Opinion by Ilana Preuss for Governing.com | February 14, 2023
Due to racial bias and other disparities, too often they aren’t “bankable” and struggle to obtain loans essential for their success. Some programs are leading the way in achieving more-equitable outcomes.
Since the racial reckoning began to spread across America in 2020, state and local governments have issued statements, created commissions, added positions and in some cases even passed laws and ordinances to address inequities. Many of these have focused on disparities in health, housing and policing — understandably so. However, disparities are equally problematic in small-business development, and community development practitioners have an obligation to move beyond commitments and toward action to support a greater diversity of small-business owners.
A major impediment to bridging this gap is the disparity in funding for small businesses. Now more than ever, municipal governments need to step into small-business lending to right the wrongs of the past and help business owners who’ve been excluded from investment and opportunities. It’s a worthy effort that should be strengthened and supported in urban and rural communities alike.
The U.S. Economic Development Administration’s Revolving Loan Fund (RLF) program is an essential tool in supporting this transition. With $950 million currently funded through the RLF program across 500 local, regional and state funds and community development financial institutions — $700 million of that invested since March 2020 — this program and the local leaders distributing these funds serve a key role in meeting the needs of local business owners where traditional banks won’t.
There are many challenges to reaching community members who have never received or even applied for a small-business loan and who may not be “bankable” by private-sector standards. In working with more than 120 RLF-recipient small-business lending programs through the Equitable Lending Leaders program created by Recast City and the Institute for Local Self-Reliance, three barriers stand out: First, there is broken trust across our communities resulting from injustices in combination with a lack of relationships across racial, ethnic, gender and rural divides. Second, there is a lack of knowledge about local or regional RLF programs that can help small businesses with lending and technical assistance in the absence of a willing bank. And third, many lending programs defer to banks to bring them into a loan deal to provide gap financing and reduce the risk to the bank, which perpetuates any bias on the part of the bank.
Thankfully, a number of municipal governments and statewide programs are leading the way on how to achieve more-equitable outcomes with their small-business lending.
Read the rest of the article at Governing.com.