gwbotThe Greater Washington Board of Trade and the Washington Area Community Investment Fund aim to help drive economic development in our region through helping small businesses and start-ups, from launch through growth.
WTOP Business Reporter Jeff Clabaugh sat down to discuss local trends and small business investment strategies with Jack McDougle, president and CEO of BOT, and Shannan Herbert, CEO of WACIF.
They joined Clabaugh in our studio to share their insights and perspective during WTOP’s Small Business September 2024.
Interview transcript:
Jeff Clabaugh: I know transportation is big for the Board of Trade, which for some people watching this might seem unusual, but it really is. I mean, that’s how employees get to their jobs, and that’s how people get to service industry companies to spend their money. What is the Board of Trade’s current focus on transportation issues in the Washington, D.C., area?
Jack McDougle: Ours is one of the most congested regions in the country, one of the top three, and that’s not a list that we want to be on. And so we’re looking at different options across the region for alleviating that, one of which is highly effective, integrated mobility systems — that’s both cars as well as public transit, so the metro system as well as other transit across the region.
Currently, we are working very closely with WMATA, our metro agency, as well as the Council of Governments, to look at a longer-term strategy and funding solutions for our public transit systems. Metro is not fully funded. It actually has no dedicated funding source at all. That puts us at a disadvantage, both on an operating perspective and a capital perspective. We need to solve that problem in order to make sure we have a really effective system going forward. That affects everyone across our region.
Clabaugh: JLL research recently said that that Washington Metro has seen the third largest recovery of public transportation in the country. Public transportation systems across the country were impacted by the pandemic, some more than others, but being the third largest recovery does not say that Metro has recovered. Ridership is still considerably lower than we would like to see it.
McDougle: We still want to see more ridership, but the recovery has been pretty significant. And so would applaud Randy Clark and the management team there for putting operations in place to get more trains running, to get more people on and, in fact, there are certain days when they’re exceeding peak levels pre-pandemic. They’re on the right track. But there’s a lot more that we need to do.
Clabaugh: Has traffic, as in automobile traffic, recovered to where it was pre-pandemic?
McDougle: It would certainly seem that way to anybody that’s trying to get around the region out there. We still have pretty low occupancy in our offices, but the traffic is back.
Clabaugh: It’s interesting. There’s a company, called Castle Systems — they track data card entries when employees go into their offices. In-office occupancy by employees is still around 50% in the Washington, D.C., area.
That doesn’t take into account hybrid schedules — because maybe I’m there Monday, Wednesday and Friday, and you’re there Tuesday and Thursday — but that’s still low. Have we reached a new reality when it comes to work schedules and remote options?
McDougle: What we are hearing from companies across the region is that, yes, we are going to normalize around different types of work schedules than what we were used to.
Clabaugh: What do your members tell you about that? Because there was a time when management wanted employees in the office.
McDougle: Management seems to be becoming more comfortable with alternative work schedules. They want people in the office. They need people in the office. I’m not coming across too many people that are supportive of fully remote. They need people in the office.
But Tuesdays, Wednesdays and Thursdays seems to be where a lot of organizations are settling in on and figuring out what that looks like — and maybe it’s an extended day those days as well.
Clabaugh: Interestingly, the youngest of professionals are the ones who really want to be in the office the most, and I suppose that makes sense. They need the guidance, the mentoring. They want to learn. That’s encouraging. I haven’t seen many surveys where fully remote is what people want either. You want to be in the office a little bit, right?
Let’s about investment, especially minority investment and what your organization does, Shannan?
Shannan Herbert: Certainly. The Washington Area Community Investment Fund is a nonprofit community development financial institution, a CDFI, and so what we do is provide knowledge capital, social capital and lending capital to small businesses in the metropolitan area.
Clabaugh: But your organization has been doing it a lot longer than many. You’ve been around since, what the early ’80s, so you kind of have this down to a science. What has changed in the last 30 years or 40 years?
Herbert: I think the way that we approach small business and what it means to be a small business owner. Lending is not enough. Capital is not enough. We have created this network where we support our small businesses through a community of practice, if you will, where we create cohorts and accelerators so that small business owners have support and resources that they need to scale and to thrive.
Clabaugh: Why are minority, disadvantaged and women-owned start-ups less likely to get bank loan approvals or have access to venture capital or seed money. Why is that a problem for that particular group?
Herbert: There are a number of factors. And depending on where you sit in the process, it may look a little different.
The first thing that I mentioned — community, having a network, so knowing where to look for these capital sources. If I’m a small business starting out, and I don’t know how to apply for a loan — I’ve never had a lending relationship — it may be really hard for me to establish one that first time out the gate asking for lending capital. So that’s the first piece.
The second piece is financial institutions, understanding this market and this demographic. If there’s a standard credit box that everyone is following and a standard structure that everyone is following, some people are not going to fit into that box. And so how do we think creatively then about structuring loans? How do we think creatively about our underwriting so that we can meet folks where they are?
