Equitable Access to Small Business Credit: Perspectives from Small Business Lenders

Welcome back. I’m Sean Creehan, lead for financial health and inclusion on the SF Fed’s FinTech team. So far, you’ve heard a number of awesome perspectives from policy makers, organizations representing small business borrowers and researchers most recently.

Now you’re going to get to hear from small business lenders. The organizations that perhaps the Fed knows best, and they certainly know us well. We want to get into the ins and outs of regulatory and supervisory issues to identify what we at the Fed and our fellow financial sector regulators can do better and differently. What were the major pain points and barriers that were revealed during the pandemic and how can we reform our practices to increase equitable access to capital? What are the underlying structural issues that are something that we as regulators can do something about? We really want to have a candid conversation. That’s something that we’ve asked our panelists today to think about before they joined us to really not be shy, to let us know what we at the Fed can do better.

I also hope we’ll cover the role of financial technology and other public policy supports like small business administration and public guarantees and the role that they can play in helping us solve this big challenge.

So, let me just very quickly introduce our panelists. They can expand upon their bios if they like in their first answer to the question, but we don’t have a lot of time. So, we want to just get right into it.

First, we have Sonja Wells, who is the Chief Lending Officer of City First Bank, the largest Black-led minority deposit institution here in the United States. Pearl Wicks is the EVP and COO of Hope Enterprise Corp, a family of development organizations dedicated to strengthening communities, building assets, and improving lives in the Mississippi Delta region and the broader Southeastern United States. Doug Bland is the head of global credit at PayPal, one of the longest running and most successful financial technology firms in the United States. And finally, Kitty Chen is the head of retail and business banking at East West Bank, the largest Asian American-owned bank in the United States and second largest MDI overall.

So Sonja, Pearl, Doug, Kitty, thank you so much for joining us today, first of all. Like I said, please feel free to expand on your distinguished bios when you get into the questions here, but really just wanted to dive right in with a reflection on where we did well, where we succeeded, and where we fell down as central bankers and regulators working with you, the lenders at helping small business owners of color, women-owned small business owners, and other low income small business owners during the pandemic. Sonja, I thought I could start with you and ask what you saw as the chief lending officer of the largest Black-led MDI in the United States.

Good afternoon, everyone. Actually, what we saw was obviously a program that was stood up very quickly using the PPP program through SBA, the EIDL program. And we were amazed of how quickly the programs were able to be stood up. Obviously, when you stand up anything that quickly, it’s going to be fraught with some frustrations and confusion. But I think that everyone did a really good job in navigating through it. And, as you know, it was evidenced by the number of changes to the program as we went along, but it did get better. So, that’s one of the things that I would definitely say that everybody did well in terms of standing it up quickly, in terms of making the changes as necessary and that were needed to really quickly get the funds out to those businesses that needed it.

I think that some of the differences between the first round and the second round, of course, is that they started to really expand the number of individuals that were covered, the types of businesses that were covered. Particularly, you had those perhaps independent employees or employers that were not necessarily covered in the first round, but ultimately that ended up changing in terms of how we calculated the dollars that the business is qualified for. I think that was a real plus and it did get better over time. So, that’s one of the things that I would definitely say that was done well, extremely well.

In terms of kind of what didn’t work, I definitely think that it just became apparent to me of still how underserved communities just did not have even access to PPP funding, to the SBA programming, understanding it. So, while those businesses, as evidenced also the first round in terms of those, what was considered a small business and how they quickly were able to get access to the funding and really took money away from those businesses that really needed it when they really didn’t need it. That’s what didn’t go well. Of course, that was resolved in the second round, but the first round, it was a disaster from that perspective, because it was a race to the finish line to be able to get the funding out to those small businesses that really, really did need it. So, I’ll stop there and let some of the other panelists speak on the matter, but that’s the pluses and minuses of it all.

