Organizations boost flow of funds to black businesses | Economic news


As close as he can remember, St. Louis-area educator David Williams was turned down at least six times by banks while seeking loans for his future academy.

These refusals came despite his collateral, good credit, and help from his aunt who is a longtime educator and stood ready to help guide his embryonic business – a center to teach the STEAM curriculum to children from birth to 13 years.

“It’s a struggle,” Williams said, as a soothing lullaby played in the background at her Williams Academy on Natural Bridge. “It’s a challenge to get started because we’re not funded properly.”

For reasons ranging from racism and redlining to more subtle factors like not knowing the right people, black-owned businesses like Williams’s have continually been undercapitalized compared to their white counterparts.

In the wake of the nation’s reckoning on race, local and national organizations are pumping more money into black-owned businesses in hopes of closing the stubbornly persistent wealth gap.

Williams eventually secured at least $10,000 in grants through Greater St. Louis Inc.’s Diverse Business Accelerator and other sources.

Overcoming the biggest hurdle — finding at least $300,000 to buy and renovate the 18,000-square-foot building that houses the academy — came from Justine Petersen, a nonprofit financial services organization that works with people in low and middle income. Williams said the aid started in 2020 with money for a down payment and accelerated last year after facing potential foreclosure when the COVID-19 pandemic blocked its ability to track the rate of the mortgage.

Justine Petersen stepped in to buy the building, he said. A spokeswoman confirmed that Justine Petersen was a “financial partner” of Williams Academy, but declined to elaborate.

As Accelerator Director and co-owner of a small business, Lakesha Mathis sees the direct link between the anemic flow of funds to Black-owned businesses and the subsequent scarcity of wealth that can be passed down from generation to generation in black families.

A report by American Progress, using information from the Federal Reserve Bank, showed that in 2019 the average amount of “liquid assets,” those that can easily be converted into cash, was four times higher in white households. – $50,301 – than in black households. – $12,592.

Almost 21% of white households included a business owner, compared to 5.5% for black households. It matters because black contractors who have employees tend to hire black people.

“Our impact on the wealth gap is to increase our abilities as individuals and business owners to earn more resources,” said Mathis, co-owner with her husband of List Towing. “When we don’t have the funds to put the proper systems in place, to hire and pay people, our businesses are limited in their ability to generate revenue. Therefore, the wealth gap remains. So the goal…for the companies we work with is to become employers, because that’s where the real revenue is, the real money in most businesses.

The COVID-19 pandemic, which has hit market segments with a high concentration of Black-owned businesses, such as retail and hospitality, has made a bad situation worse.

According to the Federal Reserve Bank of New York, at least 40% of revenue from black-owned businesses is concentrated in just 30 US counties. That’s about 1% of all the counties in the country. About two-thirds of those counties — 19 out of 30 — are areas with the highest number of COVID-19 cases, according to the Fed.

In the wake of the 2020 filmed murder of George Floyd, as protesters took to the streets, some of the nation’s largest corporations released statements committing millions to support black businesses, some of which are already in the hands of contractors.

In June 2020, the company then known as Facebook [now Meta] committed $200 million to support Black-owned businesses and organizations. This included $75 million in cash grants and ad credits to support Black-owned businesses and nonprofits that serve the Black community.

All Black-Owned Business Program grants have been distributed to more than 10,000 small businesses across the country and the program is now closed, said a Meta spokeswoman who did not break down the grants by state. .

Since its inception about 10 years ago, Arch Grants has awarded grants to at least 30 Black-owned or Black-led businesses — money that didn’t require the founders to give up a stake.

Last year, grants were awarded to at least eight black-owned businesses, including Bask & Bloom Essentials, a beauty brand focused on multi-textured curly hair; Equalizer Games, an AI software platform for sports and education that uses virtual coaching and interactive training to help athletes improve players’ IQ and PlaBook, a technology company that uses artificial intelligence , natural language processing and speech recognition to help children learn to read more effectively. Businesses are either locally based or committed to expanding in the St. Louis area. pursue Arch Grant’s Donald M. Suggs Excellence in Entrepreneurship Award. Suggs is publisher and editor of The St. Louis American.

The Ferrings pledged an additional $500,000 over the next 5 years to continue the “Donald M. Suggs Excellence in Entrepreneurship” award, with the request that grants be all awarded to Black-led businesses that are determined by our process as being the best -rank.

The application process for the Arch Scholarships 2022 begins on March 18 and closes on April 15.

Funds from organizations such as Arch Grants pump money into businesses without the repayment and interest requirements of a loan and without the equity participation required by most venture capitalists.

But the grant model, which typically involves thousands of dollars in aid, may not be an option for growing black-owned businesses looking for a bigger cash injection.

“The challenge is if you’re a $10 or $15 million business, with the ability to grow to a $30 million business, but you need $5 million, there’s very little or no of grantors out there, writing $5 million to grant checks,” said Sandra M. Moore, chief impact officer and managing director of St. Louis-based investment advisory firm Advantage Capital.

“You’re expected to grow, but you started behind the eight ball,” she added. “So you hit a wall. You get to a point where there are no more subsidies.

Last month, Advantage Capital, in partnership with the National Minority Supplier Development Council’s Business Consortium Fund, announced the launch of a fund dedicated to providing access to growth capital to minority-owned businesses through methods such as than loans.

Moore said the program, which includes support from major lenders including US Bank and Midwest BankCentre, is designed to avoid some of the common pitfalls black entrepreneurs encounter when approaching the local banker, including slim reasons for rejection. and onerous conditions if the loan is granted.

“All the data indicates that minority companies are … valued differently,” Moore said. “When they get the loan, they usually get a lower percentage than their white counterparts, which means they still remain undercapitalised.”

With the new fund – which Moore said did not yet have a name and fund size that could be made public – underwriters will look at companies “through the lens of what they are going to do in the future as opposed to what they are, what they have done in the past versus what they are now.

“You can apply the investment criteria in a way that takes into consideration things that we wouldn’t normally consider so that you can structure an investment in a way that’s going to help them grow.”

The fund’s organizers plan to begin deploying capital to minority-owned businesses in the coming months.

No one interviewed by The American expects the problem to be resolved quickly. Mathis said he saw more conversations about solutions than actual solutions.

Some entrepreneurs have turned to revenue-based financing like that offered by Toronto-based Clearco, which uses app-rating AI that doesn’t discriminate based on facial recognition, industry, or location. product, a spokeswoman said.

Meanwhile, Williams said he and his team have been “applying for grants like crazy.”

“It took us so long, from 2019 to January 2022, to be up and running,” said Williams, fresh off her successful effort to nap a toddler. “We just weren’t funded properly.”

Karen Robinson-Jacobs is a business reporter for the St. Louis American/Type Investigations and a member of the Report for America corps.

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