From the Entrepreneur's Perspective
June 1, 2016
Project CUE’s mission is to build a solution that bridges the $52 billion gap between small business owners in underserved communities who’ve been declined for bank loans and pairs them with CDFIs for credit. Until now, our posts have focused on the broader challenges of business owners. This post digs deeper into some of the experiences of African American business owners in the underserved communities that CUE seeks to help.
To understand the magnitude and complexity of the issues some African American business owners in underserved communities can face, we turned to two incredibly inspiring people who work closely this group. Jessica Norwood is the founder and executive director of Emerging ChangeMakers Network, which focuses on economic empowerment and wealth creation in the Deep South. Kevin Jones is founder of Good Capital (among his many projects), a venture capital firm that invests in social enterprises. Jessica and Kevin are collaborating on an initiative called The Runway Project, which accelerates the flow of pre-seed, friends and family capital into underserved communities by facilitating conversations between investors and small business owners of color. We chatted with them about the reality of access to capital for business owners of color, the importance of Project CUE, and their advice for small business owners in underserved communities.
How is access to capital different for business owners of color?
Jessica Norwood: Access to capital cannot be separated from access to collateral and wealth- building. African Americans have [on average] $11,000 in assets and whites have about $144,000. Most of that wealth comes from a combination of home ownership, job income, and savings and retirement accounts. Add in subprime loans, bank redlining (the practice in which banks do not lend to minority communities), pay inequality, and you have a huge problem when it comes to wealth-building for African Americans. It impacts access to capital.
Kevin Jones: In general, impact investors, those intentionally vying to create a better world, are putting much more of their resources toward Africa and entrepreneurs working in Africa than toward African Americans. Something is stopping that from happening. That’s a question I keep asking impact investors: why is this happening or not happening?
What’s the biggest misconception about people in the low-income tax bracket in terms of starting a business and access to capital?
JN: When we talk about helping African American business owners overcome the hurdles around capital, the conversation awkwardly turns to one where the business owner is perceived to be akin to a welfare recipient. It surprises me because I don't know any business owner who doesn't take their business seriously.
KJ: Recent studies show that low-income people use their money well. They provide for their families as well as they are able, on average. There are also questions I hear from impact investors asking if they can get market rate returns investing in African American businesses.
Why is it important to have a service that connects business owners who’ve been declined for credit by a bank with CDFIs?
JN: Streamlining the arduous process for business owners is a step that will help them grow.
It's also important for CDFIs to have help in finding deals. Often, the costs for finding and developing loans, because of the high-touch nature of CDFI loans, can be expensive. Project CUE will reduce some of the costs, which can help the financial crunch that many CDFIs face, particularly the smaller, more regional funds.
KJ: Access to capital is key, and people of color get turned down for loans that white people would get, often. So a source of capital that proactively looks for those entrepreneurs and micro businesses that need expansion capital is a key missing piece of infrastructure.
What advice would you give a person of color starting a business?
JN: If there are ways that your business can collaborate, do that. Share an office space, share a receptionist, and if there are ways you can merge or simply go in together for a bid, do it.
KJ: Learn to be at home in two worlds: the community you work with and the culture that has both investment and philanthropic dollars. Know your audience. Position yourself as someone who’s overcoming dependencies and who pulls up his/her bootstraps to investors, but [also] speak the language of local customers and partners.
In addition to speaking with leaders like Jessica and Kevin, the Project CUE team will continue to conduct surveys and interviews with other business owners of color, seek their advice and study their reactions to our user experience-- and how it might differ based on economic and cultural background. For example, something as simple (or complex, depending on one’s individual perspective) as how a person might self-identify culturally has evolved over the past few years. Until only a few days ago, when President Obama signed a bipartisan bill, federal legislation still used the terms “Negro” and “Oriental” as identity classifications. The word “Negro” - which can be considered offensive - was removed from Census survey just 3 years ago. Unaware of the change by the Census, our team had discussions about whether or not to use the standard Census classifications and the accompanying challenge of mapping the data if we used our own categories. We sought the feedback of colleagues and reviewed other websites to find the best classification language in order to not offend the very same people we are seeking to support. It certainly helps that our elected representatives are having the same conversations.
The Project CUE team talks a lot about trust as a feeling we want CUE’s users to feel when they engage with our platform. Now, trust can be conveyed technologically by indicating a website is “128-bit encrypted” or by showing the Good Housekeeping Seal of Approval. But it’s deeper than that. How people measure their sense of trust can differ based on their cultural background and perspective -- and that sense of trust can shift dramatically over time. We want to enable the Project CUE platform and user experience to be flexible enough to stay in tune with these shifts. Thanks to the insights of Kevin and Jessica and other business owners of color, we believe we’re on the right path.
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What are some other challenges you see hindering small business owners in low-income communities? Let us know in the comments or find us on Twitter.
What is Project CUE? In 2015, the U.S. Department of the Treasury’s inaugural CDFI Innovation Challenge called for submissions of proposals to help expand the capacity of financial institutions to provide credit, capital, and financial services to underserved populations and communities in the United States. AEO’s winning bid proposed building a platform to move loan applicants “from decline to delight” to appear at the critical point in the lending process when an institutional lender declines an applicant and pivot that moment into an opportunity to introduce CDFIs as potential lenders.
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