This week in Present Value, ESI’s Lee Huang (LH) speaks with local leaders to identify how they are helping people access capital, overcome barriers, and create thriving communities.
LH: Markita, let’s start off with you, who does Compass Working Capital serve, what barriers do they face in accessing capital, and how do you help them overcome those barriers?
Markita Morris Lewis, Chief Strategy Officer for Compass Working Capital (MML): Our nation’s anti-poverty programs have historically done very little to support families with low incomes to build assets. In the United States, we have historically measured and addressed poverty in terms of income. For families in our housing and public welfare systems, rules actually discourage and penalize savings, making it difficult for families to get ahead. For the past nine years, Compass has focused its efforts on developing and expanding an asset-building model for HUD’s Family Self-Sufficiency (FSS) program, a promising but underutilized employment and savings program for families in federally subsidized housing. The Compass FSS model combines the program’s powerful savings account with high-quality financial coaching and other asset-building strategies in order to drive stronger financial outcomes for participants.
LH: Lou, from your vantage point as chair of the Greater Philadelphia Hispanic Chamber of Commerce, how is the region doing in providing equitable access to capital? What are members saying are barriers in accessing capital, and what is the Chamber doing to help them overcome those barriers?
Louis Rodriguez, CEO and founder of Rodriguez Consulting LLC and Chair of the Greater Philadelphia Hispanic Chamber of Commerce (LR): The chamber provides three things: relationships (B2B, business to government, etc.), resources (banking, insurance, benefits, etc.) and advocacy. We maintain strong relationships with banks and SBA lenders like Finanta and Community First Fund and utilize these relationships to connect the dots. Having relationships with people on the other side of the table is advantageous to members that are seeking capital.
LH: Van, you recently took your organization through a renaming and rebranding. What does True Access Capital mean, and why was it important to make these changes?
Vandell Hampton, President and CEO of True Access Capital (VH): We operated as First State Community Loan Fund for nearly 30 years. That name is pretty specific to Delaware, which often calls itself the “First State.” But about a year ago we decided to take a hard look at ourselves and how we present our business case to customers, funders and others. Our mission of serving low-income, women, minority, and other underserved clients with technical assistance and access to capital hasn’t changed; but over the years, so much about the way we work, and the scope and scale of our operations has changed. We’re bigger, we serve more clients, and our growth plans expand well beyond Delaware. We think [True Access Capital] does a better job than the old name at signaling what we do and how we do it, it’s more customer and outward facing and less institutional sounding than the old name, and it certainly doesn’t limit us to Delaware.
LH: What kind of deals are you looking for in Philadelphia? What are some early examples of successful financings?
VH: Right now, we support small and micro-businesses in Delaware and in Bucks, Chester, Delaware, Montgomery and Philadelphia Counties. We’ve lent over $40 million to more than 1,300 borrowers in these markets, but we’re definitely looking to grow that portfolio in these and other markets around the region. We’re looking for deals that many others might avoid. True Access Capital supports deals that don’t qualify for traditional funding. Sometimes that means it’s a business idea that really is just a concept, or a proposal to enter a risky category like a restaurant or a retail store. Other times the business owner has some credit challenges. We’re also looking to help women and minority-led companies that need to get a foothold, especially in low-income areas.
LH: Della, what’s the vision behind the new equity fund, and how does it represent a natural outgrowth of your almost 30 years of work at The Enterprise Center?
Della Clark, President of The Enterprise Center (DL): The Enterprise Center is proud to have served minority enterprises over the last 30 years. As we celebrate this special year, we are resetting our focus on capital and becoming a team of specialists in growing, merging, and scaling minority enterprises. This enhanced vision is simple: pry open the floodgates to capital access for minority enterprises to significantly scale. To spark new entrepreneurial leaders for our region, we will partner to secure blended capital (both equity and debt). This capital to these CEO’s will support their investments in their own communities and contribute their business impact toward economic stimulus.
LH: What barriers do entrepreneurs of color face in accessing capital, and how does your equity fund help them overcome those barriers?
DC: Entrepreneurs of color face deeply entrenched problems that manifest in a variety of ways. Several examples include: traditional financial institutions that overlook minorities because they have lower credit scores (often a result of lower wealth levels) or are over leveraged; minority business owners that have liquidity issues and/or expensive debt through factoring, predatory lending, and A/R providers; and black and Latinx founders who receive less than three percent of venture capital in the U.S. Beyond capital barriers, minorities are less likely to have the personal, professional, and industry networks to support starting, growing, and scaling their enterprises. The sum of these problems is an ecosystem that both prohibits and squanders the talent and innovation of minority entrepreneurs and enterprises everywhere. [We] will offer equity capital that will have non-controlling and flexible terms that allow the entrepreneur of color to focus on growth versus being a risk manager of a capital stack comprised of only debt.
LH: Brittany, what is the annual study that ESI and MFR do for the Office of the City Treasurer, and why is it a City requirement to commission and publish such a report?
Brittany Forman, Director at Econsult Solutions, Inc. (BF): Philadelphia was actually on the cutting edge in enacting about 15 years ago what are now referred to as “responsible banking ordinances.” Which is to say, that a large municipal government can use its size as a banking customer to request of participating institutions that they are subject to an annual evaluation of home lending, business lending, and bank branch decisions.
LH: The most recent study covered Calendar Year 2017 data. What were the key findings?
BF: First, we’ve recommended that the City monitor subprime lending levels, which after plummeting after the most recent recession are now rising again, particularly among borrowers of color. Second, we’re in the middle of an extended economic expansion, and we’re seeing commensurate increases in business lending activity, although our poorest neighborhoods continue to lag in terms of proportion of business loans going there relative to the proportion of businesses located there.
