This article was originally published by Medium, for Medium’s Epicenter Memphis page. Republished with permission.
By Anthony Young, Capital Executive in Residence for Epicenter
Before the CARES Act had been signed into law or the Paycheck Protection Program (PPP) had been fully described, those of us working in entrepreneurship had reviewed drafts of the criteria, which stated that PPP loans would be primarily distributed to entrepreneurs through banks where they had an existing credit relationship. I immediately grew skeptical and braced myself for the frustration that certainly would come. In the midst of a nearly unprecedented crisis, in which so many businesses are afraid for the future, I worried that the lifeline created by the government would be exasperatingly difficult to reach for many of our entrepreneurs.
Historically, we know that African Americans have a tough time receiving traditional lending through banks. A study released by The Federal Reserve stated that black-owned businesses are twice as likely to be rejected for loans as white entrepreneurs. The same study found that 60% of black entrepreneurs surveyed wouldn’t even apply for a loan with a bank because they felt they’d be denied. Instead of receiving the much-needed life raft from PPP, many black entrepreneurs would come face-to-face with difficult reminders of failed loan applications and a system that had kept them out.
It is my belief that we can do better by our entrepreneurs where the distribution of emergency funding is concerned. If everyone had access to small business loans, Community Development Financial Institutions (CDFIs) wouldn’t exist. You wouldn’t need to rate banks through the Community Reinvestment Act (CRA) if everyone in every neighborhood could get a small business loan. It is our responsibility to ensure black entrepreneurs have equal opportunity to receive funding, instead of the funds drying up before many black business owners can even apply.
In Memphis, a lot of our entrepreneurs live or work in majority-black neighborhoods. During the coronavirus pandemic, the lack of infrastructure and historical devaluation of black neighborhoods has been laid bare as entrepreneurs struggle to fill out loan and grant applications. Eighty-two percent of South Memphis residents are without internet access, and with the pandemic forcing the closure of libraries, relief, including Economic Injury Disaster Loan (EIDL), feels out of reach to many.
First, there exists a justified distrust of the process on behalf of black business owners. To receive money from PPP, entrepreneurs are forced to rely on their banking relationships and government. For many black business owners, they’ve relied primarily on themselves since the start of their business. Maybe they used their savings or tapped into their 401k to start the business after being denied a loan. Maybe they didn’t have friends and family to invest, and lacked the social capital to secure a solid banking relationship. Maybe they’ve deposited frequently with a bank as their business grows but never secured a line of credit. In a time of crisis, asking these bootstrapping small business owners to rely on institutions that have historically failed to serve them is frustrating and discouraging to many. The weight of history falls heavily on the shoulders of black entrepreneurs as they navigate this situation.
Furthermore, the applications for emergency funding include the infamous deterring question: “Have you ever been convicted of a crime?” I spoke with a previously incarcerated entrepreneur who has paid his debt to society, re-entered the community, and started a small business. He’s hiring folks locally and bringing economic growth into his neighborhood and our city. His business is just as important and in need of support as any other, but when he saw that question on the applications, he instantly pulled himself out. Criminal justice statistics show that African Americans are more likely than white Americans to be arrested; once arrested, they are more likely to be convicted. African American adults are 5.9 times as likely to be incarcerated than whites, and Hispanic Americans are 3.1 times as likely. As such, this application question disproportionately impacts black entrepreneurs and entrepreneurs of color, and yet it remains in place as a barrier and deterrent in an hour of great need.
On a neighborhood and community level, we understand the value of our black-owned businesses. We feel the impact of barber shops and salons. We cheer for the construction crews working on big contracts and employing our friends and neighbors. We sing along to the creative entrepreneurs making music for us. We’re comforted by the food cooked for us at our favorite restaurants. Lives are changed and made better by the black-owned tech companies creating the solutions to our most pressing problems. Our lives are enriched on every level by black entrepreneurs, and yet the historical barriers for black business owners remain in place as we navigate these uncommon times.
Epicenter Memphis is the a Supporting Sponsor of StoryBoard Memphis
It is my hope for our own region, but also for our entire country, that we prioritize entrepreneurs, and that we include everyone in our efforts, not just with emergency funding laid out by the CARES Act, but in all our future programming as well. I hope we come to believe collectively that if there is a black-owned business that can’t receive support, that affects all of us, even if it isn’t our own business. I hope we can see that when black-owned businesses thrive, our whole region thrives. A brighter future exists for all small businesses if we are bold enough to demand the change required to make it happen.
As part of that change, we need to invest in capital-readiness programming for our entrepreneurs and to ensure we have done everything possible to prepare entrepreneurs for capital.
We also need a wider range of capital options, including more community-based lenders like CDFIs and micro-lenders. We must also invest in those community-based lenders so they are able to deploy more capital, hire experts, and market their services to the entrepreneurs who need them.
More than anything, we need greater representation in decision-making institutions. That means representation in banks, and it means representation in legislation at the local, state, and federal levels. We need people who understand the struggles of black entrepreneurs to speak up and make changes to any policy that would hold us back.
I don’t want to look back on this time and think of how badly we failed black entrepreneurs. Let us use this time to dream of a better future for small businesses, one where they are supported at every level. We have a responsibility to do better by our entrepreneurs, and there’s no better time to get started than now. <>
Anthony Young is a husband, father, entrepreneur, community and economic developer, with passion for revitalizing communities and facilitating the growth of local economies. Currently, he serves as the Capital Executive in Residence for Epicenter, the entrepreneurship hub of the Greater Memphis region.
With a background in banking, Anthony connects entrepreneurs to a variety of capital types and helps ensure equitable access to capital across the Memphis community.