Philadelphia community aid groups and commercial banks have teamed up to fund a new loan program for black and brown business owners, who have long been denied loans and investment funds to help their businesses to expand, with the goal of lending $100 million over the next four years.
The Philadelphia Growth, Resiliency, Independence, Tenacity (GRIT) fund has so far received loan and grant commitments totaling $13.5 million, according to Varsovia Fernandez, executive director of the Pennsylvania CDFI Network, which helped organize the new fund.
“This is the first phase of a four-year program,” she said Tuesday. “We believe this is the only such program in the country where banks have come together to collectively work together for the good of black and brown small businesses,” Fernandez added.
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The new fund is the brainchild of about 30 financial institutions, including the Federal Reserve Bank of Philadelphia and the Urban Affairs Coalition, who joined the Greater Philadelphia Chamber of Commerce’s Recharge and Recovery initiative to help mitigate the impact of the pandemic on small businesses.
The group formed the Greater Philadelphia Financial Services Leadership Coalition last spring.
“Despite efforts over the past year, the assistance provided to small businesses has not met their needs, particularly for minority businesses,” said Dan Betancourt, president of the Pennsylvania CDFI Network and CEO of the Community First Fund. “This effort is unique – we are not aware of financial institution executives meeting on this scale.”
The money will first be disbursed through 11 community development financial institutions, known as CDFIs, which the federal government has used to distribute Paycheck Protection Program money and other emergency programs during the pandemic.
The CDFIs will receive the money first and then make about 1,000 loans over the next four years.
“Many small businesses lack trust in financial institutions,” Betancourt said. “We help them connect with the mainstream of finance over time. This confidence building is important.
Loans vary in size and duration.
“More flexible terms help prepare small businesses better,” said Sue Lonergan, director of middle market and specialist commercial lending for Fulton Bank and co-chair of the group.
“To provide these loans, CDFIs must maintain a healthy balance sheet. Typically, banks don’t support these organizations, so it’s unique to this program,” Lonergan said. “Coming together in this way to support CDFIs is a new model for us and we hope to expand it over time.”
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So far, the effort has attracted regional banks such as Customers Bank, Univest and WSFS, and deposit-taking institutions for the underserved such as Asian Bank and United Bank of Philadelphia. Major institutions, such as Bank of America, Citizens Bank and PNC Bank, committed capital directly to individual CDFIs, but details were not available.
Details were also not yet available on how and when companies could apply.
“Some [banks] have committed to multi-year grants, and that capital will grow over time as CDFIs make loans,” Fernandez said. For example, a small CDFI “may take $2 million this year from the bank, take it out in 2022, and then take another $2 million. A large CDFI can take $5 million, take it out, and then take more.
Smaller CDFIs will get the money first: Beech Capital, Entrepreneur Works, Enterprise Capital, Women’s Opportunities Resource Center, Impact Loan Fund, Neighborhood Progress Fund and VestedIn. These will receive $10 million in capital for loans and more than $1 million for balance sheet, operational capacity and technical assistance, including professional advisory services provided by 100 Chamber of Commerce volunteers.
In the next phase, the Community First Fund, the IPDC and the Reinvestment Fund will receive money from the new fund.
For small business owners, a loan from a community development financial institution can be the difference between surviving or failing. Trina Worrell-Benjamin, owner and founder of TWB Cleaning Contractors, secured her first loan from Beech Capital, which “helped us stay in the business of commercial cleaning, construction and public spaces.”
“Being a minority and a small business, a critical aspect is access to capital. Often, at first, it is difficult to access them. Beech has been a source of advice and financial stability for us. As black business owners, we have encountered many challenges. We needed equipment, payroll, employee training. And with Beech, we were able to guarantee that.
Founded in 2014, TWB Cleaning won a major six-figure cleaning contract two years later, Benjamin said. “I went to credit unions, banks, tried to get a loan on the contract. To my surprise, I was turned down,” she said. “I spoke to Beech Capital, and even though my credit rating was low… They gave me a loan and a year later we got another deal.”
Despite having the second-largest black population among a group of comparable cities including Atlanta, New York, Boston, and Washington, Philadelphia had the fewest black-owned businesses per capita, with 1.8 businesses to 1. 000 black residents, according to a Downtown District Analysis of 2018 U.S. Census Bureau data. Philly had 21.6 white-owned businesses per 1,000 white residents, compared to 3 Hispanic-owned businesses and 1.8 businesses black-owned per capita. Among all racial and ethnic groups, the highest rate of business creation was among Asians, with 30 businesses per 1,000 Asian residents.
Money for GRIT loans will come from two main sources: contributions from banks and the Frances P. Kellogg Fund of the Philadelphia Foundation.
The Pennsylvania CDFI Network will decide how the funds will be disbursed; the network manages the program and will distribute the reports and operations to the CDFI.
Banks can also provide investments in the form of loans directly to CDFIs. For example, a CDFI may take $2 million in capital and then lend to the small business. CDFIs take capital based on the capacity of their balance sheet and their ability to obtain loans.
The Philadelphia Inquirer is one of more than 20 news outlets producing Broke in Philly, a collaborative reporting project about solutions to poverty and the city’s push for economic justice. Find all our reports on brokeninphilly.org.