Should PPP be extended to vandalized businesses?

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Leaders at community development financial institutions are lobbying for looser restrictions on the Paycheck Protection Program so they can use earmarked funds to help small businesses rebuild after days of civic unrest.

The Small Business Administration and Treasury Department have allocated $10 billion in the program’s second phase for CDFIs, which focus on minority and other underserved communities.

While the money would be helpful for businesses damaged and destroyed from recent riots, PPP funds were intended for borrowers harmed by fallout from the coronavirus pandemic.

“We’re looking for everyone and anyone who can help” businesses stung by vandalism and curfews, said David Reiling, chairman and CEO of the $1.2 billion-asset Sunrise Banks in St. Paul, Minn.

“Whether that’s with a broom, or whether that’s financially or with your brain, or with prayers, we’ll take them,” Reiling said.

“We need more flexibility and a different toolkit,” said Randell Leach, CEO of the $1 billion-asset Beneficial State Bank.

Reiling and Leach would like to see PPP adjusted to allow more funds to be used on nonpayroll expenses, as well as longer repayment windows, particularly in light of setbacks many borrowers have encountered in the past week.

“We need to start thinking about these loans on a 10- to 15-year horizon,” Leach said.

Sunrise, which has six branches in the Twin Cities area, can relate to the plight of its borrowers. One of its branches was damaged during unrest that began last week after a Minneapolis man, George Floyd, died in police custody.

“We were fortunate that all the vaults held,” Reiling said, noting the branch reopened on Tuesday.

“There were people in there with tools and they spent some time banging on all the vaults, but they held,” he added. “At the end of the day, it was a broken window and some cleanup.”

With the situation in Minneapolis and St. Paul growing calmer, Sunrise is turning its attention to recovery. Reiling and his team spent much of Monday on the phone with state and federal lawmakers trying to ascertain what funds might be available.

With tens of billions of funding still unallocated, PPP was a major topic of discussion, Reiling said. Though no agreements were reached, Reiling said he was encouraged by lawmakers’ willingness to consider different ways to repurpose PPP to assist with rebuilding efforts.

“That machine takes a lot to get going, but they’re open to ideas,” Reiling said. “We pitched several different kinds of methodologies over whether the forgiveness piece, or what’s out there already, can be used for recovery.”

The $659 billion Paycheck Protection Program was included in the stimulus package Congress enacted March 27 in response to the pandemic. The intent was to provide forgivable loans that small businesses with 500 or fewer employees could use primarily to cover payroll and benefits expenses.

Lenders expended the program’s initial $349 billion appropriation in less than two weeks. After a second infusion of $310 billion, activity has slowed, with many lenders claiming that restrictions on how businesses can deploy their loans and confusion over forgiveness terms have undermined the program.

The House and Senate passed bills last week to address many of lenders’ concerns, but they have yet to agree on a necessary compromise.

For now, CDFIs like Sunrise are looking at other government programs, and private investment, to create solutions for hard-hit borrowers that may not quality for PPP funding.

“I think this is a crisis that can be harnessed for good,” Reiling said, mentioning New Markets Tax Credits and impact investing as options for his customers. “We’re looking to put those kinds of talents and treasures to work to recover and come out on the other side better and more connected.”

Still, Minneapolis banks have their work cut out for them in the wake of the unrest.

“We’ve been reaching out to our customers to make sure they’re safe, though we know their businesses and their properties have been, in some cases, completely devastated,” Reiling said.

Leach said his community is also in rough shape.

"These protests are not done," he said. "But for people or businesses already affected by the pandemic, the property damage can have a more severe effect. It can make it all too much. People are now afraid to go back to work for both public health reasons and their physical safety."

Brendan Pedersen contributed to this report.

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