LH: Lou, from your vantage point as an entrepreneur, what is the role of capital access (both personal and business) in achieving your business aspirations?
LR: It’s extremely important. In order to grow most businesses you need two things: people and financial resources. I had a personal relationship with a local start-up bank in New Jersey when I started my company. That relationship helped me gain access to a larger line of credit with better terms than I was able to receive from any of the major banks. That line of credit allowed me to hire employees and purchase the equipment necessary to perform the services required by our clients.
Andrew and Frank, what about for MFR?
Frank Linnehan, Senior Director of Corporate Strategy and Andrew Speizman, Chief Financial Officer at MFR Consultants, Inc. (FL & AS): Disparities in capital access such as credit lines and small business loans for business owners from under-represented groups, women and lower income neighborhoods will eventually adversely affect the survival rates of these businesses, and fewer and fewer small businesses owned by members of underrepresented groups and women will survive. If this occurs, it will discourage others to start their own businesses and thus lead to a cycle of decline in women and minority owned businesses.
LH: What is needed from a policy standpoint (at the local, state, and/or federal level) in order to level the playing field for all?
MML: Create opportunities for families to build assets as part of our nation’s anti-poverty strategy. Remove asset limits from public benefit programs. [And] change the narrative about families living in poverty. Families experiencing poverty possess ingenuity and creativity and are the best authors of their own lives. We know that families are going to use the resources they have available to make decisions that are best for their family. Programs should not dictate how they engage with services and how assets are used. Families should have agency to determine the best way to deploy those resources and we must ensure they have real and unfettered access to safe and affordable financial products and services so that choices are meaningful and not influenced by financial predators.
VH: Capital demand is especially high in the African American community, where clients don’t always have access to generational wealth or have not grown up in circumstances where they’ve been exposed to basic business principles. This racial wealth gap is real, and because banks are typically risk adverse, many of these people just can’t access conventional sources of capital. Those situations are typically a sweet spot for True Access Capital. But small business lending is risky and difficult. Twenty percent of these businesses will fail in the first year, and as many as 50% will be out of business by the fifth year. But when we do it right–and we get it right more often than not—the payoff for the borrower, for the community, and for True Access is exponential. We’re talking about an increased tax base, job creation, economic revitalization, and creating a foundation from which families can build generational wealth.
FL and AS: There is a need for additional studies of capital access to ascertain the true impact of lending disparities across income and racial groups on small business creation, sustainability and growth. This will require more detailed reporting requirements that make additional lending activity data available (including data at the individual borrower level) to local, state and federal levels of government.
DC: The payoff for our region would be huge if we focused on combining capital, contracts and capacity to scale minority enterprises. The end result will impact community wealth and at the same time, reduce community poverty.
Our interviews were edited and shortened for the purposes of this blog post. Below you will find links to our full Q&A’s with each interviewee.
A Conversation with Compass Working Capital’s Markita Morris-Louis
One-on-One with The Enterprise Center’s Della Clark
A Q&A with True Access Capital’s Vandell Hampton
Thoughts on Responsible Banking from MFR’s Andrew Speizman and Frank Linnehan
Meet the Contributors:
Della Clark is President of the Enterprise Center – an organization at the forefront of its region’s entrepreneurial ecosystem, guided by the mission to cultivate and invest in minority entrepreneurs to inspire working together for economic growth in communities.
Brittany Forman is a Director at ESI. Ms. Forman leads projects in the areas of community and economic development, municipal consulting, economic inclusion, and nonprofit management. She helps clients assess budgets and policies, evaluate programs and operations, conduct stakeholder outreach, and quantify economic impacts.
Vandell (Van) Hampton Jr., is the President & CEO of True Access Capital (formerly, First State Community Loan Fund) and he has served in this position since 2004. True Access Capital is a federally, certified, Community Development Financial Institution that specializes in providing loan capital and technical assistance to women and minority-led companies and small businesses located in low-income communities.
Lee Huang is Senior Vice President & Principal at ESI. Lee brings over 20 years of experienece in economic development to his public, private, inistitutional, and not-for-profit clients. His economic inclusion work has included analyses of the utilization of minority- and women-owned businesses in municipal contracts in Philadelphia, as well as examinations of home lending, business lending, and branch location patterns in Philadelphia, Washington, DC, and New York City.
Frank Linnehan is the Senior Director of Corporate Strategy at MFR Consultants, Inc. Dr. Linnehan has extensive experience in both the financial services industry as well as academia where he recently retired as Dean of the LeBow College of Business. Dr. Linnehan has previously testified before Philadelphia City Council regarding Fair Lending Practices.
Markita Morris-Louis proudly serves as Chief Strategy Officer for Compass Working Capital, a nonprofit financial services organization whose mission is to make asset-building the norm in our nation’s anti-poverty strategies. Markita oversees Compass’ Philadelphia-based work with the Philadelphia Housing Authority and leads Compass’ national strategy for scale and impact.
Lou Rodriguez is the CEO and founder of Rodriguez Consulting LLC (Rodriguez), an award-winning professional engineering and land surveying firm which he founded in 2007. He is passionate about small business and community and serves as Chair of the Greater Philadelphia Hispanic Chamber of Commerce (Chairman) and Board Trustee of Widener University.
Andrew Speizman is the Chief Financial Officer and Director of Financial Consulting Services at MFR Consultants, Inc. Prior to joining MFR Consultants, Mr. Speizman had over 25 years of finance and operations experience in Commercial Real Estate. Mr. Speizman has been involved in the Fair Lending project over the past four years.