For Black-owned businesses to begin to dismantle the historical disparities that have placed them at a disadvantage, they need better access to capital.
That’s the consensus among Black business owners and elected officials, and advocates.
As a starting point, access to money to do business is paramount.
“The difference between a man or woman who is an amazing neighborhood chef, the difference between them selling platters on a Friday or Saturday and owning a restaurant is access to capital,” said Rep. Jordan Harris, a Democrat from Philadelphia and member of the Pennsylvania Legislative Black Caucus. “Those resources need to be made available to folks so they can do what they are capable of doing.”
For the past two weeks, PennLive has showcased a myriad of Black-owned businesses and the challenges those businesses have had in the face of the pandemic.
The series – Black-owned businesses: Stories of struggle and success – was driven by the stark data showing the disproportionate toll that Black-owned businesses have taken from the pandemic. Black-owned businesses have seen higher rates of forced closures, defaults and fallout from the economic downturn.
To end the series, we turn to stakeholders to explore ongoing and additional steps to address long-entrenched systems.
While the days of blatant systemic racist practices among banks and lending institutions may be a thing of the past, Black business leaders say the legacy of those practices – redlining, predatory lending and disproportionately higher rates of interest and loan rejections – continue to impede Black businesses.
Many say aggressive public policy and public funding must play a role in dismantling those entrenched and systemic practices.
“Even before the pandemic many of these businesses were struggling primarily because they lacked access to capital and lacked any real attention to fight through some of the barriers that are systemic to them,” said Rep. Jake Wheatley, a Democrat from Pittsburgh and member of the Legislative Black Caucus. “I‘ve stated all along that we have to put particular focus on raising them up not just relief but as we move forward, how do we make sure we level the playing field.”
Wheatley is among several Democrats who want to create a business loan program that would target a considerable amount of money to help minority owned businesses. The plan earmarks as much as $1 billion to boost small minority-owned businesses beyond relief and recovery.
“It’s not that I‘m not happy about the CARES Act relief money,” Wheatley said. “We felt there should be a $10 billion dollar pot for all business owners and some focus on disadvantaged businesses not just to recover but to level up the playing field.”
The proposal has been put on hold in the wake of the Wolf administration’s release last month of the COVID-19 Relief Statewide Small Business Assistance program, which is intended to help businesses recover losses from the pandemic.
The grant program earmarks $100 million to help historically disadvantaged businesses. Funding for the program comes from the state’s allotment of federal CARES Act. The program is being rolled out in phases and is administered by the state’s 17 Community Development Financial Institutions.
Stakeholders in that program say the parameters of the funding is important because it targets the very business sector largely shut out of the federal pandemic relief program. Black-owned businesses were for the most part left out of that relief as a result of a complex business paradigm: It turns out that banks, which disbursed the funds, primarily dealt with existing clients.
Black-owned businesses historically have had poor relationships with banks and lending institutions.
“The program prioritizes businesses owned by people of color,” said Daniel Betancourt, president and CEO of Community First Fund, one of the groups administering the state program.
“The priority is to reach those business owners and focus on reaching historically disadvantaged business owners who typically won’t get these grants and loans. That’s one huge advantage.”
An added benefit of the program is that organizations such as the one Betancourt heads have existing relationships with minority-owned businesses.
Moreover, since Black-owned businesses are overwhelmingly start-ups or “mom and pop shops” that do not have the advantage of networking and even generational legacy, it was crucial that the program, unlike the federal funding, did not present a cumbersome application process.
“We made it simple,” Betancourt said. “People only needed a one-year tax return. It did not provide too many barriers in complexity. It is something that many small business owners could do on their own.”
The demand for the funding is so great, Betancourt fears the program will run out of money prematurely.
In addition to the state program, a slew of funding opportunities targeted at historically disadvantaged businesses have been spearheaded by cities and non-profits, including programs such as Impact Harrisburg and municipal grant and loan opportunities administered by cities like York, Lancaster and Reading.
Change the culture
Yet, even before systemic hurdles can be addressed, the problem needs to be acknowledged.
“The first thing we have to do is be cognizant of what it is,” Harris said. “It’s systemic racism. Systemic racism has hindered development and support for Black businesses.”
Too often, he said, a select few successful Black-owned businesses are propped up to make the argument that the playing field is leveled and anyone can succeed if they work hard enough.
“We look at the exceptions and try to make them the rule,” Harris said.
