Panel
Opening Up Capital Access for Underserved Small Businesses
Milken InstituteAron Betru, Jorge Castillo, John Lewis, Mark Robertson, Eileen Sánchez, David Siegelmann, Garrett Smith, Karina Morga, Frank All, Eric Mundugu, Jen Price
- Median wealth for African American households dropped 75% (from $6,800 to $1,700) between 1983 and 2013; Hispanic median wealth dropped 50% (from $4,000 to $2,000) in the same period.
- Without intervention, it is projected to take roughly 200 years for African American households and 80 years for Hispanic households to catch up to non-minority wealth levels.
- Small businesses represent only 17% of employment within the S&P 500, yet serve as the cornerstone for building meaningful lives and job creation in underserved communities.
- Approximately 97% of African American small businesses are sole proprietorships with no employees; 50% of Hispanic-owned businesses have fewer than five employees.
- Hispanic business ownership in Baltimore doubled between 2010 and the time of the panel, with growth rates 15 times higher than other demographics nationally; national growth for Hispanic-owned businesses reached 42% in the preceding two years.
- In Los Angeles, African Americans comprise 9% of the population but only 7% of businesses; specific neighborhoods show high concentrations, with 34% of businesses in Compton and 46% in Inglewood owned by African Americans.
- SBA lending to the African American community dropped 91% between the summer of the prior year and the panel date, despite 65 months of consecutive job growth.
- There are only 19 African-American owned and managed banks in the U.S.; Harbor Bank of Maryland is the sole one in Baltimore.
- Los Angeles has no African-American banks performing business loans and only one Hispanic bank that does; three CDFIs operating pre-recession no longer exist.
- Predatory online and FinTech lenders charge interest rates ranging from 20% to 96% per annum, often leading to asset loss (homes, vehicles) for borrowers.
- Community Development Financial Institutions (CDFIs) average only $20 million in assets, forcing staff to wear multiple hats and limiting efficiency; 900–1,000 CDFIs exist nationally.
- The Partnership for Lending in Underserved Markets is a two-year collaboration between the Milken Institute and the SBA focused on mobilizing capital and investor capacity.
- A new administration signed legislation increasing funding for the CDFI fund and related small business programs.
- Community banks face profitability challenges with asset sizes around $300 million due to increased regulatory burdens and reduced lending capacity.
- The New Community Reinvestment Act (CRA) is described as having "no teeth" unless a bank is pursuing a merger or facing regulatory difficulty, limiting its current leverage for capital deployment.
- Harbor Bank of Maryland utilizes a subsidiary Community Development Corporation to provide venture-capital-like gap and mezzanine financing to supplement traditional lending.
- Pacific Coast Financial operates as an SBDC partnership with the SBA, offering free one-on-one counseling and business training to help manage loan proceeds and financial literacy.
- 34% of the African American-owned business population in Los Angeles is concentrated in Compton and Inglewood, requiring targeted geographic outreach rather than traditional branch models.
- Cultural barriers in the Hispanic community include a preference for cash purchases over credit and a lack of familiarity with U.S. tax, legal, and marketing systems.
- Panelists emphasize that 87% of global job growth comes from the SME sector, yet this potential is often overlooked by traditional capital markets.
- Investors are urged to scale CDFIs and minority depository institutions (MDIs) rather than relying solely on new actors, as MDIs possess essential cultural competency and trust.
- There is a critical need for "patient capital" and technical assistance, as many borrowers lack the financial acumen to manage large lump sums without risking business failure.
- The panel advocates for a "no wrong gate" ecosystem approach, ensuring consistency in training and referrals among SBDCs, SCORE chapters, and incubators.
- Final calls to action include increasing credit training in schools and churches, supporting minority depository institutions, and deploying capital directly through trusted community intermediaries.