'Small businesses will continue to have a challenge' after coronavirus pandemic ends

Michael Pugh, Carver Federal Savings Bank CEO, joins Yahoo Finance to discuss the current state of small businesses and possible challenges they could face in the future.

Video Transcript

BRIAN SOZZI: Now we've all heard about the troubles facing small businesses trying to get their hands on those PPP loans. It's especially tough for those in underserved communities, including African-American small business owners. With us now is Michael Pugh. He's the CEO of Carver federal Savings Bank, which is the largest African-American run bank in the United States. And our very own Brian Cheung is here with us as well.

Michael, good to-- good to see you this morning here. So take us through some of the steps that your bank has taken to get small businesses these PPP loans.

MICHAEL PUGH: Sure. Well, it's a pleasure to be here. So I think one of the first important steps is that we partner with a number of community development financial institutions. And, of course, these are treasury-designated institutions, CDFIs, to provide technical assistance in our community.

We know a number of the small businesses in our communities. They are great at delivering products, but need technical assistance in order to apply for the program, and most importantly, understand the program in terms of how it works so that they meet the compliance requirements. So there's been a large number of them across greater New York City, Upper Manhattan Empowerment Zone, Brooklyn Navy Yard, and sundry of others that are very, very important.

Second, really making sure that we are being highly responsive to the community around this program and initiative, partnering with our chamber of commerce and other local agencies, again, to get the word out there. But responsiveness, again, Brian, I can't stress enough, is the key, frankly, to this program. Because we know for many of the small business entrepreneurs, they applied in the first tranche of the program, but didn't see the level of success, because they didn't have the technical assistance, and they didn't have someone who was responding, following up with them.

BRIAN CHEUNG: Hey Michael, it's Brian Cheung here. So I think what's interesting is that the nature of the businesses that you're lending to already had a historical difficulty in accessing credit, making payments on debt. That was something that existed before COVID-19, which raises the question, how do you make sure that those minority-owned businesses in the communities that you serve end up making it out of this at the end of the tunnel, right, when the recovery does eventually come?

What does that conversation look like? And do you think that those PPP loans have actually helped them bridge that gap?

MICHAEL PUGH: Yeah, it's a great question. I think it's unquestionable that the bottom line in terms of the small businesses will continue to have a challenge on the other side of this pandemic. And that challenge is in large part because the small business entrepreneurs are operating their business day-to-day, focused on trying to grow and survive, while they also have a real paradigm shift that's now going to be in front of them.

I think in general, the consumers, our communities will be thinking about how we do business as a whole, very different on a go-forward basis. And crowds may not be the first choice. For a number of businesses, particularly in the small businesses, when you talk about those that are less than 100 employees or so, in many cases, they are in the service-related industries, health care, general contracting, et cetera. So again, they're really going to have to think about how they deliver their overall goods and services in a very different way.

Carver fits into that nicely, because as a community bank, our mission has always been to focus on providing economic empowerment, access to capital, technical assistance, developing programs that provide financial education, and a number of key things. And I think that those programs, that type of partnership will be very important on a go-forward basis as we emerge through this crisis.

BRIAN CHEUNG: And then Michael, as we know, you know, these communities that have been particularly hard hit-- I mean, you're trying to underwrite these PPP loans. But there's concern that for the companies that didn't take the PPP loans, or even those that did, whether or not they'll be able to survive through all this as the stoppages continue specifically in your focus areas of New York City. Do you worry about business shuttering-- shuttering down? What would that do to the community? And as a bank lender, I mean, how much pressure does that put on you?

MICHAEL PUGH: Well, there's certainly been some studies and reports that have indicated that particularly in the communities that we serve, greater New York, that as many as 40% of some of the local businesses, small businesses, less than 50 employees, may be challenged to reopen on the other side of this crisis. I think while the PPP program, the Paycheck Protection Program, obviously offers one very, very important avenue to be able to help these businesses in terms of providing capital, there's going to be a lot more work needed. And the journey is going to continue for us here.

Many, again, of these businesses you've heard me talk about will have to just think about their delivery models in a very different way. E-commerce and digital delivery being very, very important. And so we'll have to be there and respond to that.

BRIAN SOZZI: All right, let's leave it there. Michael Pugh, CEO of Carver Federal Savings Bank, good to see you. And good luck over the next couple months.

MICHAEL PUGH: Thank you.