Advantage Capital establishes Empower the Change Fund to aid minority businesses
25th April 2022 · 0 Comments
By Fritz Esker
Contributing Writer
The Empower the Change (ETC) growth equity fund is about to be launched with the sole goal of providing capital to minority-owned businesses.
Sandra Moore, managing director of Advantage Capital, said that before the COVID-19 pandemic began in early 2020, minority-owned businesses were on the fastest growth trajectory of any sector of business growth in America. But once the pandemic struck and restrictions began, the effect was devastating on minority-owned businesses. According to Moore, 41 percent of these companies went out of business by the summer of 2020.
“Some people start with this as a race issue, but it’s really an economic issue that shows up in a racial way,” Moore said.
The Federal Reserve Bank of New York released a study on the subject in August 2020. It found the number of active business owners dropped by 22 percent in America from February 2020 to April 2020. This was the largest such drop on record. But for Black businesses, the drop was even starker – 41 percent. Latino business owners dropped by 32 percent and Asian business owners dropped by 26 percent. The number of white business owners dropped by 17 percent.
The combination of this disturbing trend and the civil unrest following the George Floyd murder in Minneapolis led Moore and the rest of Advantage Capital’s leadership to wonder what they could be doing to help minorities in America at that time. Moore believed the unrest was also partially caused by the build-up of economic injustice over the years.
“There was a lot of angst around the fact that there’s not the same economic growth opportunity in minority neighborhoods,” Moore said.
As a result, Advantage Capital created the ETC fund.
The goal of the fund is to provide capital and business support to small, minority-owned businesses that are staying alive but can’t get to the next growth level. The money will not be used to start new businesses. Moore estimates that the ETC fund will distribute funds of $3-4 million to between 40-50 businesses over the lifetime of the fund.
Moore said this kind of assistance is critical to minority businesses.
“As a general rule, entrepreneurs of color come to the table with 1/7 the personal wealth (of white entrepreneurs),” she said. “If you start off behind the eight ball, it’s very hard to catch up and excel.”
While the fund was created in response to COVID-19 hardships for minority-owned businesses, Louisiana business owners have faced additional hardships since 2020: Hurricanes Laura and Ida. Businesses were already struggling to stay afloat amidst shutdowns and restrictions, and under these conditions some businesses suddenly found they needed to repair hurricane damage as well.
Klassi Duncan, vice president of the Center for Entrepreneurship and Innovation for the Urban League of Louisiana, said the Urban League helped minority business owners apply for PPP (Paycheck Protection Program) and EIDL (Economic Injury Disaster Loans).
“They (minority business owners) have had a difficult time receiving funding to recover quickly,” Duncan said.
The Brookings Institution used data from the 2018 Small Business Credit Survey to learn that large banks approve about 60 percent of loans sought by white small-business owners, 50 percent of those from Latino small business owners, and only 29 percent of those sought by Black small business owners.
“Access to capital remains one of the key barriers to growth of Black-owned businesses,” Duncan said.
Duncan said some of the issues facing minority business owners are systemic and should be addressed via legislative action. But she said educational programs (which the Urban League provides) can help prepare Black entrepreneurs to receive loans. By teaching financial literacy, these programs can help aspiring minority business owners be knowledgeable and prepared heading into a meeting with a loan officer.
Moore said it’s often a vicious cycle. Minority entrepreneurs do not have as much equity, so they are only allowed to access smaller loans, often with less favorable borrowing conditions. Moore added the ETC fund will help these businesses by investing in them under terms and conditions that “meet them where they are.”
For example, Moore said the ETC fund may be able to credit them with more value for their collateral than they might get from a bank.
The fund’s limited partners include: Antra, Busey Bank, Carrollton Bank, First Bank of the Lake, Midwest Banking Center, Society of Human Resource Management, Southern Bancorp, Truist Bank, and U.S. Bank.
“The Empower the Change Fund allows investors to participate in providing flexible capital to entrepreneurs of color at scale,” said Henry Childs, the chief fund manager of the Business Consortium Fund, in a press release. “The goal is to create generational wealth both for minority business owners and the communities in which they live.”
Moore said the ETC fund will start distributing money in the next few months. She said any minority-owned business that thinks it could qualify for the fund should contact Advantage Capital directly. There are no geographical limitations for potential applicants. Moore said it is not currently known whether or not ETC will continue after the initial funding period ends.
Editor’s note: The print version of this story used the term grant when referring to the disbursement of the funds. The ETC fund is not a grant program; it is a flexible risk capital fund.
This article originally published in the April 25, 2022 print edition of The Louisiana Weekly newspaper.
