Filling the long-ignored gap: How we’re helping spark business lending, wealth creation for African American business owners
If you take a glass-half-full approach, downsides can appear as opportunities.
When it comes to African American business owners, here is the unfortunate reality: Their business and wealth potential have been drastically undercut by historical oversight, underinvesting and racial bias.
But organizations such as the Expanding Black Business Credit Initiative are working to reverse the course of this damaging trend.
Formed in 2016, the consortium comprises 10 companies and individuals — the vast majority of whom lead CDFIs. Also known as community development financial institutions, their mission is to provide responsible, affordable loans to historically disadvantaged communities.
In the Expanding Black Business Credit organization, all the members are staunch supporters of this cause.
The organization’s purpose is centered on:
- Increasing the number and scale of black-owned small businesses across the nation,
- Boosting the power and scale of black-led CDFIs to serve black-owned small businesses,
- Share best practices, experience and expertise with members and the greater CDFI community.
Why is this initiative focused on African American business owners?
Black and Hispanic business communities have the lowest net worth in the U.S., according to Pew Research data. What’s more, these groups receive the smallest share of SBA business-capital loans, compared to other races and ethnicities. Only 3 percent of SBA lending goes to Black-owned businesses, compared to 5 percent in 2009.
By boosting lending to these particular groups, we then help small businesses thrive. This in turn helps African American and Latino entrepreneurs build wealth and invest back into their communities.
While many minority groups would stand to benefit from more support, the Expanding Black Business Credit Initiative decided to focus on African American communities to maximize impact.
“Just as developing countries had to pick industries to focus on to kick-start growth, initiatives should focus on one low-wealth community at a time to be successful, because the nature and business characteristics of each community can be vastly different,” according to a report released by the initiative.
“Also, after launching a pilot within one community there will be lessons that enhance the setup and structure of future initiatives in other communities,” the report added.
What can we do to help African American business communities succeed?
This, the report says, will require a multi-prong approach that includes:
- Growing the CDFI industry as a whole. These institutions are specifically designed to help small business owners in lower-income communities. To increase impact, CDFis and their leaders should focus on scaling up their own operations. This initiative is also focused on helping grow black-led CDFIs.
- Involving larger financial institutions. CDFIs provide an important, much-needed service to minority entrepreneurs. But the needs of these communities far exceed the capacity of CDFIs. We can partner with large banks for capital infusions and other resources.
- Supporting peer learning among CDFI communities. Many community lenders are already doing great work in providing loans to African American business owners. Let’s take a page from their successful playbooks to amplify the industry’s impact on the African American business community.
Increasing capital to Black-owned business through Black Vision Fund
Raising capital is the first order of business for the Expanding Black Business Credit consortium. They’ve created the Black Vision Fund – what will be a multimillion dollar investment in seven CDFIs.
The goal? Double small-business lending to small African American-owned enterprises over three years.
Kurt Chilcott, chef executive and president of CDC Small Business Finance, serves on the initiative’s financial committee, which is focused on raising this capital.
So far, the initiative’s peer-learning aspect alone, Chilcott said, has already proven to be a valuable experience for all participants.
“It’s allowed the participating organizations the opportunity to be exposed to best practices, programs and services offered by other members,” he added.
CDC Small Business Finance has been a longtime advocate of providing affordable, sustainable business loans to minority business owners. If you are one, we can help with your business needs, whether you are launching or growing an operation.
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