Even though the number of businesses owned by African American entrepreneurs is rising sharply, many struggle to secure the financing they need to start or grow their businesses. According to the Small Business Association, the number of African American-owned firms increased 60 percent during the economic expansion of 2002- 2007, as compared with roughly 13 percent for firms owned by Caucasian entrepreneurs. Yet loans to African-American small-business borrowers declined 47 percent between 2009 and 2013, even as overall SBA loan volume rose roughly 25 percent during the same period.
These independent shops, restaurants and service providers are creating jobs and economic opportunity–often in distressed communities–across the country on a remarkable scale. For many of their owners, traditional underwriting standards present a high hurdle. There are few options for aspiring entrepreneurs who do not qualify for a traditional bank loan. And with a risk of increasing reliance on high-cost options, it’s clear we need a different approach that helps entrepreneurs obtain capital without risking the sustainability of their businesses.
CDFIs (Community Development Financial Institutions) provide small businesses that face these challenges with the onramp they need to improve and expand their operations, often strengthening their prospects for receiving traditional bank loans down the road.
VEDC is one such CDFI. It recently received a $3 million seed grant from the JPMorgan Chase Foundation to help launch a $30 million fund dedicated to helping African American entrepreneurs build their businesses. Their efforts focus on three cities that are home to the greatest number of African American-owned businesses: New York, Chicago, and Los Angeles.
Last month another CDFI, the Detroit Development Fund, with support from the JPMorgan Chase Foundation and the W.K. Kellogg Foundation, announced a fund dedicated to minority entrepreneurs in their hometown, which is the fourth largest city for African American-owned businesses. Both VEDC’s and the Detroit Development Fund’s work provides flexible loan terms and provides training and consulting services to strengthen core business operations, helping to increase the odds of success for minority entrepreneurs who can help revitalize neighborhoods and create the inclusive economic growth their communities need to thrive.