What $10 Billion Could Do for America’s Small Businesses

Sponsored: The second round of the State Small Business Credit Initiative is poised to be one of the most significant small business programs in U.S. history — particularly for minority entrepreneurs. Here are the partners helping ensure the public-private funding model is a success.

All hands on deck. That seems to be the rallying cry from all corners of the community finance sector as state agencies, banks, CDFIs, fund managers, philanthropic foundations and other players go all in on round two of what some have hailed as the most significant small-business program in U.S. history — the State Small Business Credit Initiative (SSBCI).

This second iteration of SSBCI, passed as part of the American Rescue Plan in 2021, has earmarked much more money —$10 billion vs. $1.4 billion in the pilot program — but with a similar mandate to strengthen the small-business ecosystem by spurring growth in and low- and moderate-income communities through easier capital access and technical assistance.

Forty percent of the $10 billion of SSBCI funding is earmarked for socially and economically disadvantaged individuals. And it’s all about leverage: Every SSBCI dollar deployed is designed to catalyze $10 in private investment.

“It’s become really important that there are strategic philanthropic investments that are made available that can unlock billions of dollars for funding to advance a range of priorities,” says Archana Sahgal, president and founder of a nonprofit that’s helping to turn federal funding into sustainable, ongoing private investment.

The investment is already making a big difference for small businesses across the country. The CDFI Albany Community Together recently approved a loan to a local pharmacy that will allow it to purchase land for another facility. According to CEO Thelma Johnson, the CDFI received $3 million through the pilot SSBCI program and more than $600,000 from the new program.

Johnson says new rules in the latest round of funding give CDFIs more freedom to be creative in their financing. CDFIs can now leverage SSBCI funding by using their own funds as private equity or by partnering with another CDFI. In the pilot program, a CDFI would have to match SSBCI funding with a private source.

“It’s hard for Black-led CDFIs to get funding or to get investments from a private foundation,” says Johnson, citing racism, credit issues and lack of collateral. “The new rule has given us that flexibility to be creative in our lending products. And if CDFIs are not creative, not looking for ways to make it work, then Black businesses will again not get access to this wave of billions of dollars to help them.“

Bridging the public-private funding gap

Sahgal believes it shouldn’t be so difficult for lenders like Albany that are serving small businesses and underserved communities to connect with private capital. Her nonprofit, Hyphen, has taken on the big mission of bringing public and private partners together to accelerate structural change.

Hyphen is also a key partner in ensuring SSBCI works as intended. Its Initiative for Inclusive Entrepreneurship (IIE) is a $100 million national effort designed to harness the impact of SSBCI funding by bringing some of the nation’s largest public and private funders together to, according to its website, “ensure the equitable implementation” of the SSBCI program. IIE, among other things, helps states meet the minimum federal requirements of the program.

In short, the Treasury allocates SSBCI funds to states, territories and tribal nations under a formulaic model that takes into account metrics such as population and poverty levels. States apply for the funds, provide plans for its use, and funnel it to local entrepreneurs through CDFIs and other lenders.

“IIE has worked earnestly to understand the priorities of Treasury, the state and the needs of and the barriers (facing) the entrepreneur to build solutions at the intersection of those three to help optimize the SSBCI program … to ensure (funds) get circulated specifically to entrepreneurs of color,” explains Teleange Thomas, chief operating and relationship officer for JumpStart, one of Hyphen’s partners in the IIE initiative.

Some in the industry think the currently massive flow of federal support for small businesses — SSBCI is part of a $4 trillion flow of funding into communities during and post-COVID — could develop into a New Deal for the 21st century. Sahgal is one of them. “It’s not just hyperbole,” she says. “Between the American Rescue Plan, the infrastructure bill and the climate bill, it really does feel like this is our generation’s New Deal.”

Since its launch in 2021, Hyphen has leveraged more than $400 million in public and private funding. The organization is one of the key partners of Mastercard Strive USA, which was started by the Mastercard Center for Inclusive Growth in 2022 to strengthen small business ecosystems around the country, and particularly for underserved entrepreneurs.

Strive USA helps develop and scale solutions that address three common roadblocks small businesses face: getting capital, going digital, and growing networks and know-how. The program has helped its partners deploy more than $30 billion in growth capital to date to small businesses in 43 states.

“We are helping to build a network and infrastructure that catalyzes the flow of funding from federal programs such as SSBCI to communities that have often not been able to access these resources in the past,” says Sandy Fernandez, VP, North America, Mastercard Center for Inclusive Growth.

Entrepreneurs on the rise

Programs like SSBCI and the organizations helping deploy that money effectively — such as Hyphen and Strive USA — are key in overcoming the racial wealth gap.

Overall, small businesses, most of which employ fewer than 100 employees and generate less than $100 million in revenues, are growing — particularly those helmed by entrepreneurs of color. A Senate committee on small business recently noted that minority enterprises accounted for more than 50% of the 2 million businesses created in the last 10 years. Yet, the 4 million minority businesses represent just 18% of all businesses, despite minorities being 30% of the overall population.

While they might be outrunning their peers in the pace of growth, minority entrepreneurs are lagging behind in gaining access to affordable capital and securing loans. Many lack long-standing relationships with traditional financial institutions and don’t have generational wealth to bank on for capital support. And then, there’s outright discrimination.

“Black business ownership is a proven pathway to narrow the wealth gap for people of color,” Sahgal says. “That’s what we’ve been talking about with our current funders and our prospective funders.”

Besides being led mostly by women of color, Hyphen’s other notable — and perhaps unique — feature is its close working relationship with the federal government. Sahgal and other top executives have worked in either the Obama administration or on the Biden transition team.

Hyphen is “methodically” working with the Biden administration to identify where philanthropic support is needed to help implement legislation such as SSBCI and bring in the nation’s largest funders to match funds and maximize impact, explains Sahgal.

In fact, Hyphen worked with Vice President Kamala Harris to launch IIE. Hyphen is incubating the initiative through June 2024 and is partnering with five organizations to build a network and infrastructure to enable SSBCI capital to continuously flow into underserved communities and to all kinds of small businesses. For example, JumpStart, in Cleveland, Ohio, spearheads IIE’s effort to expand minority entrepreneurs’ access to venture capital funds through IIE’s high-growth vertical, while Mission Driven Finance of San Diego partners with tribal governments to push entrepreneurship in those communities.

“We just need to go faster, stronger, harder to make sure all these resources are really leveraged into communities of color,” Sahgal says.

Fernandez of the Mastercard Center for Inclusive Growth shares this strike-while-the-iron-is-hot philosophy. “We cannot waste this moment,” he says, “both to make sure these historic investments are deployed effectively and equitably, and also to drive lasting, sustainable change in the small business ecosystem that outlives these programs.”

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Christopher C. Williams is a New Jersey-based freelance financial writer. He worked for many years with Dow Jones Newswires and Barron’s Financial Weekly and has contributed to publications including the Wall Street Journal, The New York Times and Essence magazine. He focuses on the intersection of business, economic equity and racial justice.

Tags: small businesscdfisentrepreneurshipmastercard

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