Black-owned businesses still face headwinds in obtaining capital

The state of black business, which finds that access to capital is one of the biggest obstacles for black entrepreneurs trying to grow businesses more than any other demographic. Megan Casella joins us now with more. Megan Hey, Leslie. So we are here at D City Smokehouse, a black-owned business in Washington that just expanded to its second location last year. But its owner, Melvin Heinz, says he would like to grow even further. But he’s lacking the access to the capital that he needs in order to do that. So after seeing his revenues grow some 20 to 30% year after year for more than a decade, Heinz applied last year for a $100,000 loan. But he received only $45,000. And that remains the only large loan that he’s received from a large bank. We’re going to continue to grow. But you know the having that capital, having that access to funds at any time, it just helps. It just it just helps you sleep better at night. Now, a new report out this week shows that Heinz is not alone in this. The Alliance for Entrepreneurial Equity found that more than 2/3 of black business owners who applied for a loan last year were either completely or partially denied. That compares with about 44% of white business owners. And it’s a big reason why just 2.5%, just 2, 1/2% of all US businesses are black-owned Now. Black business owners like Heinz say they have to become accustomed to hearing no when asking for capital and they increasingly have to lean on alternative forms of finance. There’s an expectation quite frankly, of being rejected for the loan or for financing opportunities, not getting that venture capital opportunity etcetera. So when you do push through, it really is extraordinary because it’s not expected. Now for Heinz. Just this week, he’s been meeting with the local Initiative Support Corporation, and he’s hoping that their Black Restaurant Fund, launched in partnership with Uber Eats, is going to help him pull the money to launch a food truck this summer. Guys. Oh, fascinating. Megan, thank you. Mark, your reaction to Megan’s report. I know that there are reforms in place for the Community Reinvestment Act which is aimed at helping borrowers in in part in this demographic reach that access to capital. Do you think that the rules in place go far enough? Well, let me say this, I appreciate that report and for highlighting a great DC based restaurant, but also highlighting the fact that notwithstanding the incredible entrepreneurial if you will, instinct and desire in Black America amongst Latinos, women and other historically left out communities, access to capital remains too elusive. So the Community Reinvestment Act is an important tool, but some in the financial services have sought to stop a rewrite of the Community Reinvestment Act by way of a federal lawsuit. So it’s disconcerting that all of this hent up economic potential amongst these businesses is on the sidelines and the capital markets from venture capitalists and others. Banks and others in some instances do not recognize the great potential. Think of initiative like the fearless fund which sought in a very modest way to create more capital access for women owned businesses. They are being sued too. So the important thing I would hope that those in the capital markets who may be listening may understand the great potential, the emerging market, emerging markets, the chance for profitability and economic growth lies within the borders of the United States of America. Amongst these businesses owned by African Americans, owned by Latinos, owned by first generation business owners. It’s tremendous potential for the economy and we have to recognize that while regulators have to do a better job in dealing with the continuing discrimination in the marketplace and financial services companies that made commitments in some instances after George Floyd must continue those commitments. This is all about economic growth, It’s about jobs. It’s about those things that we all talk about here on CNBC, growing the economy. Yep. It’s an important story indeed when we will continue to follow. Marc Morial, thank you for being here on a whole variety of topics today. Appreciate it. Thank you very much for having me.