Yeah, Sonja. I think you’re also emphasizing a point that we heard earlier in today’s conference, which was, we tend to often serve or at least consider the largest small businesses when we make these policies and when we design these programs. We don’t spend enough time thinking about the really microbusinesses, the super small businesses. So, thank you for that point.

Kitty, I thought I’d kick it over to you. What did you see as the head of retail and business banking at East West Bank?

Yeah, good afternoon. Honored to be here. Can’t agree more with Sonja about PPP loans. During the pandemic, it was really fast moving and unprecedented. With the temporary shutdown of long essential business in the late March last year, no one knew how to react, actually. And the impact is not just for the long essential business, but also other related businesses.

So, federal and state government have to come up quickly with some solution. It may not be the best, but they have to come up with a quick solution back then, such as regulator support for balance and payment deferral program. And of course the most importantly is the PPP loan to help the small businesses and basically to the worker to survive through the difficult time and several changes in the PPP rules were made after the initial rollout and the bank is trying to adapt to these changes were at times quite challenging once you are processing some of the existing one and then the new rule came in. And many of our followers are small in the industry, particularly not heeded by COVID and the businesses that heed the most were minority-owned, immigrant-owned, and women-owned businesses.

And for some small businesses that had less payroll expenses in their operation, they were unable to get sufficient fund to sustain the business as PPP loan. It’s the relief program to protect [00:08:30] the payroll, but not the small owner’s equity. And East-West had a very old fashioned, more manual process for the PPP loan than other larger banks to help our customers, as they did not know how to apply through the automated system and a lot of handholding back then. And basically, it was all hands-on deck for the entire bank during that time until we automated some [00:09:00] of the back end process. I agree with Sonja that the second round is much better than the first round. The second round focusing on sales volume dropped at least 25% before they qualify.

So, we saw more businesses apply for the first round where they might not have a drop in sales, but they still were able to get the funding before other smaller businesses that really needed the funds. So, this something that I wanted to share with everyone. We could not do a much better job, but of course, back then, it’s really fast moving and the government has to come up with something. It’s not perfect, but I think that over time then we have some changes in the guideline which really help the small businesses. And sometimes the small businesses didn’t even know that such a PPP program to help them until all the funds is gone. So, this is something I want to share.

Thank you, Kitty. Pearl, what was your experience? I know that HOPE has a number of entities under its umbrella, including a CDFI and a credit union. But, what was your experience during the pandemic and lessons learned, successes and failures?

Good afternoon, Sean and hello everybody. I want to thank the San Francisco Fed for hosting this panel. I think that, as a system, we could have done much better, but I do want to echo what’s been said is that we did get money and support into the hands of those business owners that were suffering, as we all were, from the effects of COVID, the uncertainties in their environment, the uncertainties in their day-to-day operations.

So, I think getting the PPP funds out was definitely something that we did well. We certainly know that, as a nation, there are things we could have done better. We think about the banking system and, as Sonja and Kitty have said, the people in the system that have always been left behind, for lack of a better word, were also left behind.

We saw that, I mean, this is a system where 47% of Black households are either unbanked or underbanked and that’s in contrast to 17% of white households. And as we saw that once the PPP funds were available in the first round, they were quickly exhausted and none went to some of the small list of businesses that needed it the most. And so, that cycle just continued to feel like it repeated itself. But also as we’ve said, things did improve from the first round to the second round. So, one of the things I think that is so critical about these sessions today is we’ve got to listen. And as we listen and learn, we’ve got to do better. So, those are some of the things that I think we definitely have an opportunity to improve upon. We only closed 45 loans in that first round.

And some of that was just a sheer struggle of getting everything through the E-Tran system, but then also of our businesses to get their documents ready. We know that in the underserved markets and with your smaller minority-owned businesses, their technical assistance is so critical. And when you don’t have that, to even pull some of the documents together that was required, our businesses didn’t have that. So, there was some handholding, and that’s what the CDFI industry is known for. Our members that use us, think of us as their trust agents. And so, we’re the ones that’s been there to help them understand that, but with a fast moving program, with money going out the door to first come, first serve, there wasn’t a lot of time for that as we would’ve done in our traditional day-to-day lending.

