Citing concerns that minority-owned businesses are being overlooked, Earvin “Magic” Johnson said his EquiTrust Life Insurance Co. will provide $100 million in capital to fund loans through the Small Business Administration’s Paycheck Protection Program.
EquiTrust, which is majority owned by Magic Johnson Enterprises, will partner with MBE Capital Partners, a Fort Lee, N.J., based nonbank lender that specializes in financing minority- and women-owned companies, to offer Paycheck Protection Program loans.
“What we’re launching here now is so important because we’re going to save a lot of small, minority businesses because they can’t just walk into the bank and get that loan,” Mr. Johnson said in an interview.
Mr. Johnson said he became aware, thanks to news reports, of the struggle many small borrowers faced in applying for loans after the Paycheck Protection Program launched on April 3. It was part of the federal government’s initial roughly $2 trillion stimulus package to combat the economic fallout of the coronavirus pandemic.
Rafael Martinez, chief executive at MBE Capital, was also hearing complaints from clients who couldn’t get in on the first $350 billion round of funding before the money dried up April 16. Some lenders had prioritized applications from customers with existing relationships.
“We started getting a flood of calls saying, ‘Hey Rafael, can you help?’” Mr. Martinez said.
Meanwhile, several large and well-known companies—including Mr. Johnson’s former team, the Los Angeles Lakers—were able to snag loans easily in the first round, having met the terms, such as having fewer than 500 employees. The Lakers and several others ultimately returned the funds after public criticism.
Mr. Johnson said large and well-funded companies receiving the money highlighted the problem that smaller companies with limited financing options faced in competing for the loans.
“We knew why the money was gone and couldn’t trickle down to small businesses, especially small minority businesses, because they didn’t have those great relationships with the banks. So this was easy for us to understand,” Mr. Johnson said.
With both Mr. Johnson and Mr. Martinez seeking ways to better help minorities access the program after Congress provided a $310 billion replenishment, partnering seemed like a natural fit. The two, with EquiTrust Chief Executive Eric Holoman, hammered out the terms of their deal earlier this month, after being connected through the National Action Network, the civil rights organization founded by the Rev. Al Sharpton.
Mr. Sharpton said ensuring minorities can access federal stimulus aid is crucial since black communities have suffered disproportionate deaths from Covid-19, the illness caused by the new coronavirus.
“We need more stimulation than anybody,” Mr. Sharpton said.
Mr. Johnson’s $100 million investment will immediately be put toward funding the roughly 5,000 Paycheck Protection Program loans MBE Capital has had approved by the Small Business Administration so far, according to Mr. Martinez.
He said of MBE Capital’s approved PPP loans, about 80% have been for minority-owned businesses, which have requested an average of $25,000, reflecting the small size of the firms.
“We’ve been picking up the people that nobody else wants,” Mr. Martinez said.
Congress set aside $60 billion of its Paycheck Protection Program replenishment for small, midsize and community lenders in an effort to address concerns that the loans weren’t flowing to underserved, rural and minority communities.
Still, the SBA may encounter challenges tracking how well the funds reached those borrowers, according to a recent report from the agency’s inspector general.
The report noted that Congress, in creating the Paycheck Protection Protection Program, instructed the SBA to give guidance to lenders about prioritizing small businesses in underserved and rural markets, but the agency failed to do so.
Meanwhile, Mr. Johnson is looking toward additional ways to help minority communities during the coronavirus crisis, including raising money to provide meals in inner cities and potentially expanding the partnership with MBE Capital.
“We will always first and foremost be about the minority community, and when you get picked as leaders of that community, you got to step up in tough times,” Mr. Johnson said. “This is, when you think about it, life and death for so many business owners. They have nowhere else to turn.”
