Program (H.E.L.P.), which launched on March 18 and has now expanded eligibility from restaurants to other industries like small hotels and cosmetology services. The program provides no-interest $10,000 loans to small businesses in Delaware, where non-essential businesses have been ordered closed since March 24.

“The program is designed to kind of hit the pause button,” said DeStefano, who added businesses can re-apply for additional funds each month. The loans are meant to keep small businesses with enough funding to stay alive. “When we reopen we want these small businesses to still be around,” he added.

Delaware’s is one of hundreds of local financial relief programs for small businesses rolled out across the country. In rural states, suburbs and big cities, governments and private institutions are raising or re-allocating existing funds to provide loans and grants to small businesses hanging on by a thread as the coronavirus pandemic shuts down large parts of the economy.

Naturally, these programs are smaller in scale than Federal programs such as the PPP or the SBA’s Economic Injury Disaster Loans (EIDL), or even relief programs from giant corporations like Facebook. But, local administrators say, these narrower efforts provide a personal touch those larger programs can’t offer.

“When we reopen we want these small businesses to still be around.”

And local small business relief programs are plugging financing holes for some of the smallest businesses, which have struggled to gain access to the much more well-known Federal relief programs.

“We know our businesses.”

When it comes to reach and resources, nothing can match Federally-led programs like the PPP and EIDL. But many small businesses don’t have easy access to some of the accounting data required to apply for the funds. Some don’t have a commercial account with a bank that is accepting applications, an issue that led to frequent frustration with would-be PPP borrowers.

But a state like Delaware — 47th among states in the number of businesses with 500 or fewer employees — understanding the universe of local companies most needing aid, and directing that aid to them, is more easily accomplished than at a national level, said DeStefano. “We can be more nuanced on how we put together that pool,” he said.

Tara Palacios agrees. As the Director of BizLaunch, the small business assistance center of Arlington County, VA, she’s working directly on the county’s $10,000 grant program for local small businesses impacted by COVID-19. It’s set to launch in early May.

“At the local level we’re a bit more nimble and we know our businesses,” Palacios said. “It will help supplement the gap for those who can’t access the federal programming.”

But it also won’t preclude those who were able to access Federal relief aid, she added. Those who successfully secured PPP or EIDL funds will still be able to apply for the local grants.

Like the program in Delaware, Palacios said the effort is mainly aimed at keeping very small businesses — 50 or fewer employees — alive through the crisis.

“The most challenging part here, and we knew this going in, is that the need far outweighs the supply of dollars we have to meet businesses.”

A frequent criticism of the PPP, which was intended to provide small businesses with forgivable loans so long as they used most of it to maintain their payroll, is that much larger companies used exceptions and loopholes to get millions of dollars to the detriment of much smaller companies.

Shake Shack said it would return a $10 million loan after public outcry. A total of 75 publicly-traded companies received loans from the PPP.

Limited Funds and Resources

While these local grant and loan programs enjoy a local advantage, they face huge challenges both in accessing enough funding to meet demand and in administering the programs.

Detroit’s Economic Growth Corp. (DEGC) ran its own $10,000 grant program, and received more than 1,700 applications in just six days before closing it off. “The most challenging part here, and we knew this going in, is that the need far outweighs the supply of dollars we have to meet businesses,” Pierre Batton, vice president of small business services for DEGC, told Crain’s Detroit Business.

The Connecticut Department of Economic and Community Development tapped fintech company SoFi and credit agency Equifax to help process and distribute emergency bridge loans to local businesses after its $50 million program received approximately 5,200 applications in a few days.

A review of nearly 200 emergency relief programs for small businesses found that funding is often scraped together by state, county or city governments from existing programs. Often economic development arms tap existing small business initiatives and combine with other rainy day funds. In some cases, the governments provide guaranteed backing of loans through community development financial institutions (CDFIs). Some will ask residents to donate funds.

“Right now we’re in a disaster situation and we can’t get the help that we need.”

The grant program in Arlington County hasn’t even started accepting applications yet, but is already working on adding to its current $676,000 in funds.

Finding — or replenishing — funding for local relief is hard enough. But there’s a human capital problem, too.

“What keeps me up at night is opening it up too quickly and all of sudden we have 10,000 applications,” DeStefano said. In an average year, he added, his division would do 50 small business loans. But in the first few weeks, they received 500 applications for H.E.L.P. loans.

The division has added an additional loan processor to the original team of two people to better meet demand.

When it works well, local grants and loans can be a lifeline for businesses operating in the region. But when demand is higher than the resources, it can be another source of frustration for already exasperated business owners.

In the past few weeks, Chris Johncke, of Palm Beach Gardens, FL, has submitted eight applications for his three small businesses for relief programs, including the PPP and the EIDL. He’s received funding from one.

He applied for Florida’s Small Business Emergency Bridge Loan program, and heard back he was approved. But he’s never received the funds and doesn’t when, or if, they’re coming.

“I get that they’re inundated on all levels, federal and state. I expected things to take time but I didn’t expect things to come to a halt,” Johncke said.

“It doesn’t seem like the disaster plan was ever well thought out. And right now we’re in a disaster situation and we can’t get the help that we need,” he added.

A look at the numbers reveals the issues. The Florida Department of Economic Opportunity (DEO), which oversaw the program, said 1,000 small businesses were awarded a total of $49 million, of which 949 have been processed by Florida First Capital Finance Corporation. But that means more than 37,000 applications were turned away, according to the Orlando Sentinel.

Learning On the Fly

Unprecedented is a word being flown around a lot lately, but for local institutions it remains apt.

The funding programs and structures needed to help small businesses through a health crisis where they are being asked, or ordered, not to provide their services are at best band-aids.

“The need is so high you have to have endless pockets to be able to address it to help everyone,” Palacios said.

Of course, states, cities and counties don’t have endless pockets. They don’t even have experience dealing with a crisis of this magnitude. Many are attempting to research, learn and borrow approaches from neighboring municipalities.

Palacios said in Arlington County they’ve been watching a similar, but larger, program in nearby Washington, D.C. “We’re taking the playbook from some of our friends in D.C.,” she said.

Though, even that kind of collaboration is not common in normal times, she noted. After all, municipalities are often competing to draw businesses away from neighbors, and the economic development arm usually leads that fight.

But these aren’t normal times. And that may lead to a change in attitude permanently, Palacios suggested.

“I wonder if coming out of this we’ll change how we do economic development.”