Bank Aims To Boost Entrepreneurship In Baltimore

By Sarah Gantz
The Baltimore Sun

WWR Article Summary (tl;dr) Since 2014, an arm of Harbor Bank has brought on two business development experts tasked with identifying Baltimore companies that can’t quite qualify for traditional bank financing, but are promising enough to take a chance on.

The Baltimore Sun

Jody Davis’ shop on West Saratoga Street is full of brightly colored frocks and sparkling gowns she designed herself.

She’s designed looks for broadcast journalist Soledad O’Brien and former mayor Stephanie Rawlings-Blake, but also struggled to get the financing needed to get her Jody Davis Designs off the ground, selling one dress and investing the money in another.

“For five years I’ve been trying to get something,” Davis said. “Nobody has expressed any interest or they say we need to do this or that — it’s always some reason why you get a no.”

Now, thanks to help from Harbor Bank of Maryland, Davis is preparing to launch a spring collection and a new website. A bank executive took an interest in her ideas after a chance meeting at an event. Within two months, the Baltimore-based community bank loaned her an undisclosed amount of money and was meeting with her weekly to coach her through business basics, like budget planning and how to choose an accountant.

Davis is among the minority business owners in Baltimore that have benefited from a renewed push by Harbor Bank Community Development Corp. to improve the economic stability in Baltimore neighborhoods by nurturing businesses there.

Since 2014, this arm of Harbor Bank has brought on two business development experts tasked with identifying Baltimore companies that can’t quite qualify for traditional bank financing, but are promising enough to take a chance on.

The organization helps entrepreneurs develop business plans and budgets, and can offer alternative financing options, such as a royalties agreement, that the bank cannot. In a handful of cases, the organization has even made a small equity investment to validate the company in the eyes of other investors and attract add-on funding.

The program grew out of concern that minority businesses, especially those in underserved east and west Baltimore neighborhoods, aren’t getting their fair share of venture capital funding and traditional bank financing, said Joseph Haskins Jr., the chairman, president and CEO of the black-owned bank.

The push comes as Baltimore works to move beyond the perception that it is two cities — one where residents and businesses thrive, the other where people can’t find steady jobs or get loans for their enterprises.

“I truly believe that helping to build the small business community will help solve a lot of the nation’s problems,” Haskins said. “If nothing else, we’re opening eyes to businesses that have potential to make a significant impact.”

There are many reasons why some minority businesses may not be getting venture funding and bank financing, including poor credit, lack of mentorship and unconscious bias among lenders and investors.

“There have definitely been times we’ve had discussions where a lot of questions came up that weren’t exactly relevant or we got a decline from an investor without an explanation or the explanation was fuzzy,” said Luke Cooper, founder and CEO of Fixt, a mobile device repair startup in Baltimore. “You always wonder but I always try to be positive and assume the best.”

Fixt has raised more than $2 million since launching in 2013 and recently moved to a bigger office in Harbor East to accommodate its growing staff.

Cooper said investors should push themselves to consider investments outside their comfort zone, or at least think hard about why they are leaning toward one investment over another. At the same time, minority entrepreneurs need to put themselves out there and advocate for their business ideas, he said.

The Private Capital Markets Report, an annual report by Pepperdine University’s Private Capital Markets Project, found that minority and non-minority businesses received venture capital investments at nearly the same rate, said Craig Everett, the director of the project. In the third quarter of 2016, for example, 9 percent of non-minority businesses were successful in landing the venture capital investment they sought, compared to 8 percent of minority businesses.

Everett found bigger differences in loan awards. About a quarter of minority businesses were able to get a bank loan, bank line of credit or a Small Business Administration loan, compared to 43 percent of non-minority businesses.

Entrepreneurs often get their earliest funding from friends and family. But in a city where the median household income is $38,731, entrepreneurs from Baltimore’s lower-income neighborhood may not have that option, said Peter Lorenzi, a professor of management at Loyola University Maryland.

Baltimore’s entrepreneurship scene and the resources available to help startups grow have been gaining steam in recent years. But business owners not plugged into that network likely are missing out on funding opportunities, Lorenzi said.

“Clearly networking is part of any sort of business development process — finding people who can help with business as an angel investor, someone who can lead you to someone,” he said.

Universities commercializing research and incubators that invest time and money into select startups are a big part of Baltimore’s entrepreneurship structure. As a result, much of the venture capital funding coming to the city has gone to companies with ties to the Johns Hopkins University, University of Maryland or one of the area’s business incubator programs.

As a black-owned bank with strong ties to the community, Harbor Bank thinks it is uniquely positioned to bridge the gap. With nearly $249 million in assets, Harbor Bank has seven locations around the region.

Harbor can use its reputation in the banking world, Haskins said, to get promising local companies in front of investors, build confidence among entrepreneurs to pitch successfully, and, when necessary, give them the money they need to grow.

Harbor Bank Community Development Corp. has been around for at least 15 years, but went dormant during the last recession.
The organization started seeking out businesses again in 2014, when Harbor hired a new senior vice president, John Lewis, to lead the office.

This past August, Harbor brought on Calvin Young as vice president, and doubled the organization’s caseload, from 20 companies to 40.

Loans, convertible notes and royalty agreements are among the financing options available to the organization’s business clients.

On rare occasion, the organization has even made a small equity investment in a company. It has done four such deals, all within the past year.

Harbor declined to name the companies or say how much it invested, either in each or total. Harbor also declined to discuss other financial details about its community development organization, such as its budget for financing companies.

Mentorship is a major part of the initiative. Lewis and Young help entrepreneurs develop business plans and budgets, and teach them about other aspects of running a company, which helps reduce the risk of lending to and investing in them.

Baltimore-based investors said they are eager to hear more about Harbor Bank’s efforts and learn about new companies.

John Cammack, the managing partner of Cammack Associates, is plugged into Baltimore’s startup scene: The former T. Rowe Price Group executive is on the board of startup hub Betamore and works with startups launched out of Johns Hopkins. He has invested in some of Baltimore’s most up-and-coming startups, including ZeroFOX, Citelighter and Fixt.

Yet he admits his network has holes.

“I invest on merit, but I’m not networked into certain parts of the community,” Cammack said.

West Baltimore, for example, is an area where Cammack doesn’t have as many connections — but he’d like to.

“That part of the community has not had access to people like me,” Cammack said. “And if their companies have potential, it’s my loss.”

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