So, I think continuing to observe those effects and how they continue to just the inequity of the system period for minority-owned businesses. We saw that some Black-owned businesses that may have had a relationship with a financial institution was turned away when it came to applying for and getting qualified for the PPP loan.

So, we had one of our borrowers to come to us and say that the bank that they did business with for many, many years actually referred them to HOPE. And so what is that? That continues to say that you’re not given the respect that you deserve to get access to capital and to funds that is so needed. And so, we continue to see this happen through disasters, as we did with Hurricane Katrina, unfortunately with Hurricane Ida, and just like with this pandemic that people that are left behind in the system continue to get further behind.

So, those are definitely things that we can improve upon. And like I said, when we have opportunities like this to share, and when we listen and hear, then we have to act, and I think that was our call to order at the very beginning of the conversation.

But we did get to work and take advantage, we as HOPE and to take advantage of what we had. We were able to redirect some of our workforce and have more hands on deck to help with PPP lending. We were able to connect with partners to provide technical assistance and get some of those businesses ready that were not ready. And, at the end of the day, we were able to close better than 5,000 PPP loans for over $140 million.

So, I’ll end like I started, just the fact that we were able to get money on the ground to businesses that were hard hit by the pandemic and know that those businesses are also last to get resources.

So, I guess I echo, we have to continue to be diligent about making sure that people that need the services most get them. And that is one of the things that CDFIs do have a reputation for doing, and it was definitely displayed as CDFIs were some of the largest producers of PPP loans. So, thank you, Sean.

Thank you, Pearl. And thank you all. I mean, we know how hard everyone was really working in the beginning of the pandemic, how difficult it really was to just connect with borrowers and how to get this money out. So, thank you for everything that all of you are doing there. You talked a lot about technical assistance, Pearl. I think that echoes some of the conversations we’ve heard earlier in the conference, and we know that CDFIs are very well known for doing such a great job of high touch, helping their borrowers through these challenging circumstances.

And so, I think for me, one of the takeaways is how do we get that sort of that magic to the broader financial system? How do we get everyone doing something similar? I was remembering during the borrower panel, there’s a discussion point of whether CDFIs are always comfortable graduating their customers to banks, because they don’t feel like the banks are always there helping them in the same way. And so, they’re worried about their customers. And so, that’s another interesting takeaway that I heard that connects to what you’re talking about.

Turning over to Doug, last but not least, I wanted to frame this question in line of thinking to you, kind of from the lens of financial technology, given where you sit, and maybe you could talk a little bit about the role you saw, of course, at PayPal, but more broadly, of technology playing in credit delivery during the crisis and your experience more opportunities to leverage technology and also our roles, again, as regulators to enable responsible and inclusive use of technology.

Yeah. Well, thank you for having us, Sean. Really appreciate the opportunity to be here and really appreciated listening to Sonja, Kitty’s, and Pearl’s experience.

At PayPal, we also participated in the PPP program through our bank partner that we have with WebBank who actually issues the loans on our behalf. And so we had never done SBA lending before. WebBank does have an SBA license, not very active in doing SBA. So, there was quite a bit of work of trying to quickly stand up and help participate with small borrowers when the crisis started to unfold.

And it was an incredible time of uncertainty as you heard in the previous speakers, round one was very different than round two. We actually didn’t even get approved to help on PPP until a week and a half in of round one. And we thought all the money was going to be gone. And it almost was. We barely were able to help some of our small business borrowers, but as I step back and reflect on that time period, and that part of the pandemic, which unfortunately, I don’t think all of this is over. We still have small businesses out there that are hurting, that we have to continue to focus on and help. It is a moment, though, hopefully with this audience, to think about and be proud of, I think, of public and private partnership truly coming together and solving an incredible time of uncertainty for small businesses.

