In struggling cities, there’s little hope for revitalization without ready access to financial capital. Lenders must be willing to look beyond shuttered storefronts and depopulated neighborhoods to see where the seed of economic vitality still exists, and to nurture it. That’s not always an easy prospect.
But as the rapid growth of Detroit, Michigan’s Entrepreneurs of Color Fund demonstrates, this is an area where many different kinds of funders—foundations, corporations, and others besides—can find common ground. A push to revitalize business and nudge it in an equitable direction has characterized a lot of giving in the Detroit region lately.
The Inside Philanthropy forecast for 2018 anticipated that despite, recent moves from funders like Ford Foundation and Kresge Foundation, impact investing won’t necessarily have a banner year among foundations. But given the nature of their business and the recent thrust of their giving, banks may be an exception to that trend.
For the Entrepreneurs of Color Fund, the story goes back to 2014. In May of that year, JPMorgan Chase announced a five-year, $100 million philanthropic commitment to Detroit, part of the bank’s long-term plan to increase the impact of its giving. Community organizations and nonprofits benefited from this largesse, but so did small businesses and affordable housing developers.
The following year, the bank partnered with the W. K. Kellogg Foundation and the Detroit Development Fund (DDF), a local community development financial institution (CDFI), to create the Entrepreneurs of Color Fund.
The aim was simple: encourage equitable revival in Detroit by giving businesses “owned by entrepreneurs of color and businesses that primarily hire people of color” loans of around $50,000 to $200,000. Kellogg and JPMorgan Chase initially provided $3.5 million each, with the Detroit Development Fund overseeing things. According to DDF, Entrepreneurs of Color has lent or approved $4.5 million to over 43 small businesses.
The fund is described as an example of a successful city-business-nonprofit partnership to support minority-owned businesses. Detroit Development Fund President Ray Waters noted that the fund was remarkable in that it had a zero loan default rate — and that a significant part of that success could be attributed to the technical assistance entrepreneurs receive through the University of Michigan’s Detroit Neighborhood Entrepreneurs Project and other providers.
The Detroit Neighborhood Entrepreneurs Project (DNEP), coordinated by the University of Michigan’s Center on Finance, Law, and Policy at the Gerald R. Ford School of Public Policy, provides wrap-around, one-on-one services to neighborhood-based small businesses in Detroit. This includes legal advice, business and financial services, and design assistance to help solve small business owners’ most pressing problems.
“Services are free for entrepreneurs and invaluable for students,” says Christie Baer, program director for the DNEP. “This is a reciprocal learning process. Students emerge with real-world experience and a better appreciation for the complexities of running a business and the challenges minority entrepreneurs face.”
“The [EOCF] is one way to ensure more Detroiters share in the city’s continued economic recovery,” writes Jeffrey McKinney for Black Enterprise. “And the unique and scalable structure of the loan fund and technical assistance it provides has become a model for how to help minority entrepreneurs expand in other cities.”
Dean Barr, who has noted that generally, minority-owned businesses begin with less capital than their non-white counterparts’ businesses, says EOCF’s built-in loss reserve makes it possible for the fund to extend credit to small businesses that might not typically qualify for bank loans. Of the 43 businesses funded by the EOCF, Ray Waters said, none would have qualified for traditional bank lending. That funding, combined with technical assistance, can provide a ladder that allows a business to graduate to being loan eligible by major financial institutions.
Entrepreneurs of Color Fund loan recipients Felicia Maxwell of Fit4Life and Kenneth Porter of the Porter Media Group have both benefited from the fund. Both businesses were able to hire employees and purchase capital equipment with loan proceeds.
Late last year, DDF announced new and sustained funder support for Entrepreneurs of Color, amounting to a remarkable tripling of its size to $18 million. While JPMorgan Chase and Kellogg both pledged $2 million each, newcomers included the Ralph C. Wilson Jr. Foundation, Fifth Third Bank, and the Kresge Foundation. According to Kellogg, the two initial funders are “actively recruiting new funders to significantly increase the size of the fund.”
Photo courtesy of Fit4Life.