Why Saving Main Street Will Take More Than Just More Money

The nonprofit Opportunity Fund — which makes loans to small businesses owned by low- and moderate-income immigrants, women and other underserved clientele — started 2020 fairly optimistically. The organization expected to make close to $10 million in loans every month, serving 3,000 to 4,000 small- to medium-sized businesses (SMBs). But then March came around with its early hints of the COVID-19 outbreak, and in April “everything just broke loose,” CEO Luz Urrutia told Karen Webster in a recent conversation.

She said the group suddenly found itself facing an onslaught of queries from small businesses looking for loans, trying to get payment deferments or inquiring about technical assistance to shift to digital.   “Before April, we would get 300 or 400 phone calls a day,” Urrutia said. “That shot up to 1,500 or 1,600 calls a day.”

Things have since slowed down considerably, but Urrutia said that’s not a sign that all is well with small businesses — or that they’re even on the road to a solid recovery. Rather, she said initiatives like the U.S. government’s Paycheck Protection Program (PPP) have merely temporarily stabilized things.

“I think we’re seeing [short-term stability] with all the liquidity that was pumped primarily into unemployment, and also into businesses that got the PPP,” Urrutia said. “But [when] all the relief funds stop and the music stops, then I think we’re going to face a cliff.”

There isn’t a magic bullet or single savior who can step into the breach and fix things. Instead, Urrutia said it’s going to take team efforts among small businesses, FinTechs, public entities and nonprofits like the Opportunity Fund.

She said two truths that unite the otherwise diverse community of SMBs are that small businesses are economically vital, but extremely fragile.

First, for every dollar someone invests in a small business, 50 percent to 60 percent of that stays in the local community, Urrutia said.

And second, the Opportunity Fund has also seen that every dollar it lends to an SMB creates $2 in local economic activity in the form of wages, spending and tax revenues.

Many Small Businesses Only Have Two Weeks Of Cash

Urrutia said that in today’s deeply uncertain times, communities will acutely feel the loss of any small business — but that some firms simply won’t survive.

“We have to remember that before COVID, particularly the underserved small businesses, they were not flush with cash,” she said. “Studies show that many small businesses — [primarily] minority-owned businesses — have an average of two weeks of cash on hand. These businesses shut down and their expenses didn’t. They had no revenue coming in and two weeks of cash reserves. So how do they make it?”

When PYMNTS interviewed SMB owners about how they were weathering the storm — a vast swath was looking to PPP funds from the federal government to help them bridge the gap.

Urrutia said that for all of its problems, the PPP was a good first step in answering that question, giving some hard-hit small businesses a way to keep paying their bills and employing staff. But she said that was just a first step, not a last one.

Helping businesses survive won’t come cheap. “It is going to cost somewhere between $700 billion and $900 billion to give small businesses the funds they are going to need in order to rebuild and restart and revive the economy,” she said.

It Takes A Village To Save Small Businesses

Urrutia added that small businesses will also need more than just money. They’ll also need operational and technical advice across a wide spectrum of subjects.

The Opportunity Fund offers webinars and digital-coaching sessions that more than 6,000 small-business owners have used, but the effort is bigger than any one group can handle.

The CEO noted that three back-to-back crises have hit small businesses recently — the global pandemic, the resulting economic slowdown and weeks of civil unrest following the killing of George Floyd.

That’s created such a complex interplay of problems for entrepreneurs trying to relaunch that there isn’t any single solution an individual entity can offer. The problem is simply too large and complex and will require a lot of active participants.

Urrutia added that the gap small businesses face when it comes to getting loans isn’t about to shrink, as banks aren’t going to get more enthusiastic about lending to them post-pandemic. To the contrary, small-business lending will likely retract because the segment looks that much riskier.

“The way to start to close that gap is by bringing everybody together,” she said. “Getting the government to participate with providing loan-loss guarantees so that lenders feel comfortable in providing their capital, getting CDFs [community development funds], FinTechs small banks, large banks to the table and committed.

“Once you have some level of guarantee and some level of backstop, I think [banks] will feel more comfortable and perhaps be able to expand the credit box,” she said. “It is also key to get foundations and other philanthropists to put forward loan guarantees as well … And [FinTechs] have the technology, and they leverage data and analytics and help scale lending significantly. These players all need to be part of the solution.”

‘I Think We Can Do It’

What that solution looks like is bound to be a work in progress, as conditions on the ground are constantly moving, Urrutia said. But she noted that the Opportunity Fund is currently working with a California task force to build a $1 billion loan fund for small businesses.

Even that, she said, only scratches the surface of what’s needed, but every long journey begins with a first step. And Urrutia believes that out of the current tough times, a better ecosystem for small businesses will emerge.

“I do believe the crisis really fueled the idea that all of us need to work and push harder and harder than we ever have to solve these very, very big problems,” she said. “And I think we can do it.”