Yes. At first there were probably some businesses that were getting access to this funding that may or may not, it’s debatable whether or not they necessarily needed it. And we absolutely have to find better ways to provide funding to minority owned, to smaller micro businesses that just don’t have the wherewithal and may not have the same capabilities as larger businesses to access this funding. But it was the work that we saw through the SBA, through the treasury, through the Federal Reserve, through Congress and all of the different private companies that we were working with as well, it was incredible. It was around the clock 24/7, there was probably a three- to four-week period of intensity where I don’t think anyone got a lot of sleep. And then that was just leading up to the start of round one.

And then that just continued for months, if not over a year, but certainly a lot to learn from that experience, Sean, but I think the intent was good. I think it was a great start to show what public and private partnerships can truly do, certainly during a moment of crisis, but how can we learn from this? How can we solidify these learnings and ways to ready us for that next crisis and just continue to improve upon the lives of helping small businesses gain access to capital. It is a real issue. Our PPP performance, our average loan size was $26,000.

So, we really focused on the smaller side of businesses in the US. And if you look at our traditional lending that we do in the United States to small businesses, it does skew to a very small dollar amount as well. And there’s a need for traditional lending to continue to help these businesses, as well as alternative and FinTech lending. And so, I think continuing to work together and to learn from this experience is going to be really important. We can’t let up on the intensity of trying to solve this problem of reaching out and providing access to capital to these businesses.

Thanks, Doug. So, for our next segment, I’d just like to talk a little bit about the concept of risk and lending to small businesses. This is a theme that’s come up in previous discussions today, but the notion that perhaps there is a gap between perceived and actual risk, in some cases, of lending to small businesses, and maybe there’s new innovations that we can use to better understand the ability of a borrower to repay a small business loan and all of this has a huge impact on the access to credit, and also potentially the cost of credit, depending on how we measure and perceive these sorts of underlying risks.

So, just getting into this kind of broader question of why small businesses are so hard to serve at least for many institutions. So, I thought maybe we could start with Pearl just given your work at HOPE and CDFIs like HOPE that tend to reach borrowers, that some banks don’t even try to lend to, may consider challenging, or just will not even try to bank. And I’m just wondering if you can share a little bit more about how banks in general or other financial institutions might better assess, are there ways to improve the risk of lending to a small business, or even maybe it’s about also reconsidering a risk tolerance as part of a portfolio approach? Just wondering your thoughts on this issue and what we can learn from CDFIs.

Thank you, Sean. Great question. And I think one of the things I said earlier is that, as CDFIs, we are considered agents of trust and you have to earn someone’s trust and they have to feel respect. This I do to answer question think that banks can do better and actually must do better if we’re going to close the financial wealth gap. I think that one of the things that banks and institutions can do better is really listen to the borrower. At HOPE, one of the things we say is that we don’t make a loan based off a credit score. We look at the whole person, and I think that being consistent and intentional about finding solutions, not just cookie cutter-type solutions, but solutions that really fit what the problem is that that borrower is trying to solve.

And that may mean the credit score is not used and there’s not the algorithm that doesn’t look at the person, but looks at the score, the address, all of those standard things that really don’t tell you the borrower’s whole story. So, I think to continue to establish trust is we banks and financial institutions really have to listen to the borrower and be willing to be that partner with them. “This is what your need is. Here’s how we can help you.”

And as we talked about in the last question, CDFIs, we do have that approach of working with the borrower. And so sometimes it could be that the answer is not now, but while that person’s being told not now, giving them the tools and the support to get there, if that’s technical assistance, if that’s enhancing the credit score, if that’s getting a financial plan.

So many things that we know business owners have to contend with as they are looking to get a loan and to get an account, as we talked about with some of the Black business owners that had gone to their traditional bank to get a PPP loan, but was turned away.

