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You see it almost daily in local DC neighborhoods. Another coffee shop, store, eatery or salon that was part of the community’s fabric is suddenly gone.
Among minority small business owners, 58 percent are “extremely” or “very” concerned about the financial viability of their businesses, and are more likely to have conducted layoffs or furloughs, or to have shut down their business, according to McKinsey’s recent US Small Business Pulse Survey.
Unfortunately, it didn’t take a pandemic to give minority-owned small businesses an uphill battle. They are often smaller by way of employees, payroll and startup capital, and they may not have established banking relationships.
Federal, state and local relief programs are in place, but they’re likely not enough to restore small businesses back to pre-pandemic norms. Could the nonprofit sector be part of the answer?
Nonprofits have the flexibility to provide alternative financing products and services and give small business owners coaching they need to pivot their business in this evolving economy.
For example, the Latino Economic Development Center (LEDC) serves as a nonprofit financial institution to equip local Latinos and other underserved communities with small-dollar business loans when they have difficulty obtaining lending or don’t meet criteria of traditional banks. Known as a Community Development Financial Institution, (CDFI), LEDC offers loans that range from $500 to $250,000, so borrowers like an ice cream shop owner can replace a broken freezer, a small accounting firm can retain staff, or a retail store can shift to online sales. They also recently offered Paycheck Protection Program loans.
Another example is La Cocina VA, located in Arlington. The nonprofit’s new Zero Barriers Training and Entrepreneurship Center will soon begin helping underserved members of the community learn to launch their own culinary-based careers through a Culinary Small Business Incubator, and will offer ongoing support for workforce training in the culinary arts.
CEO Paty Funegra says La Cocina VA is focused both on serving the immediate needs from COVID-19 while setting up clients for long-term success.
“We have designed programs to provide entrepreneurs of color with the infrastructure, technical assistance, access to microlending, and distribution outlets to promote a faster recovery and foster the appropriate ecosystem to rebuild financial stability through entrepreneurship and new job opportunities in the food industry,” she said.
These small business-focused nonprofits are making a herculean effort to help DC’s entrepreneurs survive 2020 and beyond. But they can’t do it without funding and critical cross-sector collaborations.
That’s why last month, Wells Fargo launched an industry-leading commitment through our new Open for Business Fund. Our company is donating approximately $400 million to nonprofits focused on supporting small businesses, including those owned by racially and ethnically diverse people.
The Open for Business Fund has several areas of focus, including capital and payment relief via CDFIs, and long-term recovery grants. This grant capital does not need to be repaid, so nonprofit lenders and community groups can leverage it for the best possible course of action based on the needs they see every day from entrepreneurs. For instance, a CDFI can use it to pay down interest rates on existing loan products to make them even more affordable, or create longer repayment terms, or offer emergency loans that are forgiven.
One of the first recipients of grant funds includes City First Bank DC, a local CDFI that is part of Expanding Black Business Credit Initiative’s new Black Vision Fund, with more grantees to be announced later this fall.
The Open for Business Fund is a step in the right direction to help all types of small business owners, including sole proprietors, which make up a large part of the small business sector. If corporations and foundations across the U.S. follow suit and invest in expanding the capacity of the nation’s nonprofits, I am confident we can accelerate economic recovery and help prevent the disappearance of an unprecedented number of small businesses.
By Jenny Flores
Head of Small Business Growth Philanthropy