Leland Nelson, co-Founder of Dirty Dog Hauling and president of the African American Chamber of Commerce of Central Pennsylvania, cautions that, despite progress, deep cultural changes in the business world are crucial to dismantling systemic structures that have set Black entrepreneurs back for generations.
“It’s been engineered so well that we won’t get out of it quickly,” he said. “We didn’t get into it quickly and we won’t get out of it quickly.”
Nelson offers up the practice of redlining, which for decades drove discriminatory lending practices that shut out generations of Black families and businesses from getting home mortgages or loans. Redlining may be illegal now, but attitudes remain deep rooted, he said.
“There’s a whole economy built around the idea of keeping certain demographics at the bottom of the totem pole,” said Nelson, who shared his own experience with a bank that initially denied him a small loan, for which he was qualified.
“That’s systemic,” he said. “I had to call a lawyer and engage his services. So imagine if it can happen to me… it can happen to almost anyone.”
More engagement from businesses
Nelson said the business sector must re-examine how it engages with Black entrepreneurs up and down supply chains.
Too often, he said, he has met potential business partners at conventions and events, but the interest shown while shaking hands and exchanging business cards eventually drops precipitously afterwards.
“I call it professional ghosting,” Nelson said. “I live it every day. You do what’s comfortable. If I’m not golfing with you, if I’m not your cigar buddy or your scotch buddy, I’m never going to see that contract.”
Better banking laws
Betancourt calls for a strengthening of laws that would require banks to invest in low income areas. The Trump administration has, in fact, weakened those laws, starting with the Federal Reserve Bank.
“The regulators are now in the process of weakening laws that would have helped soften the blow in terms of small business owners in low income areas,” he said.
Loan guarantee programs are available through the Small Business Administration, but banks tend to avoid those programs, often because they entail a cumbersome process, Betancourt said.
“We have seen in the last 10 years a downward trend,” he said. “We need emphasis on these loan guarantee programs.”
In addition, he said, the federal government needs to play a role in strengthening Black banks and credit unions, as well as chambers of commerce. The majority of lending and networking from these institutions are directed at small and minority owned ventures in underserved communities.
“I think this whole movement right now, the awareness of the George Floyd killing, the awareness in America in general that there are barriers in many institutions in the U.S., including the banking system, this is the right time to ask the right questions and focus on lending and the prosperity of communities of color and small business owners.”
Access to contracts
Nelson points to the state contracting process, which has historically failed to achieve any parity in the number of minority owned businesses awarded state contracts.
He said minority business quotas must remain an integral part of a solutions strategy, otherwise the propensity is for business to be conducted the way it has historically been done, Nelson said.
The Wolf administration recently rolled out new policies in the state’s contracting system in an effort to improve diversity and inclusion.
In addition to addressing contract procurement with veteran-owned and small businesses, the new policies replace proposal scoring methods with a goal-setting method for state contract spending with the intent to achieve 26.3 percent of state contract spending through small, diverse businesses.
“We have made progress, but there is more work to do,” Gov. Tom Wolf said last month when he signed the executive order. “We cannot allow some people to be shut out of a chance to get a state contract. Our economy and our communities work best when everyone has a fair chance of success.”
The changes were recommended by the 2018 Commonwealth of Pennsylvania Disparity Study, which examined disparities in the state’s contracting system.
Wheatley worries that the $100 million earmarked for minority-owned business will not begin to address their problems. He worries the pool of money will not extend far enough to help the legions of businesses that were shuttered for more than two months.
“And some of these businesses are going to be further limited. If you are a salon or barber shop or bar or tavern in the green phase and they still can’t maximize their business opportunity because of the new requirements,” Wheatley said. “You are putting them at further disadvantage.”
Wheatley argues that the state is poised to generate funds from unconventional sources that could offset such an investment, including expanded gaming options and expanded cannabis programs.
“Helping these businesses become thriving businesses will ultimately help communities raise tax structure and they will put more people to work,” Wheatley said. “I think there is a compelling argument for why you want to do this investment and what is the return to this investment that is very critical.”
Wheatley said that in much the same way he fends off people who claim that “all lives matter,” he asserts that while all businesses matter, some need a little extra support and advocacy.
“Equal is not I give you all the same access to the same things,” he said.
“I actually have to help somebody because this person has a rope behind them. They have some weights on them…. Even when I give them the same opportunity, they have to pull harder to get there so I have to make sure that I give them something that helps them alleviate that weight on them to get them to really access the same opportunities at the same rate you have.”
More from PennLive’s series, “Black-owned Businesses: Stories of Struggle and Success”