So, those, it’s just things like that that continually tend to show up. And I think that I’ll go back to that banks really have to be intentional about serving people and meeting them where they are.

I think also hiring people that represent the community. If you’re in the community, you know the community. And so, when that borrower walks through the door of that institution, they see someone that they recognize, they see someone that looks like them, and that person typically can understand their story. So, I think that that’s important. Also having boards that represent the community because the way to give the community what they need is to be a part of the community, to listen, and be willing to do away with things that have been done forever, just because that’s the way they’ve been done.

COVID certainly has shown us as a nation that nothing has to happen the way that it always did. And I think that we have to be smart about lending. We have to be smart about the way we do business and how we do business. And I think, once again, just being willing to listen to the borrower, understand their story, and then find meaningful solutions that work for the borrower and not a turn down simply because they didn’t fit into that box and I think that that’s something that CDFIs have done well and continue to look to strengthen so that we can get capital in the hands of the people in the communities that need it most.

Thank you, Pearl. Kitty, I thought I would turn the question next to you. Similar line of questioning, but often in these sorts of discussions, stakeholders, whether public or private, elevate the role of both CDFIs, but also minority deposit institutions in reaching communities that are not fully served by the financial system today. I’m wondering if you could talk a little bit about what you think the strengths of MDIs like yours bring to this, but also how all banks really can do something similar, how we can learn from all of this activity, because we all need to be doing this. It’s not just something for CDFIs and MDIs to be doing.

Sure. By nature, small- and medium-size business customers are still at the core of our bank. Most of this business customers, their owners, their families also bank with us personally. We have the capacity of evaluating the business based on their performance and also alternative credit histories, such as their bank account histories and personal saving liquidity.

So, as a minority deposit institution, to our success, it’s just like our success is less visible and less impactful. We can only do so much. And I don’t really have a very good answer for what other bank or big banks can do better, but big bank have the advantage to scale and lower the cost of underwriting and no monitoring. And they can perhaps use this, but there’s no one size fit all, especially for small businesses. And small business loans just have not been the focus for this big bank in growing their business.

And regulators should probably provide more guidance and monitoring and drive the mainstream banks to lend to underserved business segment. And they will only embrace let’s look at this lending opportunity if the regulator are to use the right carrot and sticks. And for the small business customers, I think that trust is really important and it’s easier for these smaller banks and to build trust with them because you build trust through interaction and through relationship and it’s earned over time.

So, this is something that I can share. This is success from our bank. But another thing is we can only do so much for the size of our bank. If we really need to help more smaller businesses, the big bank has to do something. And the only thing that they would do it as the regulator, the state and the fed government have to let them know that this is also a very important business segment for them. Thank you, Sean.

Thank you, Kitty. Yeah. So, incentives for banks driven by regulators. I think Mary Daly at the very beginning talked about Community Reinvestment Act modernization. I know that’s something that everyone is thinking a lot about.

Doug, I definitely want to get your take here. I just wanted to just connect quickly with this same question to Sonja. Given your role at the largest Black-led MDI in the country, what’s your take?

So, my take is, like Kitty said, there’s only so much that your larger financial institutions are going to be able to do or going to be willing to do in the absence of the carrot and the stick. I mean, that is truly the case because, for them, it’s really all about speed and the number of clients that they’re servicing. I mean, it’s really as simple as that, and they’re going to deploy the majority of their resources into their more profitable clients. I mean, that’s the model. That’s how they make money. Many of them are, particularly when they have a responsibility to their shareholders and that’s what it comes down to. So, that is the business model.

So, I think, as CDFIs, we have to do as much as we can do to take the time and deploy the extra resource into these small businesses and to their owners that need it. If it’s taking the time, when they come to you and they fully qualify for a line of credit and you know they do, but they’re not able to provide you with the information that you want to see. Then, you have to figure out how to help them get there. And that’s what we do.

