By Like many U.S. cities, the majority of Detroit’s residents are people of color. Unlike many cities, more than 50,000 own small businesses, making Detroit the fourth largest city in America for entrepreneurship by individuals of color. Though they are major drivers of economic growth in the area, Detroit’s entrepreneurs of color struggle to secure the financing necessary to start or grow their businesses. And the pandemic has made it worse.
According to a recent national poll conducted by Small Business Majority, small businesses owned by people of color are struggling. Nearly one in four entrepreneurs of color (Black, Latinx, Asian and American Pacific Islander business owners) may lay off employees permanently in the next few months, compared to 14% of white small business owners. Eighteen percent of Black and Latinx business owners say they are likely to permanently close their business in the coming months, compared to 14% of white small business owners.
The survey also found that businesses owned by people of color are experiencing major revenue loss. Because of the pandemic closures and economic downturn, about one-third of businesses owned by people of color (32%) have cut employee hours and 24% have temporarily closed their doors. Of those who reduced staff at the height of the downturn last year, 60% have not restored their headcount to pre-pandemic levels.
A recent University of Michigan study found that non-Black business owners were 30 times more likely to share in the federal relief money than their Black counterparts. Roughly 0.3 percent of Black business owners reported receiving government benefits for businesses affected by the pandemic, compared with about 9 percent of non-Black business owners.
Click on the images to expand and to read about the entrepreneurs. From left to right: Angel Paris, owner & CEO of Power, Lighting and Technical Services Inc., Adrienne Bennett, president & CEO of Benkari LLC and Dana White, owner of Paralee Boyd Salon
For all Detroiters to thrive, families must be able to support themselves and communities must be equitable places of opportunity. In 2015 the W.K. Kellogg Foundation (WKKF) developed and launched the Entrepreneurs of Color Fund (EoCF). The EoCF provides loans from $50,000 to $200,000 and customized pre- and post-loan technical assistance—such as assisting borrowers with their business plans, marketing, financial projections, accounting, public relations or one-on-one business assistance—and is administered by the non-profit Detroit Development Fund (DDF). By targeting people and places that may otherwise be unable to access funding, the EoCF helps to chart a more racially inclusive Detroit and encourages critical economic opportunities for Detroit entrepreneurs of color, their families and their communities.
of Detroit’s population are people of color
entrepreneurs of color in Detroit
denial rate for financing for entrepreneurs of color vs. 16% for white entrepreneurs
"The Entrepreneurs of Color Fund has absolutely been a game-changer for us. Now we have the capital to run our company more efficiently. With our line of credit, we have not only been able to purchase specialized equipment, but also pay suppliers even when we are waiting to get paid ourselves, which, as a contractor, is tremendously important."
How the Entrepreneurs of Color Fund Promotes a More Equitable Community
The EoCF has loaned more than $10 million to entrepreneurs throughout Detroit as of December 2020. Of those loans, 97% of the borrowers are people of color and 55% are female. The loans have helped create and retain more than 1,100 jobs.
Seeded 2015 with a $3.5 million investment from WKKF and a $3 million investment from the JPMorgan Chase Foundation, the EoCF has proven so successful that it has nearly tripled in size to more than $22 million.
Businesses owned by people of color are struggling amid the COVID-19 pandemic and subsequent economic downturn. Detroit Development Fund (DDF) has responded by offering small emergency loans and grant funds to businesses that were directly impacted and may have a short fall. Ninety-seven percent of DDF loans go to support businesses of color.
Lessons Learned from entrepreneurs of color fund
- Program-related investments (PRI) are most effective when structured flexibly to allow the organization to adapt to changing needs and opportunities.
- To maximize impact, leverage interest-bearing investment tools, such as a PRI, to support income-generating activities and reserve grant funds to support non-income-generating activities, such as technical assistance.
- Pre-loan and post-loan technical assistance meaningfully empowers borrowers. Local, established partners are critical to reaching target populations.
97%
of borrowers are people of color
55%
of borrowers are women
1,100
jobs have been created or retained
The Terms of Our Investment
Approximately 85% of WKKF’s initial $3.5 million in funding is a program-related investment (PRI) in the form of a 10-year, unsecured loan with a 1% interest rate, including $2.25 million for small business lending and an additional $750,000 to capitalize a loan loss reserve.
The remaining $500,000 is a traditional grant supporting pre- and post-loan technical assistance –a critical component of the EoCF that does not generate income.
Through the PRI, impact increases by recycling investment dollars while also reducing DDF’s capital costs. In 2016, WKKF made a $1 million grant to support additional technical assistance and in 2018, WKKF made an additional $2 million PRI in the Fund, again as a 10-year, unsecured loan with a 1% interest rate.
Related Links
- Small Business Lending in Michigan Promotes Equity and Spurs Growth
- Flexible relief for business owners of color in Grand Rapids
- Closing the racial wealth gap, one investment at a time
- Promoting thriving families and equitable communities through small business lending in Battle Creek
- Battle Creek accelerates opportunities for small businesses
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