Near as he can recall, St. Louis area educator David Williams was turned down at least six times by banks as he sought loans for his would-be academy.
Those denials came despite his collateral, good credit and the assistance of his aunt who is a long-time educator and stood ready to help guide his embryonic business – a center to teach STEAM curriculum to children from birth to age 13.
“It’s a struggle,” said Williams, as a soothing lullaby played in the background at his Williams Academy on Natural Bridge. “It’s a challenge to get off the ground because we’re not funded properly.”
For reasons that range from racism and redlining to more subtle factors like not knowing the right people, Black-owned businesses like Williams’ have continually been under capitalized compared with their white counterparts.
In the wake of the nation’s reckoning on race, local and national organizations are pumping more money into Black-owned businesses in the hope of bridging the stubbornly persistent wealth gap.
Williams eventually secured at least $10,000 in grants through the Greater St. Louis Inc.’s Diverse Business Accelerator and other sources.
Overcoming the biggest hurdle – finding at least $300,000 to purchase and renovate the 18,000 square-foot building that houses the academy – came via Justine Petersen, a nonprofit financial services organization that works with low- and moderate-income individuals. Williams said the help began in 2020 with money for a downpayment and accelerated last year after he faced potential foreclosure when the COVID-19 pandemic blocked his ability to keep up with the mortgage.
Justine Petersen stepped in to purchase the building, he said. A spokeswoman confirmed Justine Petersen is a “financing partner” of Williams Academy but declined to give specifics.
As both director of the Accelerator and co-owner of a small business, Lakesha Mathis sees the direct link between the anemic flow of funds to Black-owned businesses and the subsequent dearth of wealth that can be handed down generationally in Black families.
A report in American Progress, using information from the Federal Reserve Bank, showed that in 2019 the average amount of “liquid assets,” those that can easily be converted into cash, were four times greater in white households – $50,301 – than in Black households – $12,592.
Nearly 21% of white households included a business owner, compared to 5.5% for Black households. That’s significant because Black entrepreneurs who have employees tend to hire Black people.
“How we impact the wealth gap is to increase our capacities as individuals and business owners to earn more resources,” said Mathis, co-owner with her husband of List Towing. “When we don’t have the funds to put the proper systems in place, to hire and pay people, our companies are limited in their ability to earn revenue. Therefore, the wealth gap stays. So the goal … for the businesses that we work with, is to become employers, because that’s where the real revenue, the real money in most businesses exists.”
The COVID-19 pandemic, which pummeled market segments with high concentrations of Black-owned businesses such as retailing and hospitality, made a bad situation worse.
At least 40% of receipts from Black-owned businesses are concentrated in just 30 U.S. counties, according to the Federal Reserve Bank of New York. That’s about 1% of all counties in the nation. Roughly two-thirds of those counties – 19 of 30 – are areas with the highest numbers of COVID-19 cases, according to the Fed.
Following the videotaped murder of George Floyd in 2020, as protestors took to the streets, some of the nation’s largest companies issued pronouncements committing millions to bolster Black businesses, some of which already is in the hands of entrepreneurs.
In June 2020 the company then known as Facebook [now Meta] committed $200 million to support Black-owned businesses and organizations. That included $75 million in cash grants and ad credits to support Black-owned businesses and nonprofits that serve the Black community.
All grants from the Black-owned business program have been distributed to more than 10,000 small businesses across the country and the program is now closed, said a Meta spokeswoman who did not have a breakdown of the grants by state.
Since its inception about 10 years ago, Arch Grants has provided grants to at least 30 Black-owned or Black-led companies – money that did not require the founders to hand over an ownership stake.
Last year, grants went to at least eight Black-owned companies including Bask & Bloom Essentials, a beauty brand focused on multi-textured curly hair; Equalizer Games, a sports and education AI software platform that uses virtual coaching and interactive training to help athletes improve player IQ and PlaBook, a technology company that uses artificial intelligence, natural language processing, and speech recognition to help children learn to read more effectively. The companies are either based locally or commit to grow in the St. Louis area.Last month, in honor of his civic leadership and community involvement, St. Louis couple John and Alison Ferring announced plans to commit to five years’ worth of funding to continue Arch Grant’s Donald M. Suggs Excellence in Entrepreneurship Award. Suggs is publisher and executive editor of The St. Louis American.
The Ferrings pledged an additional $500,000 over the next 5 years to continue the “Donald M. Suggs Excellence in Entrepreneurship” award, with the request that the grants are all awarded to Black-led companies that are determined through our process to be best-in-class.
The application process for 2022’s Arch Grants begins March 18 and closes April 15.
Funds from organizations such as Arch Grants pump money into businesses without the pay-back and interest requirements of a loan and without the equity stake required by most venture capitalists.
But the grant model, which usually involves assistance in the thousands of dollars, may not be an option for growing Black-owned businesses seeking a larger infusion of cash.
“The challenge is if you’re a $10 million or $15 million revenue company, with the opportunity to grow to a $30 million revenue company, but you need $5 million, there are very few if any grantors out there standing around, writing $5 million grant checks,” said Sandra M. Moore, chief impact officer and managing director at the St. Louis-based investment advisory firm Advantage Capital.
“You’re expected to grow, but you started behind the eight ball,” she added. “So you hit a wall. You get to a point where there aren’t any grants.”
Last month, Advantage Capital, in partnership with the National Minority Supplier Development Council’s Business Consortium Fund, announced the launch of a fund dedicated to providing access to growth capital to minority-owned businesses through methods including loans.
Moore said the program, which includes backing from major lenders including U.S. Bank and Midwest BankCentre, is designed to avoid some of the common pitfalls Black entrepreneurs find when approaching the local banker, including thin reasons for rejection and onerous terms if the loan is granted.
“All the data says that minority businesses are … evaluated differently,” Moore said. “When they do get the loan, they generally get a lesser percentage than their white counterparts, which means they still remain undercapitalized.”
With the new fund – which Moore said did not yet have a name and fund size that can be publicized – underwriters will look at businesses “through the lens of what they’re going to do in the future as opposed to what they are, what they’ve done in the past as opposed to where they are right at the moment.
“You can apply the investment criteria in a way that takes into consideration things that we would not ordinarily take into consideration so that you can structure an investment in a way that’s going to help them grow.”
Fund organizers expect to start deploying capital to minority-owned businesses in the next few months.
No one interviewed by The American expects the problem to be solved in short order. Mathis said she’s seen more conversation about solutions than actual solutions.
Some entrepreneurs have turned to revenue-based financing like that offered by Toronto-based Clearco, which uses application-evaluating AI that doesn’t discriminate based on face recognition, industry or product, a spokeswoman said.
Meanwhile, Williams said he and his team have been “applying for grants like crazy.”
“It took us so long, from 2019 to January 2022, to get operational,” said Williams, fresh from his successful effort to get a toddler to nap. “We just were not funded correctly.”
Karen Robinson-Jacobs is The St. Louis American / Type Investigations business reporter and a Report for America corps member.