Why you should care
Because you should know about the programs that want to back your business.
OZY and JPMorgan Chase & Co. have partnered to bring you an inside look at how entrepreneurs are coming up with innovative methods to help the communities around them. Enjoy the rest of our special series here.
When Rodrigo and Filberto Santoyo decided to open up a Mexican food truck in Denver, Colorado, they thought the process of starting a business would mimic what they found to be true in Mexico. What they didn’t realize is that having a credit history can go a long way in securing funding. “In Mexico, credit is used very little,” Rodrigo explains. As new arrivals, they didn’t have much of a credit history, and when they applied for funding, their application was rejected.
What the Santoyos also didn’t realize was that first-time entrepreneurs don’t tend to get bank loans off the bat — particularly those from minority backgrounds. In fact, according to a 2015 survey of Latino entrepreneurship by Stanford Graduate School of Business:
Only about half of Latino-owned businesses (LOBs) secure outside funding.
The Stanford survey looked at 1.3 million LOBs, so those figures are startling, and even more so when you discover the commercial loans that are awarded account for only about 6 percent of required capital. The situation for African-American would-be small-business owners is similarly challenging. After the 2008 financial meltdown, Small Business Administration loans to African-American borrowers declined 47 percent between 2009 and 2013 — even as overall SBA loan volume rose 25 percent.
This isn’t just a blow to those looking to get their big idea off the ground. Small businesses create a variety of employment opportunities and improve the prosperity of local communities. In turn, thriving local economies boost the nation’s economy. But how are these businesses supposed to get started without funding?
Luckily, the brothers found Accion. A non-profit that helps secure “microfinancing” outside of conventional routes, it also trains hopeful small business owners in new ways to find investment. With Accion’s assistance, the Santoyos learned how to start a credit history and secure a loan.
“We were able to find a lot of good people willing to help and provide education and resources for understanding how to manage your business and navigate the systems here,” Rodrigo says. Since then he and his brother have purchased a second food truck and are hoping to expand someday into a brick-and-mortar restaurant chain.
Independent shops, restaurants and service providers are creating jobs and economic opportunity.
Janis Bowdler, JPMorgan Chase & Co.
Accion isn’t alone — it’s just one of what are known as “Community Development Financial Institutions.” According to JPMorgan Chase, these non-profits are absolutely essential — because the US needs small business.
“Independent shops, restaurants and service providers are creating jobs and economic opportunity — often in distressed communities — across the country on a remarkable scale,” says Janis Bowdler, Head of Community Development for Global Philanthropy at JPMorgan. “For many of their owners, traditional underwriting standards present a high hurdle.”
For that reason, JPMorgan Chase awards seed grants to the likes of Accion, Detroit Development Fund (DDF) and the Small Business Development Center, so small businesses can find funding outside the traditional framework. DDF launched the Entrepreneurs of Color Fund with a $3.5 million grant from JPMorgan Chase and a $3.5 million investment from the Kellogg Foundation and has already provided more than $2.75 million in critical capital to nearly 30 minority-owned small businesses in Detroit.
And while small businesses are good for the nation’s finances, they transform individual lives, too. “As a female, minority, small business owner, accessing capital can be challenging,” said Adrienne Bennett, Owner of Benkari Mechanical, LLC. “Because of this program, the Detroit Development Fund, we were able to secure our largest contract to date, the domestic plumbing systems for Building C on the Little Caesars Arena, which demonstrated our ability to successfully compete with larger contractors.”