This content is provided by TD Bank.
Owning a small business offers the advantages of creative freedom, flexibility and the personal satisfaction of following your dreams. And for many minority business owners, the prospect of giving back to and investing in communities of color is worth the risk entrepreneurship entails.
But one thing that is difficult to plan for as an entrepreneur is a global pandemic and ensuing national lockdown. COVID-19 stymied the small business community and intensified the disparities that exist for minority-owned small businesses, especially Black and Latinx business owners disproportionately impacted by the shutdown. And while the Paycheck Protection Program (PPP) provided a life preserver for some businesses, data shows many minority-owned small businesses did not have the opportunity to participate for many reasons, including lack of relationships with mainstream financial institutions. So where does that leave these entrepreneurs? Many of these businesses, particularly those that are Black and Latinx-owned, were already experiencing financial fragility due to underlying systemic challenges faced by underrepresented groups.
Small businesses serve as the backbone of our communities, especially communities of color, and while there’s no quick fix, financial institutions have a responsibility to help them succeed. Mainstream financial institutions must do their part to make the loan process more equitable for these vital businesses. That’s why TD Bank announced the establishment of a $100 million equity fund in support of minority-owned small businesses, demonstrating its continued commitment to combat racial inequities and provide opportunity in underserved communities. The fund provides small business loans and technical assistance, ensuring these businesses have the resources they need to scale and adapt long-term.
Pending Small Business Administration approval, $75 million of the capital will be funded through a Specialized Small Business Investment Companies (SSBIC) initiative. SSBICs provide financial assistance to disadvantaged businesses that are minority-owned, women-owned or are in areas of need. $25 million will be specifically earmarked for Black- and Latinx-owned small businesses, funded through Community Development Financial Institutions (CDFIs), which are notably skilled in securing financing for businesses located in communities of color.
If you missed that last sentence, re-read it! CDFIs are a great resource to tap into as a minority-owned small business because they can help business owners gain access to capital. So why haven’t more underrepresented businesses tapped into CDFIs, particularly during the pandemic? Some just don’t know it’s a resource and others don’t know what resources CDFIs provide. So, let’s clear that up.
The very goal of a CDFI is to broaden economic opportunity among low- to moderate- income and/or minority communities by providing alternative options for capital and financial services. Here are a few ways they do that:
- Less rigorous requirements: CDFIs can approve loans and extend credit to borrowers where mainstream banking institutions can’t, due to stringent underwriting requirements.
- Low-cost capital: Many CDFIs offer lower interest rates, allowing small business owners to owe less over time. And they often offer fixed rates, which allow for predictable payments, a true benefit during a pandemic when uncertainty continues to loom.
- Business Resources: CDFIs also offer technical assistance and other supports, like accounting, legal, human resources, general advice or even help writing a stronger business plan. The idea is to help small businesses sustain, adapt and grow long-term.
These are just a few ways CDFIs can assist underrepresented small business owners who need funding or advice. Each one is different, so seek out a CDFI in your market to learn more. You can find one by visiting the Treasury Department’s CDFI Fund website or by searching the Opportunity Finance Network page. Remember, CDFIs are there to level the playing field where historic inequalities have thwarted the ability for minority business owners to access capital, so utilize them.
Once approved, TD Bank will announce the list of CDFIs across its footprint in which it will infuse capital. Ultimately, the goal is not only to help stabilize minority-owned small businesses, but also contribute to job creation, stimulate economic development, revitalize these vibrant communities and, just as important, break the cycle of disinvestment in communities of color.
To learn more about TD Bank’s $100 million dollar equity fund, click here. And for insight on starting a new business or growing an existing one, visit TD’s Small Business Resource Center for tools and resources.