June 7, 2022: Managing Director's Remarks to Lakeshore Ethnic Diversity Alliance [Abridged]
Thank you, Lakeshore Ethnic Diversity Alliance for creating an inclusive community for all.
I understand this session is a first in your history: A topic on economic racial equity that I am glad to deliver because one of the four ways to achieve racial equity for people of color aside from education, homeownership and public policy----entrepreneurship is one of the four ways to realize racial equity.
Unfortunately, either because entrepreneurship can be too liberating for marginalized communities, or some in society have negative views of profit, capitalism or business----entrepreneurship sometimes is overlooked.
I appreciate LEDA for the invitation to speak about economic racial inequity, and more importantly, the solution that Rende Progress Capital brings as a new entity to the local market in only our fourth year.
Let us begin with my usual candor and directness on issues of finance and race---in this case my three beliefs that are the foundation of my business work, being a conscious capitalist and starting Rende Progress Capital:
First, capitalism has been the most successful economic system the world has ever seen, and it has put people on the path to security, wealth, and health.
Second: However, capitalism has had---and still has---shameful flaws. Namely, it was birthed, developed, and flourished in America because of chattel slavery and before slavery---the exploitation of First Americans or Indigenous Americans otherwise known as Native Americans.
Third: Despite this reality---my late grandfather who created some of his own jobs, along with my mother---encouraged me as a child to start my own businesses and reform this capitalist system---not withdraw from it.
Therefore, my conclusion and commitment is this: That capitalism is a horrible system----except for any other system. And that everyday my work is to indict capitalism, be inspired by it, identify its barriers, guard ourselves in the exploitative aspects of it, and maximize its benefits for personal and community success and wealth for all---but specifically people of color.
So, thank you for attending this presentation on Economic Equity - Building Wealth for Excluded Entrepreneurs of Color
I will share more later on our detailed mission and work, but Rende Progress Capital is the nation’s only racial equity loan fund and emerging Community Development Financial Institution committed to economic equity by providing small business loans and business technical assistance services to Excluded Entrepreneurs of Color----African-American, Hispanic, Latinx, Asian, Native American and Immigrant owners of emerging and established businesses who face documented social and financial barriers to acquiring conventional loans because of bias and racial inequity.
Since our first operational year in 2018 to now, we have been a racial equity loan fund, one of 22% of Community Development Financial Institutions in the country that are founded and managed by people of color, one of 2 in Michigan and the only such entity founded and managed by People of Color on this side of the state.
Why the need to create Rende Progress Capital? Why the need for a mission-based lender and investor to entrepreneurs of color as an alternative to conventional lenders such as banks? Why the need of an alternative lender doing something no conventional or alternative financial institution does----conducting loan considerations and risk management tied to racial equity values?
We formed because of a variety of unfortunate realities:
• There are significant racial disparities in household income. In the United States, there exists a significant racial wealth gap in which the median net worth of white families is between $113,149 to $171,000)---ten times that of Black families at $5,677 to $17,150, and eight times that of Hispanic/Latino families who are between $6,000 to $20,700.
• Among so many inequities and disparities ranging from health to economic mobility, this gap contributes to limits on where we can live or receive education.
• One solution to the racial wealth gap is people of color starting their own businesses-----The Panel Study of Income Dynamics Research showed that African American entrepreneurs are more likely to move into higher income groups than are African American non-entrepreneurs and some Whites.
• The St. Louis Federal Reserve noted that since 2004, families in which the head of the household of color was self-employed had a median net worth five times that of households in which the household head worked for someone else.
So, entrepreneurship is a anti-racial wealth gap tool. However, there are barriers to capital that Excluded Entrepreneurs face:
1. Loan denial rates for minority businesses were about three times higher, at 42 percent-----compared to those of non-minority-owned firms, at 16 percent denial.
2. Even when there are controlling factors such as the business of color having credit worthiness similar to their white peers, the denial rate does not notably change---or the business of color receives a lower amount of dollars on the loan if approved.
