As Washington edges closer to a deal on coronavirus stimulus, a senior Goldman Sachs executive expects “trouble ahead” if there isn’t more federal assistance for cash-strapped small business owners.
Congress is currently debating a new round of stimulus to prop up the economy — an effort major business leaders have rallied around as the coronavirus pandemic devastates the jobs market and hamstrings consumer spending. On Monday, over 100 CEOs from some of America's largest companies urged lawmakers to provide relief to small businesses.
In a recent interview with Yahoo Finance’s “The Ticker,” Margaret Anadu, Goldman’s Head of Urban Investment, pointed out that the Paycheck Protection Program (PPP) has provided eight weeks of support that’s starting to evaporate.
More is needed as the fallout from COVID-19 extends its grip on the economy, Anadu said, citing new survey data from the firm’s 10,000 Small Business program.
“We’re sitting here in what is effectively week 20 of this crisis. So, the vast majority of the businesses that we surveyed said they are going to run out of funding without more federal assistance by the end of next week,” Anadu stated.
“So, there is a real urgency for more assistance, more thoughtful assistance, and that need is now,” she added.
Black businesses in real pain
As the spotlight turns to social unrest and racial inequality, Goldman’s survey found that the crisis has disproportionately impacted Black-owned businesses.
“We’ve seen the median employment of the Black businesses we survey go from ten prior to this crisis already down to seven. That’s already with some of the reopenings we’re starting to see around the country,” Anadu said.
She added that roughly one-third of Black-owned businesses have not seen their revenues return to even a quarter of what they were pre-COVID.
According to Anadu, the “most troubling stat” is that only 7% of those businesses think they’re going to maintain payroll without additional federal assistance.
“One of the things we need to do is not just think about the amount of assistance, the timing of the assistance, but how that assistance actually gets to these Black businesses.”
Before the pandemic, Black-owned businesses were much less likely to have relationships with mainstream financial institutions — something Anadu said needed to change.
“As we think about more assistance, we can’t just have it go through the big banks. We really need to be thoughtful about who gets to these businesses, where is that credibility, where are those connections?” she asked.
“And what we found through our work is that most effective in getting that capital to Black businesses is the Minority Depository Institutions (MDI), the Black banks around the country, and the Community Development Financial Institutions (CDFI),” the executive said.
While capital is needed to support these businesses, there’s also a need for infrastructure to help those smaller, mission-driven lenders to invest in those businesses. Doing so also bodes well for the economy as it recovers from the crisis.
“We don’t want to just get back to where we were. We need to rebuild these businesses, the folks that get them capital, in a way that’s going to make us more resilient and more fair and equal in the future. And so, what we need to do is invest in those CDFIs and MDIs,” Anadu told Yahoo Finance.
“It’s not just capital. It’s technology. It’s human capital. It’s connectivity to the broader mainstream financial system,” she added.
While the public sector can provide support for those institutions, there’s a need for the private sector. Goldman Sachs has invested over $1 billion in CDFIs in the last decade.
“That has been profitable,” Anadu said, adding that “it is something we see as good business, not just those investments themselves, but the catalytic nature of those investments and what it means for those communities where those CDFIs are the real anchors for capital. And so, we see it as dollars that are well invested and have a real catalytic impact.”
Julia La Roche is a Correspondent for Yahoo Finance. Follow her on Twitter.