So, we take that extra time, and perhaps at some point, so that they are ready for a bigger bank, so that they understand that when you’re demonstrating, you need to demonstrate the need for that line of credit. So, what does that look like? So, if it means that I’ve got to build an Excel spreadsheet for them to complete, then that’s what we do. And if it means that we have to take some extra time and put in a little more time with that client that is needed in order to get them where they need to be, then that’s what we do.

And I think it would, somewhat with the bigger banks, and that’s what they can do is that they can identify maybe a group of folks that can spend more time with the small business owners and with the small businesses to provide the resources that they need, because they have many more dollars than we do. As Kitty said, we can only do so much. We’re small. We’ve got a limited amount of resources and we’ve got a limited amount of staff, whereas they have a much larger staff. So, why not build maybe a particular group that is really specifically for minority businesses and that can provide the extra time that they may need or identify the resources that are necessary to provide to small businesses.

Credit scoring is huge. Many of the large banks, they put it through an automated system, and if it’s automatically declined, if they don’t meet a certain threshold, as far as credit scores are concerned, maybe it’s taking the time, as both Kitty and Pearl said, understanding the score. How do you improve it? What’s behind it?

But, in addition to that, maybe it’s kind of like when you look to join the federal government as an employee, they find other ways to give you additional points to perhaps elevate where you can start. And so maybe that’s another mechanism that could be used and that could help get away from just the credit scoring, because many times these small businesses don’t even know they’ve not pulled their credit, so they don’t know what’s there.

One of the things that we do, one of the things that I’ve always done, even when I was with a big bank was, “Tell me what’s on your credit.” And they’ll say, “Oh, there’s nothing there.” And it’s like, “Okay. Well, let’s pull it. Let’s look at it.” Before we go to underwriting, before you apply, let’s take a look at what’s happening in that credit so that we know upfront what we’re dealing with. And you can’t advocate for someone or any individual, if you don’t know what’s there.

So, starting even there is a good start is just arming them with the ability to pull their own credit score and taking a look at it so that we can review it prior to getting it fully into the underwriting process. It could be that you say, “You’re not ready yet. You’re not bank ready, but let me provide you with some other resources that might be able to assist in the short term.”

Again, helping them understand how banks work, because many small business don’t understand. They may know their business. They may know how to be successful in their business and they certainly know how to work hard, but they don’t know banking. And so, we have to, as CDFIs, as MDIs, and the larger banks as well need to take a look at that. It’s like they understand their business. Now, help them understand our business and help them to work with us, to get them what’s needed. And so, I think that those are just some of my recommendations and thoughts around it.

And one thing I do want to say, too, is during PPP, one of the things that we had many customers coming to us that came from big banks that had had no success in really navigating the process with a larger bank, mainly because they couldn’t even get a person on the line. They could have had their multiple bank accounts and a lot of money on deposit with these banks. If they didn’t have access to a dedicated banker, they had no way of penetrating the process and understanding. It was just all automated. They didn’t know where they stood. They had submitted an application. If it had worked, they had no clue as to what was going on and they couldn’t even get ahold of anybody to figure it out. And so, even in round two, we had small businesses that had been declined by folk and they didn’t know why. And then we were able to get them through the process just by saying, “Okay. This is what we need. This is what the problem is.”

One of the things that we also uncovered is that we were shocked at how well we knew all of the codes as we worked through this process to get an application through. And what we discovered is that the big banks had no idea. It’s because they didn’t feel like they needed to know. They knew that they could process enough that if something got hung up due to an erroneous code, so be it. We even had one situation where it was a not for profit that had applied for a PPP loan second round. They had gotten the first round. Somehow or another, they had been coded as a lobbyist. They were an advocate, but they were not a lobbying firm. And so, they were applying for us for the second round. We actually reached out and called the larger bank that they were having a problem with and said, “All you have to do is changed the code.” And they wouldn’t change the code. I said, “Well, you do realize that if you don’t change the code, the loan’s not going to be forgiven. You’re going to have a loan on your books.” Still wouldn’t do it.