3. African-American Business Owners received 8.2% of Small Business Administration loans before the recession. After the recession, they received 1.7% of loans in 2014. Now, there are no direct loans provided by SBA to anyone although it provides loan guarantee programs.
4. Therefore, many businesses led by people of color take out loans at payday lenders with 125% plus interest rates for example.
5. Lastly, another barrier is created. As business owners of color directly experience or even hear news about these continued realities, there is a chilling internalization of such bias.
For example, among one of our Fiscal Year 2017 focus groups---West Michigan Excluded Entrepreneur Group A of 50 business owners of color and another separate Group B-----43% reported that they feel they will be denied a bank loan due to racial bias. Whether they have been denied or feel they would be denied because of racial bias, they response in the following ways:
• They forego loans and stop trying to apply for loans---or withdraw from the market.
• They overcapitalize their business with critical personal money such as income and savings.
• Or, as mentioned, some businesses of color are obtaining predatory loans. In one Fiscal Year 2016 focus group, 23% of Grand Rapids Area Excluded Entrepreneurs of Color reported they used such a lender. Of course, getting such rapid access to money comes with 20%, 30%, 100% or more interest.
These barriers result in Excluded Entrepreneurs of Color having more distrust and cynicism that the free market can be fair. So, these are the problems and barriers to Grand Rapids Area businesses of color face. So how is Rende Progress Capital the solution?
Rende Progress Capital provides small business loans and services to Excluded Entrepreneurs of Color in West Michigan in order to eliminate the racial wealth gap and eliminate barriers to conventional loans they face due to some racial bias.
We also provide expert business technical assistance to our loan customers; loan applicants and limited technical assistance to non-customers who may be applicants in order to strengthen aspects of their business in areas such as accounting systems, pricing, credit and other areas to assist them in being loan ready.
We provide standard lending such as fixed term and line of credit loans and a special COVID relief loan called RACE4Progress.
Our target market for lending and services is Excluded Entrepreneurs of Color---African-Americans, Latinx, Hispanic, Asian Americans and Native Americans.
This is our target market not because of their race but because they statistically face more barriers to bank loans than their white peers as I previously stated.
CDFI’s are alternative lenders with a social mission to provide capital such as small business loans, mortgage loans, farm loans and etc. to specific communities who are unable to access capital from banks. There are about 3,000 CDFIs in the country in the form of loan funds, community banks, credit unions, or venture capital firms.
I formed RPC in 2017 as a W.K. Kellogg Foundation Fellowship project. We were seeded with our first operational funding from W.K. Kellogg, operational and loan capital investments from Grand Rapids Community Foundation.
We launched in late 2017 and made our first loan in Q4 of 2018, a joint loan with Northern Initiatives to Reliable Medical Transport. Since then only our 4th year we have grown in impact, success [awarded Newsmaker of the Year in Finance both in 2019 and 2021 by the Grand Rapids Business Journal], assets, funders and grown in loan deployment.
We have also grown in loan customers---now 34 customers ranging from restaurants like 40 Acres Soul Kitchen and La Casa Del Pollo….retail such as Soldadera Cold Brew Coffee, Last Mile Café and Daddy’s Dough Cookies….health such as Taylor’s Home Care….to technology and media such as Isabel Media Studios and Digital Marketing Solutions.
We also had our first loan customer from the Lakeshore---Knockout Health and Wellness in Muskegon and on Q1 of this year---and as featured in Grand Rapids Business Journal----our second loan customer, Nadine’s Fish Tips and Wings in Holland on 1111 Washington Ave.
Here are some additional areas of impact that we have made:
1. 100% customers are businesses of color and 80% never received a loan before.
2. In Fiscal Year 2020, four RACE4Progress Loan Customers reported to RPC an increase in Number of Employees. Two RACE4Progress Loan Customers reported to RPC an increase in total paid hours to their employees.
3. In Fiscal Year 2021, six RACE4Progress Loan Customers reported an increase in Number of Employees. Five RACE4Progress Loan Customers reported an increase in total paid hours to their employees.
