Detroit nonprofits strive to meet needs as federal loans trickle in

Metro Detroit nonprofits are seeing more demand than ever for such services as meal deliveries, assistance applying for benefits and grief support as residents contend with the economic and personal hardships brought on by the coronavirus pandemic.

Yet these organizations are facing their own financial challenges: Fundraising events have been canceled and donations have been reduced, intensifying a scramble for fresh capital to continue operations and meet rising needs in the community.

The U.S. Small Business Administration’s Paycheck Protection Program, which makes forgivable loans of up to $10 million available to small businesses and nonprofits to help shore up payrolls during the pandemic, is one resource these organizations have.

But while Metro Detroit nonprofits that applied during the program’s first round of funding were largely shut out, many have been more successful in the second round. That’s thanks in part to coordinated efforts to get money in the hands of organizations.

The Troy-based Kresge Foundation provided $2 million in funding to the Community Reinvestment Fund, a Minneapolis-based nonprofit lender that makes loans to under-served communities. Although the government will reimburse them, lenders use their own capital to front the PPP loans; so, Kresge’s funding gave CRF a boost to help it make the loans to Detroit nonprofits. CRF had closed on $4.4 million in PPP loans to Detroit nonprofits as of late last week.

And in southeast Michigan, CRF had processed $11.2 million in loans to small businesses and nonprofits, said Krysta Pate, a CRF program director. The organization is also processing $15 million in loans for small businesses in the city, made possible by a commitment from Goldman Sachs.

“At a time when we saw ourselves really constrained, both financially and operationally, there was a huge surge in demand for our services based on the pandemic and the economic shutdown,” said Joshua Elling, chief executive officer of Jefferson East Inc., a provider of services such as home repair, foreclosure prevention aid and street cleaning to the East Jefferson corridor and five surrounding neighborhoods.

“Thankfully, with the PPP,” he added, “we’ve really been able to push our liquidity through the end of the year. And it gives us some breathing room to deliver services during a challenging” time.

In a region ranked near the top nationwide in the number of COVID-19 cases and deaths, organizations such as Jefferson East are meeting some of the needs of residents who are grappling with widespread unemployment and loss.

“Fundamental services that virtually everyone in the city relies on are built on the nonprofit sector,” said Aaron Seybert, managing director of Kresge’s social investment practice. “What the Detroit community needs to continue to hear and understand is the interwoven nature of the nonprofit sector into the fabric of the city and every vital service you can think of.”

An initial $349 billion in PPP funding was allocated within two weeks of the program’s April 3 launch. An additional $310 billion became available April 27. As of the latest accounting, on Friday, more than 2.2 million loans totaling nearly $176 billion had been allocated from the second funding tranche, according to the SBA. In Michigan, nearly $5.6 billion in funding from the second round had been approved for a program total of nearly $16 billion in loans to more than 100,000 applicants. 

Nonprofits and some of the smallest businesses were frustrated by difficulties accessing funding during the program’s first round, even as larger applicants — including a number of publicly traded companies — received loans.

But the second round appears to be going smoother. Lenders initially slow to get up and running now have ramped up their application processes. The latest tranche of funding included set-asides for small and medium-sized financial institutions; the SBA took steps to make sure those lenders had better access to the application system; and organizations such as Kresge realized nonprofits were struggling with the program and stepped up to help.

Further, the average loan size has decreased to $76,000 from more than $200,000, which SBA Great Lakes Regional Administrator Rob Scott described on a call Tuesday as a “very good sign.” A larger number of loans have already been approved in this round than in the first, indicating that more mom-and-pop type organizations are being served this time around.

“We’re not going through the funds as fast,” Scott said, “but we’re reaching more” applicants.

Seybert attributed some of the first-round issues to the design of the program. The SBA does not normally work with nonprofits, one reason the application was geared toward for-profits. And lenders might have had an incentive to prioritize higher-value applicants because they have to put up the money before being reimbursed by the government.

“All of those things just stacked up against nonprofits,” he said. In addition to the $2 million in up-front funding, Kresge paid for technical assistance to help nonprofits navigate the application process.

Jefferson East initially applied for a PPP loan through its bank, but was unable to get one. But thanks to the Kresge-CRF initiative, the organization recently secured a $155,000 loan. The money will allow Jefferson East to maintain programs it had considered cutting, including a street cleanup program that employs people who have experienced homelessness and citizens returning from incarceration.

That program had been in danger because the organization faced reductions in donations from corporate and philanthropic sources, which make up the lion’s share of its budget.

Bridging Communities, a nonprofit serving older adults in southwest Detroit via home repairs, lawn services, meal deliveries, check-in phone calls and housing support, among other programs, was also unable to get a PPP loan through its bank during the first round of funding.

Like numerous other Comerica Bank customers in Metro Detroit, the nonprofit was frustrated by the bank’s inability to get an online application portal up and running until after the initial tranche of funding had run out. 

CRF, on the other hand, was “very diligent and helpful,” executive director Phyllis Edwards said. After learning about the Kresge initiative, Bridging Communities was able to secure a $75,000 loan.

The funds will help the organization keep its staff working and pay bills as it sees increased demand for food delivery, technology assistance and other support services for seniors.

Many nonprofit leaders are worried about the less immediate future, as normally-reliable sources of funding dry up.

“Even if we make it through the summer … there are a lot of question marks about whether funders are going to shift priorities,” said Suma Karaman Rosen, executive director of InsideOut Literary Arts, which offers creative writing and poetry programming to students in Metro Detroit. 

InsideOut secured a PPP loan in the second round through Troy-based Flagstar Bank after its primary bank wasn’t able to process its application. Rosen was frustrated to be turned away the first time, only to hear that publicly traded companies, including the Ruth’s Chris Steak House chain, got funding.

“It’s definitely not a level playing field,” she said. “Many times the nonprofit sector is overlooked when you think about markets and money and loans. We’re not the first thing that pops to mind when you think about the economy but … we are employing quite a few people, and we’re an important part of the fabric.”

Meanwhile, some in the local nonprofit sector are frustrated that the federal government does not seem to be keeping a close eye on whether assistance is getting to the communities and organizations that need it most. Unlike applications for other SBA programs, said Seybert of Kresge, the PPP application does not ask for demographic data, making it difficult to keep track of where money is flowing.

“We know for a fact that particularly African Americans are being drastically disproportionately affected by (COVID-19),” he said. “But we are not going to be able to trace where this relief is going to. .For a city like Detroit, that is very material information.”

Twitter: @Jgrzelewski

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