SMALL BUSINESS GOLDMAN SACHS PODCAST 1 EXCHANGES AT GOLDMAN SACHS PODCAST WITH MARGARET ANADU AND SMALL BUSINESS OWNERS JAKE SIEWERT This is Exchanges the Goldman Sachs, where we discuss developments currently shaping markets industries in the global economy. I'm Jake. See what global head of corporate communications here at the firm. Today we're going to be talking all about small businesses. First we have for Margaret, and I do head of our urban investment group about Goldman Sachs recent announcement to commit $250 million for emergency loans to small business as well as a $25 million in grants to Community Development Financial Institutions and other mission-driven lenders. Then we'll hear directly from three small business entrepreneurs themselves or graduate of the Goldman Sachs 10,000 Small Businesses problems on how has personally had an impact on their businesses and their lives. But first, Margaret. Margaret. Welcome to the program. MARGARET ANADU Thanks for having me. JAKE SIEWERT So give us the big picture first. What's been the impact so far of the epidemic on small businesses here in the United States? SMALL BUSINESS GOLDMAN SACHS PODCAST 2 MARGARET ANADU Sure. I think, you know, I don't think this will surprise anyone. It has been significant. You know, we were actually able to survey, you know, huge amounts of our 10,000 Small Businesses scholars and we've got to over 1500 of them and the feedback was clear. 96% of them had been impacted. Over half of them felt if the situation did not change, they wouldn't be open in three months. And then two thirds of them were having a lot of uncertainty even figuring out how to navigate what was available from the federal government. And so if you think about why that level of distress? Why that level of impact. Small businesses, especially our mainstream neighborhood businesses -- they rely on customers and that cash flow and being open every day. And so when you're closed, you're not generating revenue. Two, you're having issues with your employees who simply cannot be at work, given all the foreclosures. And so if you take those issues on top of just the timing of it. This is not something that we were talking about a few months ago. This is not something that small business owners were prepared for. And so just the onset of it and having to make some of the most difficult decisions a small business owner will ever have to make -- whether they're going to be open, whether they're going to have to lay off a significant amount of their workforce. Those are those are decisions that are difficult in the best of times, even with preparation and so having to figure it out in the middle of a global pandemic, as you can imagine is really, really, really difficult. SMALL BUSINESS GOLDMAN SACHS PODCAST 3 And then just on top of that, of course, this is a health crisis. So these same small business owners are dealing with health issues in their own families, the health issues of their employees. And so when you put all that together on these businesses, it's causing a lot of anxiety, a lot of frustration, and it's widespread. JAKE SIEWERT So Congress passed in the President signed into law, big federal stimulus package. What's been the takeaway from that so far in terms of small business? MARGARET ANADU So the federal stimulus bill that was just passed had a pretty key provision to support small businesses. That's the paycheck protection program that we’re all hearing about in the press. Congress appropriated $349 billion to this program and had two primary goals: one get cash assistance to these businesses to cover their operating expenses, but two do it in a way that actually incentivizes them to maintain their employees and keep them on the payroll. Or if they've already had to make that heartbreaking decision to lay employees off, it actually gives them the ability to rehire them. The loan itself is meant to be streamlined. It is not a full business underwriting and simply sizes the loan based on 2.5 times average monthly payroll. Then once the loan is funded, borrowers who use the funds to maintain and cover other eligible operating expenses, benefit from a significant portion or sometimes all of the loan forgiven. So it's SMALL BUSINESS GOLDMAN SACHS PODCAST 4 incredibly attractive from that standpoint because it's getting businesses that cash they need fast and if they use it to keep their employees, they don’t need to pay it back. So the takeaways – one, it's significant. It's certainly going to help a lot of businesses and individuals. Businesses are hyper-focused on cash flow and this is one answer. The key questions are around the infrastructure -- how and where businesses actually get the money. So I mentioned earlier the size of $349 billion. The program is currently structured to use an existing lending program under the Small Business Administration called 7(a), which is typically much smaller. Taking 2019 as an example $20 billion was lent over the entire year. For the paycheck protection program, the current goal is to get $350 billion out the door in less than 3 months. As you can imagine, that’s causing a lot of anxiety for borrowers who have been told it is first come, first served, and for lenders who are trying to move at 50x their typical pace on a lending program where the rules are still evolving by the day. So to go back to the take aways – it’s a valuable solution, but $349 billion wont be enough and the implementation and access will be key. JAKE SIEWERT So your team moved pretty quickly in New York and Chicago to stand up with the mayors of cities on loan programs for small businesses in Chicago, New York, you're also announced this past week, a big $250 billion program explain what those problems are and how it works, since Goldman isn't traditionally been a small business lender itself. MARGARET ANADU SMALL BUSINESS GOLDMAN SACHS PODCAST 5 Sure. And we have actually since doubled that commitment from $250 million to $500 million! Our goal across the board has been to get capital to small businesses and to do it as fast as possible. Our $15 million in New York City and $10 million in Chicago are both great examples. We worked directly with city leadership in both cases to set up facilities that could deploy capital fast. We partnered with community driven lenders to design simple loan products that would be straightforward for borrowers and would provide attractive loan terms like upfront deferment given the level of distress these businesses are facing. In both cases, those facilities had thousands of applicants within days so we know that there is enormous demand. Another key goal other than speed is of course getting these businesses the best capital available. And so I mentioned earlier the paycheck protection program and its attractive features, but complicated delivery. The largest eligible lenders under the program are the large commercial banks. For the 44% of small businesses who do not have a small business lending relationship with a bank, they face an uphill battle in securing this really important loan product that they are eligible for. And that 44% figure is just small businesses. That doesn’t even count all of the independent contractors and self-employed folks who are also eligible for paycheck protection loans. And so that is what we’re focused on with our $500 million commitment to fund community development financial institutions and other mission driven lenders to make these loans. We wanted to make sure that that $349 billion was going to get to the widest swath of businesses -- those without a bank relationship, those in underserved communities and rural areas, businesses run by folks who are disadvantaged in the normal course SMALL BUSINESS GOLDMAN SACHS PODCAST 6 without the additional pandemic-related concerns. So in getting at that, we focused on CDFIs because they have a proven record, some of them 20, 30, 40 years old of working in communities and getting to the smallest of businesses, minority and women-owned businesses and so getting capital from Goldman Sachs to those CDFIs just ensures that they have the liquidity to serve those businesses. The other piece we’re focused on is making sure that these CDFIs have the operational support needed to get these loans out and so we also committed $25mm of philanthropy to bolster their infrastructure so they can answer this important call. JAKE SIEWERT So beyond what you've described in terms of the small business lending programs. How else can cities and communities help their small businesses right now? MARGARET ANADU On the local level, for starters, they can increase awareness of what options are available to small businesses. I mentioned earlier that two- thirds of the businesses we surveyed don’t know how to access the relief efforts that are out there. Navigating the emergency loan options can be incredibly complex, especially given the level of urgency that’s involved. And so as businesses and individuals turn to their cities for help, being able to provide clear information on whats available in layman's terms, is incredibly valuable. These businesses are facing incredible challenges and the level of confusion and not knowing where to turn only makes matters much worse.