So, I mean, sometimes it’s just common sense. It’s like, “Just use common sense.” It’s not all about numbers, it’s about people and you really have to approach it from that perspective. So, those are my thoughts around that.

Okay, thanks, Sonja. So, picking up on that, on it being about people and knowing the customer, and Pearl talked a lot about knowing the whole customer going beyond the credit scores you also talked about earlier, building that trust.

Doug, a lot of interesting insights from the new use of technology and the digitization of economic and financial activity during the pandemic. And I know that’s your business. I’m just wondering how does technology help here and whether it’s kind of that broader sense of the customer’s ability and willingness to repay, it’s just fundamental to any lender’s willingness to lend to someone. How can that help the risk assessment? How can technology help make small dollar lending more affordable, lower those fixed costs. Just curious. It’s a lot to unpack. It’s a lot to put on the shoulders of technology, but what’s your reaction to all of this?

All right. Look, it’s a really complicated question and really great feedback from our panelists here. And I think what you’re hearing a little bit in some of the themes are some of the unintended consequences of trying to create scale, trying to create efficiencies with technology, with algorithms, with credit scoring. And unfortunately there are always going to be situations where, circumstances where maybe it doesn’t fit the box, I think.

Pearl used that specific comment where, if you step aside with that borrower and work with them and think through what their business is doing and take a more personalized approach, perhaps that’s going to lead them to a better outcome. And so, I don’t think there’s a simple solution. I absolutely believe technology and data is key to helping solve this problem in providing greater access to capital to all borrowers to ensure that we have the lens of fairness and equitable-type lending. Whenever we use technology, when looking at the variables within models and making sure there aren’t unintended consequences, but also the partnership with CDFIs, with state agencies.

And the other thing that I heard as I was listening to the panelists here was around financial education and ensuring that the smallest of businesses truly understand how the lending process works, how the banking process works, but it is complicated.

And the other thing is there continues to be a consolidation of banking and I think even where branches exist for small businesses to go, and one slice of the data that we looked at and our mission at PayPal is to democratize financial services and everything that’s being discussed is something that we’re constantly thinking about is how do we help the underserved and do it in a way that is fair and equitable.

But, as an example, in the PPP program, we looked at loans under $150,000 and 54% of the loans we facilitated with WebBank were dispersed to areas with more than 15% minority population. So, that’s 54% while only 41% of overall PPP loans. But what’s interesting is also 60% of the total number of the loans that we help facilitate for PPP were dispersed in counties where 10 or more bank branches have closed since 2015, whereas only 42% of overall PPP loans went into this area.

So, I think part of the issue, too, is just accessibility to the banking system. And that’s another consideration that we need to think about and how can financial technology firms with a digital platform ensure that we’re helping fill this gap, fill this void that seems to continue to exist at least with current trends.

And Sean, this is Pearl. Just to add on to I think what Doug said, and others. It’s partnerships, and so key partnerships with banks and CDFIs and smaller banks and PayPal made an investment into HOPE, a large investment. And that is huge for our organization because when we have communities that we serve, where at any given day, the member may have less than a thousand dollars in the bank. Well, that community is not going to have enough capital to do the things that the community needs, small businesses, checking account, savings accounts, just the typical things that would need to happen into the community.

So, I think commitments from institutions like PayPal to support racial equity and work with CDFIs and smaller institutions that are serving that population is really huge. And those partnerships cannot be taken for granted. They’re huge to any organization. And I think that fostering partnerships like that and be it regulatory or the ask is one of the things that we often see really will help to, as we said, continue to strengthen business owners, small business owners, minority business owners in our communities and help to close the financial wealth gap.