So there are a couple of things there that have to be done.
Clabaugh: So lenders don’t particularly understand the nuance of a minority-owned start-up or a female-owned start-up. But what is that nuance exactly?
Herbert: It can be the way that they connect with their customers. And so there could be metrics that look different from personal resources — how much you’re able to come to the table with if you don’t have a network of friends and family that can help contribute to your company. You may have limited liquidity or limited equity. And so thinking about that and looking outside of those factors to see what else is possible. What else is there? If we are cutting people off based on credit score, then that could be a limiting factor as well. So getting behind the numbers on a credit report and looking at the story and understanding the road and the journey of that small business owner as a point of consideration for that underwriting package.
McDougle: I would add that one thing Shannan said is really, really important here when you think about small businesses. There are different ways to think about small businesses.
The Small Business Administration considers anything up to 500 employees as a small business, which is a large business — medium scale — and they have access to more resources than the types of businesses that we might be talking about here. And when you look at the number of establishments in our region, for businesses with 20 or fewer employees, the vast majority of them are of that size. So access to funding and capital is very different there.
And regardless of where we’re coming from on that, entrepreneurs and small business people, they’re typically funding through savings accounts and credit cards. And so, and that’s where they’re getting it. Oftentimes, some of our minority communities, they might not have a lot of equity built up in their house, or they might not have a lot of other sources that they can draw on. That does create a disadvantage, but it’s a disadvantage across the entire spectrum of getting people to start up.
Then the other thing that is a challenge too, there’s the small mom and pop establishments that do very, very well, and they’re great. They’re not interested in growing, but for small businesses that are interested in growing, even if there are programs to help them get off the ground, there might not necessarily be really good handoffs to allow them to grow. And so oftentimes we lose them, and that’s a disadvantage to our overall economic health here in the region.
Clabaugh: To grow a company, you need to constantly have access to capital.
McDougle: Yes, to keep growing, that’s right.
Herbert: One thing that I’ll just highlight that you said: using credit cards. A lot of small businesses self-fund. But the challenge with that is, when you go to a financial institution to try to obtain capital, you’ve got a terrible credit score. But you’ve been using credit to self-fund the business because you couldn’t apply or couldn’t qualify for traditional commercial credit.
Clabaugh: I see ways that you guys can work together. Do you remember during the pandemic, everybody and their brother was standing up with grants or small business loans? Most of those were survival lifelines. They weren’t necessarily seed money. But I remember thinking during that three- or four-year period, there’s so many of these things, and if there was some way to just bring them together in a box so they weren’t so disjointed and people had a place to go and see what resources there are. Is that something that can be done?
Herbert: Yes.
McDougle: That would be ideal, and we need to continue to work toward that. Particularly in our region, our region can be difficult because we deal with three jurisdictions, plus the federal government, plus county level. You have all these different levels and layers that you have to work through. But the more we can try to consolidate and normalize that so that we can operate at scale with those types of investments and those types of programs, the better off we’re going to be in the long run. And we and WACIF are looking at those types of opportunities.
Clabaugh: What about the people who fail the first time they go to a bank to get a loan? What can you guys bring together for resources to help them? So if at first you don’t succeed, try try again.
Herbert: Most of the borrowers that we work with have that experience. They’ve gone to other financial institutions, and they’ve been turned down. Then they come to us, and we’re able to structure deals or look at deals in a different way so that they can be approved.
But looking at a larger model is something that we’ve talked about and that is beneficial to the entire community: a second-look model. You know you’re not approved, but what is that mechanism to help you get approved? Or if it’s not a yes, it’s a not yet, then these are the things that need to happen for you to get to a yes.
Clabaugh: I’m concerned about what I’m hearing because I don’t want to see small business start-ups that have been rejected by a traditional bank be steered to alternative, sometimes predatory lenders. That’s a goal that you’d like to avoid.
Herbert: Absolutely. We actually help to refinance people out of predatory loans because we do see that quite a bit. If it’s not the credit cards, it’s the predatory loans. And if borrowers are paying upwards of 600% or more in interest, then they’re not able to build wealth, and they’re not able to scale the business because they’re paying so much in these fees and interest.
We want to make the lending experience as enjoyable as possible, but it also includes understanding what that journey is that that borrower has been on. If they started at the predatory lender, how do we get them to a place where they understand their finances, understand financial management, what it means to have a real bank relationship, and then we graduate them to a larger institution that can help them scale?
McDougle: That’s one of the reasons why organizations like WACIF are so critical in this equation, and we need to amplify what they’re doing, as well as other organizations.
Another thing I would say too, most small business people, they’re worried about making payroll every week. They don’t have a lot of time to think strategically. And it’s one of the advantages that business associations, chambers of commerce, the Board of Trade and others it that they can help them sort through some of these things and point them in the right direction so that they can avoid some of the pitfalls of just trying to go it on their own. I would certainly encourage folks to think about how they can leverage their communities even more effectively.
