Carmen Tapio is the founder of the largest Black-owned business in Nebraska. Her credit score is a perfect 850. She’s so respected in the local business community that she’s been chosen as the incoming 2023 chair of the Greater Omaha Chamber of Commerce.
But when it came time to get a Paycheck Protection Program loan processed for her business during the pandemic, she couldn’t find a bank to agree to it—not even the institution she’d had a banking relationship with for 32 years.
“My loan would not be processed because I didn’t have credit with the banking institution,” Tapio said.
The reason? She said that three years earlier she was inexplicably denied a line of credit for her profitable teleservices business. That decision became crucial when she was seeking the PPP loan.
The persistent lack of access to adequate capital for minority business owners was a major theme during the sixth installment of the “Racism and the Economy” virtual event series, where Tapio was a guest speaker.
“Decisions that were made decades ago in some instances … can put real constraints on the ability of entrepreneurs of particular races from participating in the systems and the programs that are out there.”
The session focused on entrepreneurship and barriers small-business owners of color face in this critical segment of the economy. Speakers talked about underdeveloped networking relationships and corporations’ and policymakers’ low commitment to access to viable supplier pipelines for entrepreneurs of color. But time and again they came back to history and the fact that small-business owners of color have disproportionately been denied access to credit. That’s made it difficult or impossible to build the wealth and economic standing needed to grow a viable business.
“History matters,” said Atlanta Fed President Rafael Bostic. “Decisions that were made decades ago in some instances … can put real constraints on the ability of entrepreneurs of particular races from participating in the systems and the programs that are out there.”
But the session’s keynote speaker, Wichita State historian Robert E. Weems Jr., said history also offers hope, particularly as people look past a pandemic in which business owners of color were hardest hit. History shows, for instance, that Black entrepreneurs have always been able to “make a way out of no way,” he said.
“One would like to think, considering this historic demonstration of resiliency, that today’s African American small businesses will find a way to move forward,” Weems said.
Harker: Structural barriers are limiting minority entrepreneurs
In taped opening remarks, Federal Reserve Bank of Philadelphia President Patrick Harker detailed the economic importance of entrepreneurs and small businesses, which he defined as companies with fewer than 500 employees.
He said those businesses collectively employ nearly 60 million people, about half the country’s private workforce, and more than 8 million small businesses are owned by racial minorities.
But he noted that the impressive numbers can obscure obstacles that stymie entrepreneurship by racial and ethnic minorities. For instance, he said that a lack of banking relationships causes big problems, and that became clear during the distribution of PPP funds, when 83 percent of the loans went to White-owned businesses. That’s compared with 1.9 percent that went to Black business owners.
“It’s clear that profound structural barriers are limiting minority entrepreneurs from accessing capital,” he said.
Speakers: Change is needed to increase financing, fix flaws in systems
Victor Hwang of Right to Start, which promotes entrepreneurship, said the estimated $30,000 it costs to start a business is also a big barrier, since nearly half the country lives paycheck to paycheck.
“It’s clear that profound structural barriers are limiting minority entrepreneurs from accessing capital.”
We need to figure out how to get money in the hands of would-be entrepreneurs, including entrepreneurs of color who are currently being rejected for financing at higher rates, he said.
“It’s fundamentally not a level playing field,” Hwang said. “If you don’t have enough money to get yourself out of paycheck-to-paycheck mode, how do you even take a risk to build some independence and wealth for yourself?”
Entrepreneur Kelly Burton of the Black Innovation Alliance said it’s essential to increase the numbers of firms of color who become suppliers of goods and services for corporations. On average, 10 percent of corporate spending goes toward “disadvantaged” businesses, according to Burton. Those deals can mean direct revenues for new businesses, revenues that are critical when businesses are starting. But she said today’s corporate efforts to increase “supplier diversity” are hugely flawed.
Most corporations don’t devote even one full-time staff position to it, she said. Furthermore, she added, 70 percent of corporations rely on certifying entities, and the entities that certify which businesses are “disadvantaged” and are potential suppliers under the programs certify less than 1 percent of eligible businesses. In the end, the businesses that need the help aren’t even considered.
“Where’s the outrage?” Burton asked.
Entrepreneur Monika Mantilla of Altura Capital and Small Business Community Capital also lifted up the need for corporations to take action: “Market players must come together to build the architecture we need to fill the capital void.” She further mentioned that “our solutions need to bring together public, private, and nonprofit sectors.”
Businessman Sanjay Singh of the Alabama Capital Network added that it’s still true today that who you know matters more than what you know when it comes to obtaining financing. He said that must change because it’s too big a disadvantage for new entrepreneurs who don’t have established networks and contacts.
“Market players must come together to build the architecture we need to fill the capital void.”
“At the end of the day, nobody is looking for a favor,” Singh said. “All I’m looking for is an honest and good chance to present my thoughts and ideas.”
Dallas Fed President Robert Kaplan said he’s convinced that community and business leaders are highly motivated to take actions to support entrepreneurs of color. He added that the Fed is in a good position to bring groups together to figure out how to get it done.
Weems said past efforts have too often been built for the short term, like the “Black Capitalism” push of the Nixon administration, which he said ended up being a temporary response to urban unrest. But he said it still produced some good ideas, and we can learn from history—including by building similar initiatives to last this time.
“There [have] to be some programs in place that are literally there for the long haul,” he said.
The “Racism and the Economy” series is sponsored by all 12 Federal Reserve Banks. It was created to examine the impacts of structural racism and find ways to dismantle it. Past events have looked at the impact of racism in areas such as housing, the economics profession, employment, and education. The next event, scheduled for July, will focus on criminal justice.