Impact Voices | July 12, 2021

How usable capital can unleash Black business growth and close racial gaps

Tynesia Boyea-Robinson
Guest Author

Tynesia Boyea-Robinson

Carter Transportation is a minority-owned freight delivery service that operates nationwide. It is a relatively young company, without an operating history for traditional bank financing. 

A new, large corporate contract gave Carter’s management team an opportunity to expand their trucking fleet. The contract would allow them to grow significantly, and reach a higher operational tier. 

To take on the contract and realize that growth, however, Carter needed additional insurance and financing. Because of their lack of history with traditional banking, they didn’t have many options.

Carter Transportation overcame their barriers to capital through a partnership with Mission Driven Finance, a San Diege-based impact investing firm that works nationwide. Mission Driven Finance extended to Carter a five-year, $500,000 loan to purchase insurance and cover working capital needs to add trucks and drivers to fulfill the contract with FedEx.

Bridging gaps

Financing challenges like Carter’s are familiar to many small businesses, especially Black-owned businesses. Many minority business owners face barriers to accessing and using capital, from the rigid process of traditional underwriting to the high cost of capital for Black businesses to lack of connection to financial networks.

This barrier to capital for Black-owned businesses hurts us all. Black business ownership is a proven path to wealth and job creation that concurrently stimulates the U.S. economy. Deep-rooted, systemic challenges limit their growth-inhibiting economic prosperity and preventing generational wealth. 

If just 15% of Black-owned businesses are able to hire one more employee, the American economy could grow by $55 billion. The Path to 15|55 is a collaborative initiative to reimagine how Black businesses are supported and reach that $55 billion opportunity.

With support from the San Francisco Foundation, The Path to 15/55 recently released How Usable Capital Will Unleash Black Business Growth, to outline how alternative capital can support Black businesses. The report outlines three main barriers Black businesses face to accessing and using capital:

Gaps in the underwriting process: Traditional underwriting is a rigid process that has been formed without an acknowledgment of the historical discrimination against Black and brown communities. It relies on factors like credit scores and personal guarantees, which are barriers to Black entrepreneurs because of their systematic exclusion from traditional financial systems. These underwriting structures have been codified into law through the disconnect between government and capital providers.

Gaps in the “capital stack”: Several barriers prevent Black business owners from engaging with and benefiting from the capital markets as currently structured. Many Black business owners lack of traditional relationships with financial institutions, or to “friends and family” funding for small startups.

There is also a higher cost of capital for many Black businesses due to the higher transaction fees on the smaller size of the loans they need. Finally, when Black businesses do have access to capital, it is usually through a community development financing institution or a Small Business Administration loan, which have less capital available than traditional commercial banks.

Lack of connection to networks: Black businesses do not have the same access to networks as white businesses, resulting in fewer paths to success. Many lack peer platforms to share best practices and technical details of how to develop successful products or services. Because investors are typically white and do not have connections to Black people and their social circles, Black business owners are often seen as “new” or “risky,” and have higher burdens of proof placed on them before an investment. 

How Usable Capital Will Unleash Black Business Growth outlines opportunities for overcoming these barriers:

  • Invest capital in lenders experimenting with alternative processes; 
  • Reduce the importance of credit scores in investment decision-making;
  • Leverage philanthropic dollars to fill friends and family gaps;
  • Increase and streamline community-led funding opportunities;
  • And create and encourage more diverse lending and investment teams.

Engagement and innovation

Mission Driven Finance is implementing many of these innovations. They design investment products that support the growth and development of businesses that do not normally get attention from traditional financiers. This involves engaging with community members to seek out entrepreneurs with new and interesting ideas, which frequently requires re-thinking traditional underwriting practices or repayment schedules. 

One of Mission Driven Finance’s big innovations is to not rely on personal credit scores or personal guarantees, a large barrier identified in the report to support businesses locked out of traditional finance.

Mission Driven Finance’s investment in Carter Transportation Group illustrates how bringing down the barriers to capital can have impacts beyond just the financial. Due to the expanded relationship with FedEx, Carter expects to add eight new trucks and hire more drivers. 

Carter is looking to hire formerly incarcerated and justice-involved individuals. The Bureau of Prisons offers Commercial Driver License training to eligible inmates, and a job that pays a living wage in the transportation sector can help with the reentry transition. The company is helping to close the racial wealth gap, with high-paying jobs, one employee at a time: 90% of Carter’s team are Black, Indigenous or people of color.

“I grew up in abject poverty. I know firsthand the difficulties people from socioeconomically disadvantaged backgrounds can face,” says Robert Carter. “I want to bring along other minorities into building and sustaining wealth.” 

Tynesia Boyea-Robinston is president and CEO of CapEQ (formerly Reliance Methods), which she founded in 2011 to demonstrate how business and community goals can align towards mutual outcomes. The Path to 15/55 is a project of CapEQ.

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