4. Each year an average of Six loan customers report an increase in revenue between 10% to 20% during each year.
5. 50% women of color owned businesses. Previous years, it was high as 66%
6. 26% of our customers are Asian Americans, 34% Hispanic, 6% Latinx and 52% African-Americans.
7. 7% are family owned businesses.
8. Because of grant support allowing us to subsidize the business technical assistance costs, we have provided over 300 Excluded Entrepreneurs of Color with counsel to strengthen their businesses in areas such as Credit, Accounting, Pre-Loan Readiness and other areas.
9. Eighteen of our customers are RACE4Progress Loan Customers. RACE4Progress is our Relief Addressing Covid Exclusion---a emergency relief loan for Grand Rapids Area businesses of color who either did not receive federal, state or local COVID relief assistance---or received less than their White peers. Since then, all 18 of those loan customers are still in business.
I want to share with you that while we conduct lending more progressively than banks---we do so by being guided by business fundamentals, financial fundamentals and portfolio management.
We adhere to such fundamentals even though we are more progressive than banks in providing lending opportunities because we---like all CDFIs---are and must be focused on:
A. High quality management of our capital and financial assets.
B. Managing risk in loan decisions to give progressive opportunities but at the same time prevent loss, hold our customers to financial, legal and social accountability of their loans for mutual benefit.
C. With an intent for RPC to be profitable but not profit maximizing.
These standards added with several of our proprietary systems such as our Financing Approval through Racial Equity system [FARE for short], our portfolio management, our loan officer and other employees, our loan policy and loan committee have contributed to the following:
1. We have deployed almost 50% of our loan capital. So we do not sit on it but we also do not deploy it recklessly.
2. We have only two loans in default status that we are working to bring back active.
3. We have no other 60 or 90 day delinquencies and the few 30 day late payments get resolved before the next month showing that when you give businesses of color a chance, they will do what they do best and service their loans.
So without going into our proprietary systems and practices, this is the How we engage in new ways to address the racial wealth gap through finance and lending:
1. We dedicate 100% of our loan assets to Excluded Entrepreneurs of Color Owned Businesses.
2. Our FARE system---Financing Approval through Racial Equity uses racial equity and racial inequity factors of a business and combines it with our financial and business analysis of an applicant and uses that racial equity and inequity criteria to give more character weight in approving loans.
3. To ensure that we ourselves are not complicit in racial bias, every loan is first considered, questioned, analyzed by engaging in the five step Racial Equity Impact Assessment process used by staff, management, and loan committee before or during considerations of loans to ensure that we are taking into account data and narratives of how our loan decisions can either heighten racial inequity and equity just as much as our loan decisions can heighten risk management and ensure loan repayment.
4. Since our inception, we ideate loan products and business technical assistance with direct engagement and user testing with businesses of color, professionals of color and our customers to ensure that our products and services are created with cultural competency and needs of customers of color whether business owners with families at particular income levels or making products available to undocumented immigrants.
5. A group of key decision makers such as management, loan committee chair and a board represented by professionals of color in business and finance.
6. Connecting customers to contracting and vendor opportunities so that we are doing more than lending---but helping increase revenues for customer profit and intergenerational wealth.
7. Be reflective and careful in using the master’s tools so as not to move closer to the master: Meaning we take standards from financial services such as credit but not use the it as the main picture of applicants---so that it is not a racial barrier which helps us ensure that while we are non-regulated and non-depository, we conduct business activity [not charity] and lending in the same vein and standards of a regulated institution but in a progressive way to give opportunities.
Simply put, we need society to understand and support that we cannot address economic racial inequities with ‘Neutral or Universal Approaches’ of colorblind solutions for all businesses and households and at minimum.
We need to engage still at maximum, Specific Targeted Racial Equity solutions for specific demographics or at minimum, Targeted Universalism where it is a strategy that is inclusive of the needs of both White dominant society and marginalized groups---but the strategy pays particular attention to the situation of the marginalized group.
This is our work and what we have done, and will continue to do. Thank you.