Clabaugh: To your to your point, if you’re starting a business or running a young business, you’ve got a lot on your plate. You don’t know what resources are out there, let alone maybe have the time to pursue them. Is there a way to better put everything in one place where somebody can go and say: “This is my situation, and here are my needs, and here are all the things that are available to me in this community?”
McDougle: One thing I would say, just a shoutout to small business people: You’re the toughest people around. I mean the challenges that you’re up against every day and to persevere, and every morning to get up and go out and overcome all the challenges that you’re facing.
We don’t want to have some sort of a monolithic system in place. We still want to have some real good competition within the region for how we do those sorts of things. But there are a lot of things that we can do to streamline — particularly on the regulatory front, on the permitting front — how small businesses interact with governments and things like that. And that’s an area working with WACIF to help identify those opportunities and to really make some progress on them.
Clabaugh: Just a shout out to the Board of Trade: To those companies, those business owners, that are worried about making payroll and making sure the business opens on time and all that, the Board of Trade is a great place to start. Membership of the Board of Trade isn’t reserved to just elite companies. In fact, you are built to represent small businesses.
McDougle: We do. In fact, our current chair is a small businessman from Maryland.
Clabaugh: How do you get involved in the Board of Trade? Like I said, you don’t have to be a big shot.
McDougle: Find us online, and give us a shoutout. We’d be happy to talk to you.
Clabaugh: We have just a few minutes left to talk. I want to ask you what’s on the horizon?
Herbert: We’re really excited about some of the initiatives that we have coming up. We are launching the Office of Women’s Initiatives, where a lot of our programming designed specifically for women small business owners would be housed. We were recently named one of the seven SBA women’s business centers. And so we’ll be launching that soon, and that will fall under this Office of Women’s Initiatives.
We’re also developing sustainability products and programs so that small business owners that are looking to get into the green space can have a place to learn how to do that — can become green-certified. And so we’ll be offering technical assistance and advisory in this space as well.
We’re also developing new loan programs to speak to some of the needs that we are seeing in our small business community — so trauma-informed lending, lending with a social impact or social work focus, will also be on the horizon.
Clabaugh: There’s all sorts of ways to enhance your business. The green energy thing is fascinating to me because, not only maybe you feel good about yourself because you’re doing that, but that may open doors to your business.
Herbert: Absolutely and that’s what we see. So businesses that may not even realize that they can take advantage of the green economy, they can come to us through our advisory services, learn how they can, and we can help them upskill.
Clabaugh: That’s pretty great. What’s on the horizon for BOT?
McDougle: Continuing to move forward and trying to get some transit solutions for the area.
One of the other things that we’re working on, and we’re in really early conversations with Shannan and her team, is we’ve launched a Business Growth Initiative. And when she talks about second looks at thing, it’s by pulling together resources across the region to help provide services and other advice to companies to position them to get the funding that they need so that they can continue to grow and make investments. There’s pockets of that out there, but we really see an opportunity to level that up so that we can get more people involved in that and so that we can grow more opportunities.
Clabaugh: Of your members, the smallest of whom you talk to, what are their biggest challenges right now? We’ve put pandemic challenges largely in the rearview mirror, but they’re lingering. But there are many, many new challenges, particularly for leisure and hospitality.
McDougle: Leisure and hospitality, I’d say number one is probably talent, attracting people. And for small businesses, I’d say talent. Also, access to capital and funding continues to be a major issue.
Inflation does continue to be a major issue. While it’s tempered, prices are still really high. That’s particularly true in food services. As you know, everybody knows right now, food is very expensive, so that’s really causing some issues out there as well.
Quite frankly, these are traditional challenges that small businesses face and always have. And they’re the most resilient folks out there, and they figure out ways to overcome them. We just need to do much more to help them do that.
Clabaugh: Do you have a success story that comes to mind that you like to tell people?
Herbert: I do. So we have one borrower. Her name is Amanda Stevenson. She’s with the Fresh Food Factory. She started in one of our cohorts and took a space at the Anacostia Arts Center. I didn’t mention we own the Anacostia Arts Center, and there is a coworking space in the basement that houses about 85 entrepreneurs.
She had a retail space in the arts center, and we were able to graduate her into her first brick and mortar. That is under construction right now. And so this is one of our stories of taking someone from cohort level, giving them the technical assistance and advisory services that they needed, so that she’s now able to have a standalone resource in Ward 8, where we know there is a food desert, and she’s able to bring healthy food to the community.
Clabaugh: That’s great. Contact information for your organization?
Herbert: You can find us on the web at WACIF.org.
Clabaugh: And for the Greater Washington Board of Trade, which by the way is one of the biggest board of trade organizations in the country?
McDougle: BOT.org.
To discover more insights for entrepreneurs, start-ups and SMBs shared during WTOP’s Small Business September, click here.
