Unmasking Economic Justice for Small Business Recovery

Last week CAMEO hosted our annual Microlenders Forum 2022 in person! More than 70 small business lenders came together to explore our theme for this year, “Unmasking Economic Justice for Small Business Recovery”from different angles, including innovations in equitable lending, fostering support for accessing capital, and more.

After that warm welcome Carolina moderated a discussion about a more just economy by reaching underserved entrepreneurs with more capital. Our panelists – Bulbul Gupta, President and CEO of Pacific Community Ventures, Janie Barrera, Founder and Executive Vice-President of Lift Fund, Lenwood V. Long, Sr., President and CEO of the African American Alliance of CDFI CEO’s –  engaged in a conversation that left people wanting more. Highlights included:

  • When forming a CDFI it’s important to connect with other people that have done so, as they can help you with your research.
  • We need to convince states to give money to communities of color to expand the access to capital and close the racial wealth gap in our communities.
  • $27 billion of the Inflation Reduction Act creates a ‘Green Bank’ fund that funds clean energy projects. $7 billion of these funds are set aside for projects intended for projects in low-income and disadvantaged communities. We should be trying to see how our small business community can be involved in projects that help their communities. 

Sarah Simms and Tracy Choi from The Federal Reserve present new data surrounding small business in the last two years. Some highlights from the data they presented are as follows:

  • 77% of small businesses are still struggling from the effects of the COVID-19 global pandemic nationally, while 86% of California small businesses are reporting that they are still struggling.
  • Nationally, 59% of firms reported being in poor or fair financial condition and in California it is as high as 70%.
  • Firms owned by people of color were less likely to be approved for financing, regardless of their credit score or the source of the application.
  • Firms owned by people of color were more likely than white-owned firms to report challenges paying operating expenses. 
  • Firms of color most often applied for Economic Injury Disaster Loans (EIDL) loans. 
  • White-owned firms were more likely than firms owned by people of color to receive the total amount of the PPP loan for which they applied.

Growth in our field is critical if we want to serve as many underserved small businesses as possible. The Growth Strategies for Increased Impact session featured Sara Razavi, CEO of Working Solutions, Luz Urrutia, CEO of Accion Opportunity Fund, Robert Villareal, Chief External Affairs Officer of Momentus Capital, and our own Carolina Martinez. The panelists discussed how non-profit lending can grow by maintaining a growth strategy, from collaborating with other nonprofits doing similar work to mergers.

Stacey Sanchez of CDC Small Business Finance spoke about several innovations that her organization implemented over the last two years. Their “Activate Detroit” program was created to provide small business advising and a loan of up to $100,000 at the end of the program. In addition to credit as a determinant of program eligibility, they used:

  • Rent payments,
  • 3 months minimum of proven sales,
  • Must identify as Black or African-American, and
  • Character based evaluations

Businesses in the Black community that normally would not have been given the opportunity to access capital were able to start and thrive. She also talked about new lending in verticals.

Download “CDC Lending Innovations”

Marc Tognotti President of Infinity Point CDFI presented on fractional Employee Stock Ownership Programs (ESOPs). An ESOP is where owners sell 30%-100% of company stock to an Employee Stock Ownership Trust, which holds the stock on behalf of employee-owners. When employees leave the company, the company repurchases the shares. Marc has been utilizing ESOPs for small business owners that want to sell and do not have any relatives that want to take over the business, but the employees want to keep the business. A fractional ESOP pools several very small businesses into a trust.

Download “Fractional ESOPs” slides

We closed out the day with a conversation about work done by the California Small Business Coalition for Racial Justice. Purvi Patel, Assistant General Counsel and Todd Cooley Program Associate: Small Business from t Self-Help Credit Union presented “Confronting Racial Inequity in Small Business Lending,” a white paper the recaps the work done by the coalition (of which CAMEO is a member.) The coalition works on:

  • Responses to capital challenges faced by underserved and BIPOC small businesses across California.
  • Challenges to the CDFI industry to prioritize racial justice in lending and advocacy.
  • Advocating for policies and legislation to support underserved and BIPOC businesses.
  • Engaging in collective trust building, learning and collaboration.

They also talked about the 4Cs of credit – a disruption of the traditional 5Cs that goes beyond the credit score to use a racial justice lens when it comes to small business lending.

Thanks to all the speakers and participants for a thought provoking and engaging discussion – see you next year!