Since the start of 2020, companies from Bank of America and JPMorgan Chase to Google and Twitter have pledged billions of dollars to support entrepreneurs of color.
However, not all of those dollars go straight into the pockets of business owners. Many are invested in other financial institutions, in particular community development financial institutions, whose services include providing small business loans to borrowers underserved by traditional banks.
“We give people a chance when others can’t or won’t,” says Martina Edwards, head of strategic partnerships at ACE, a CDFI that supports entrepreneurs in Atlanta and North Georgia with low interest loans, financial education and business development services. .
Corporate and philanthropic support “allows us to accelerate the work that we do,” including making more loans, says Edwards.
If you’re a business owner of color, here’s how these commitments can help.
OBTAIN A BUSINESS LOAN
Typically, corporate investments in CDFIs take the form of loan funds. CDFIs can borrow from these funds at low interest rates and lend that money to their clients.
There are more than 1,200 CDFIs in the United States, according to the Treasury Department, including banks, credit unions, loan funds, and venture capital funds. CDFIs specialize in the types of loans banks might turn down: small, low-interest loans to borrowers with short credit histories or limited collateral.
For example, the average loan from ACE’s Paycheck Protection Program was around $ 24,000, with 90% of the funding going to businesses with five or fewer employees and 67% to black-owned businesses, says Edwards. For comparison, the average P3 loan approved between early 2021 and May 31 was $ 42,000, and among recipients who provided their run, black borrowers received 5.8% of the approved funding, according to the Small Business Administration.
“The work we do enables us to provide affordable capital,” says Edwards, “which fuels the successful growth of businesses and types of cascades in families as they create assets and resources and create jobs” .
GET FULL SUPPORT
New Jersey-based TD Bank has committed $ 30 million in equity to CDFIs under the equity fund it announced in June, according to Michael Innis-Thompson, senior vice president and chief loan officer development and community development at TD Bank.
“They are experts in the field and they have a strong presence in their communities,” Innis-Thompson says of CDFIs.
Business owners often connect with CDFIs through educational programs, ranging from webinars and networking events to month-long business development courses. ACE offers programming in English and Spanish.
CDFIs are “a resource for more than capital,” says Innis-Thompson. They offer “technical assistance and other types of support, such as accounting, legal, human resources, general advice, as well as writing a more solid business plan… this is about have a support system for these businesses to be successful. ”
You can find a CDFI that can serve you by using the CDFI locator of the Opportunity Finance Network, which is the national association of CDFIs.
FIND A NEW BANK
Like CDFIs, minority deposit institutions – banks where most of the shareholders or board members are people of color – see new investments from banks and national companies. Wells Fargo, for example, has invested $ 50 million in equity capital in 13 black-owned banks.
Although MDIs typically have similar underwriting requirements as national and regional banks, many are community-minded and may go “harder” to work with smaller borrowers, says Ken Alozie, managing director of Greenwood commercial lender. Capital based in Washington, DC. Advisors.
“They have more of a mandate to revitalize or do something that will have an economic impact on the communities in which they find themselves,” said Alozie.
In addition, working with a local or community bank circulates the money in your community, which can also benefit your neighbors.
OBTAIN A DIRECT INVESTMENT
In addition to supporting CDFIs, TD Bank has contributed $ 75 million to a Small Business Investment Firm, an SBA-approved organization that provides equity and debt financing to growing businesses.
Funding a small business investment firm is similar to venture capital, which is not suitable for all types of businesses. These investors typically look for established, mid-size companies that are ready to grow – ones with revenues of around $ 5 million and more, Innis-Thompson explains. If you think your company is the right fit for this type of financing, a list of active SBICs is available at SBA.gov.
JPMorgan Chase is also focusing on mid-sized companies looking to grow, pledging to invest $ 200 million alongside the Black Project of privately-held asset management firm Ariel Alternatives.
In addition, PayPal has pledged $ 100 million to venture capital funds led by Black and Latinx.
To connect with investors, participate in the ecosystem: network in your community, attend pitch events and apply for acceleration programs. Keep in mind, however, that only a fraction of companies receive venture capital.
POWER FINANCIAL EQUITY
These commitments are part of a larger landscape of corporate commitments to support racial equity. Banks and businesses are also promising to provide mortgages to borrowers of color, to invest in historically black colleges and universities, and to help build affordable housing.
“There is a thirst to address racial justice in many dimensions,” says Lisa Mensah, President and CEO of Opportunity Finance Network. “I think CDFI has something to offer immediately.
This article was provided to The Associated Press by the NerdWallet personal finance website. Rosalie Murphy is a writer at NerdWallet. Email: [email protected]
NerdWallet: How a CDFI Could Help Your Small Business https://bit.ly/nerdwallet-cdfi-loans
Opportunity Finance Network: CDFI Locator https://ofn.org/cdfi-locator
NerdWallet: 3 Ways Minority-Owned Banks Are Making a Difference in America https://bit.ly/nerdwallet-minority-owned-banks
Investment capital (SBA.gov): https://www.sba.gov/funding-programs/investment-capital