Thank you, Pearl. So, unfortunately, we’re running a little close on time. We’ve got about five minutes left and I would be remiss if I didn’t give you all the opportunity to do what we talked about up front, which is to be very candid, knowing that, as Kai Ryssdal mentioned earlier, you have Mary Daly on the line. You have a lot of other listeners from the Fed that will be paying attention, meaningful actions that we can take from a regulator’s provider’s perspective, working in partnership with you, the lenders, to make a difference here. So, if I could maybe do a little lightning round, where you each get about a minute. I will start with Kitty.

Yes. Most of the regulations are designed to solve problem at the big banks, but when applied to other size bank that makes smaller loan to hold onto their books and seek to have a good reputation in the community do not serve that purpose. And, in fact, discourage lending by making it expensive and increasing the risk of regulatory criticism by risk focus and don’t treat small loan like big loans. If the delinquent rate and loss rate do not factor the safety and silence lower the regulatory expectation of perceived risk in low monitoring, which can reduce the compliance and regulatory costs to our bank. Consumer protection law are well intentioned, but it do not serve to encourage lending. It has chased most bank away from consumer lending because the compliance rules are so complex and enforced so strictly that mostly only the large national bank that do it, we do it because we should, but it’s expensive even for size of our bank.

So, this area needs a lot of rethinking. So, something I want to leave it here, there’s a lot of rethinking for the public sector and also private sector. I also agree with that we need to have a very good partnership between the public and also the private sector to make it work. Thank you, Sean.

Okay. Sonja, how about you?

Well, first off, I echo Kitty again. I think it’s amazing that all the panelists are so well aligned here. So, I won’t get into regulatory because I will definitely say that that is definitely the answer, Kitty. I think when it comes to some of the SBA and guarantee programs that reducing some of the fees, the fees are really, really offensive. When you calculate the cost of the guaranteed fee for many of the small businesses that need the guarantee, but the cost is prohibitive. Also finding a way that you can combine programming from the Feds with the either local and state government, I think is also something that is very beneficial, really coming up with the streamlined processing process really would be helpful because it’s very complicated. And many of the small banks, if you don’t have an SBA department, an expert, then you’ve got to outsource it, which means that’s even more work and more expense that the borrower has to incur, because then the pricing has to go up.

Some additional express programs, as we talked about earlier, for micro loans and whatnot that are available that are certainly, again, streamlined, reduced fees. Also, the 8(a) program was something that worked really, really well for the contractor industry, but having something like that for other industries where you can provide all of the information on industry and economic trends and provide them with resources for accounting and really banking and how to bid jobs and how to get additional business and really be successful. So, those are some of the things that I think that would be very helpful if they were in place and instituted.

Thank you so much, Sonja. So, we’re running very low on time. So, maybe I could ask for a 30-second quickie or one idea. Pearl?

Well, high level, big picture. We believe in HOPE that smart regulation is a good thing. However, when public support is made available, we do need the regulators to be aligned. I think it goes back to listening. And so, we need regulators to listen to what’s being said for the communities and be willing to enact good, strong, smart regulations so that we can get more capital on the ground to the people that need it most and by the people that have a history of delivering that.

Thank you Pearl. Doug?

I love what Pearl just said. She took the words out of my mouth. So, would echo that and include us in brainstorming sessions. Let’s identify problems, the big, big challenges that we have out here on this topic. And let’s commit to sitting down and having brainstorm sessions about it, think outside the box, and certainly balance regulation that is absolutely necessary, but also think about innovation. How do we innovate? How do we get capital out to these businesses that need it the most?

Well, thank you, Doug. Now, I’ll say that I would like to echo what you just said. There’s a lot of work to do here, a lot of action to take, and we definitely want to continue these conversations. I should note that we, as a Fed, have talked with all of your organizations in the past or during the pandemic and you helped us. So, we will continue to have these brainstorms offline and online. So, thank you so much Sonja, Pearl, Doug, and Kitty for your time. And now I’m going to hand it back to Mary Daly who will close us out.