The Philadelphia Inquirer
WWR Article Summary (tl;dr) As Erin Arvedlund reports, “Philadelphia community aid groups and commercial banks have joined to fund a new loan program for Black and brown business owners, who have long been denied loan and investment money to help their enterprises grow, with the goal of lending $100 million over the next four years.”
The Philadelphia Growth, Resiliency, Independence, Tenacity (GRIT) Fund has so far received commitments of loans and grant money totaling $13.5 million, according to Varsovia Fernandez, executive director of the Pennsylvania CDFI Network, which helped organized the new fund.
“It’s the first phase in a four-year program,” she said Tuesday. “We believe that this is the only program of its kind in the country where banks have come together to collaborate collectively for the good of Black and brown small businesses,” Fernandez added.
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The new fund is the brainchild of roughly 30 financial institutions, including the Federal Reserve Bank of Philadelphia and the Urban Affairs Coalition, which joined the Chamber of Commerce of Greater Philadelphia’s Recharge and Recovery initiative to help ease the impact of the pandemic on small businesses.
The group formed the Greater Philadelphia Financial Services Leadership Coalition last spring..
“Despite the efforts made in the past year, the help provided to small businesses has not met their needs, especially for minority businesses,” said Dan Betancourt, chair of the Pennsylvania CDFI Network and CEO of the Community First Fund. “This effort is unique — we are not aware of financial institution leaders coming together at this scale.”
The money will first be disbursed through 11 community development financial institutions, known as CDFIs, which the federal government used to distribute Paycheck Protection Program money and other emergency programs during the pandemic.
The CDFIs will receive the money first, then make roughly 1,000 loans over the next four years.
Why the intermediaries?
“Many small businesses lack trust in financial institutions,” said Betancourt. “We help them bridge to the financial mainstream over time. That building of trust is important.”
Loans will vary in size and terms.
“More flexible terms helps better prepare small businesses,” said Sue Lonergan, director of middle market and specialized commercial lending for Fulton Bank and co-chair of the group.
“To make these loans, CDFIs have to maintain a healthy balance sheet. Generally, banks don’t support these organizations, so this is unique to this program,” Lonergan said. “Coming together in this way to support CDFIs is a new model for us and one we hope to expand over time.”
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So far, the effort has attracted regional banks such as Customers Bank, Univest and WSFS, and depository institutions for underserved people such as the Asian Bank and United Bank of Philadelphia. Larger institutions, such as Bank of America, Citizens Bank, and PNC Bank, have made capital commitments directly to individual CDFIs, but details weren’t available.
Nor were details available yet on how or when businesses could apply.
“Some [banks] have committed to multi-year grants, and that capital will grow over time as CDFIs put loan money out,” Fernandez said. For example, a small CDFI “may take $2 million this year from the bank, put it out in 2022, then take another $2 million. A large CDFI may take $5 million, put it out, then take more.”
Smaller CDFIs will receive money first: Beech Capital, Entrepreneur Works, Enterprise Capital, Women’s Opportunities Resource Center, Impact Loan Fund, Neighborhood Progress Fund and VestedIn. These will receive $10 million in capital for loans and more than $1 million for balance sheet, operations capacity, and technical assistance, including professional advisory services provided by 100 Chamber of Commerce volunteers.
In the next phase, the Community First Fund, PIDC, and Reinvestment Fund will receive money from the new fund.
Loans make a difference
For small-business owners, a loan from a community development financial institution can make the difference in surviving or failing. Trina Worrell-Benjamin, owner and founder of TWB Cleaning Contractors, got her first loan from Beech Capital, which “helped us remain in the business of commercial, construction and public space cleaning.”
“Being a minority and a small business, one critical aspect is access to capital. A lot of times, when first starting out, it’s hard getting access. Beech has been a source of counseling and financial stability for us. As Black business owners, we’ve experienced many challenges. We needed equipment, payroll, employee training. And with Beech we were able to secure that.”
Founded in 2014, TWB Cleaning won a large, six-figure cleaning contract two years later, Benjamin said.”I went to credit unions, banks, I tried to do a loan against the contract. To my surprise, I was turned down,” she said. “I talked to Beech Capital, and even though my credit score was low…They gave me a loan and a year later, we secured another contract.”
Despite having the second-largest Black population among a group of peer cities that include Atlanta, New York, Boston, and Washington, Philadelphia had the lowest number of Black-owned businesses per capita, with 1.8 firms per 1,000 Black residents, according to a Center City District analysis of U.S. Census Bureau data from 2018. Philly had 21.6 white-owned firms per 1,000 white residents, compared with 3 Hispanic-owned and 1.8 Black-owned businesses per capita. Among all racial and ethnic groups, the highest rate of business formation was among Asians, with 30 firms per 1,000 Asian residents.
Money for the GRIT loans will come from two main sources: contributions from banks and from the Philadelphia Foundation’s Frances P. Kellogg Fund.
The Pennsylvania CDFI Network will decide how funds are disbursed; the network manages the program and will distribute to CDFI balance sheets and operations.
Banks can also provide loan investments directly to CDFIs. For example, a CDFI can take $2 million in capital, then lend to the small business. CDFIs take capital according to balance sheet capacity and ability to secure loans.
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