The Agenda for America's Entrepreneurs: Equitable Access to Capital
Entrepreneurship is essential to a thriving and equitable economy. Yet, too many small business owners— particularly women, people of color and other under-represented populations—face significant hurdles accessing capital from banks and other traditional sources.
The disparity in government-backed capital during the COVID-19 pandemic exacerbated the inequitable economic conditions faced by many small businesses. Programs such as the Paycheck Protection Program (PPP) relied on an outdated network of traditional financial institutions, which have traditionally excluded a disproportionate number businesses owned by people of color and women. These inequities denied critical support during the pandemic to the businesses that needed it most and exacerbated a system where often the only capital available to the smallest businesses in under-represented communities is often accompanied by exorbitant interest rates and confusing repayment terms.
We must ensure that long-term, equitable, responsible capital is available to enable all small businesses to survive and thrive. Nontraditional lenders such as CDFIs—mission-driven lenders that uniquely lend to communities left behind by traditional banks—are key partners in this work. And, we must look to new channels and new lending paradigms. Our policy recommendations include:
Top three priorities for Congress to support small business
- Quadruple SBA lending guarantees, specifically by raising the maximum guaranteed annual loan amounts and loan guarantee percentages.
- Maintain the recent expansion of funding for the CDFI Fund at $3 billion.
- Appropriate emergency funding to replenish the Restaurant Revitalization Fund to reach the more than 180,000 RRF applications that remain unfunded.
Promote equitable access to capital
- Expand the U.S. Small Business Administration’s lending capability such as a direct lending program to increase access for traditionally underserved communities and small government contracts that need working capital.
- Ensure current and future pandemic relief efforts are targeted to the smallest businesses, entrepreneurs of color, women and those in low-income areas, and that important demographic information of recipients is collected as mandated by Section 1071 of The Dodd-Frank Act and included in the recently promulgated rule by the Consumer Financial Protection Bureau (CFPB.)
- Provide automatic forgiveness for all emergency loan issues to small businesses like the Economic Injury and Disaster Loans and the second round of the Paycheck Protection Program loans.
- Ensure that State Small Business Credit Initiative (SSBCI) funds reach the most vulnerable businesses and support technical assistance providers targeting under-resourced communities.
- Dramatically re-envision and implement a robust small business capital infrastructure, providing more patient and flexible products directed to diverse entrepreneurs. This should include early- stage forgiveness and/or low- or no-early interest loan features combined with long payout schedules.
- Ensure equity for unbanked and underbanked small businesses, especially entrepreneurs of color, women and immigrants—via set-asides and targeted programs for the smallest businesses.
- Empower and finance the U.S. Small Business Administration (SBA) to expand its programs for smaller loans targeted to small minority- and women-owned businesses, including making the Community Advantage Program permanent.
- Provide unrestricted grant funding for those small businesses that were left behind, or underfunded, by federal relief programs.
- Bolster resources dedicated to CDFIs and other mission-driven lenders to expand their capacity and ensure their profitability.
- Ensure women and entrepreneurs of color get fair access to capital by increasing both funding for and awareness of Women's Business Centers, Small Business Development Centers (SBDCs) and the Minority Business Development Agency (MBDA). Adequately fund the MBDA in addition to ensuring its permanence.
- Maintain and expand lending programs for rural entrepreneurs.
- Remove barriers on federal loan programs for previously incarcerated individuals.
- Provide more immediate funding and resources for business assistance providers.
- Synthesize more than 50 disparate federal programs and myriad state capital and credit programs.
- Establish state banks, such as the Bank of North Dakota, that make low-interest loans for infrastructure, agriculture, affordable housing, student loans and small businesses. These banks will spur economic growth and lead to thriving community banks with higher lending totals.
Ensure transparency and other responsible small business lending practices
- Reintroduce the Small Business Lending Disclosure and Broker Regulation Act, which would extend Truth in Lending Act disclosure requirements to small business loans and credit products.
- Prohibit "confession of judgment" clauses in small business lending agreements whereby borrowers agree in advance to waive their right to contest any dispute with a lender, often costing them their entire savings. This prohibition has been proposed in the bipartisan Small Business Lending Fairness Act.
Promote expanded venture investments for the smallest businesses
- Direct significant federal funds to public/private venture capital in under-resourced and rural communities, particularly for startup businesses.
- Support innovations like equity crowdfunding while ensuring safeguards that make sense for both small business owners and investors.