Supporting Detroit Minority Businesses: Access to Capital—Survey Results

RICK MATTOON: Good morning. I'm Rick Mattoon, Vice President and Regional Executive at the Detroit branch of the Federal Reserve Bank of Chicago. I'd like to welcome you to today's Project Hometown panel Supporting Detroit Minority Businesses: Access to Capital—Survey Results. Today's program is another installment in the Chicago Fed's Project Hometown program. Started last year, Project Hometown is dedicated to identifying the strengths and challenges facing the hometowns in our Federal Reserve district.

Our continued recovery from the pandemic will require extraordinary effort and the need to identify strategies for inclusive economic growth. Project Hometown is designed to bring together civic leaders, expert researchers, Chicago Fed staff, and concerned residents and, through these diverse perspectives, we will examine how our hometowns can recover from the pandemic, overcome longstanding inequities, grow stronger, and provide all people with the opportunity to thrive.

This morning's program looks at a critical issue for helping communities restore our economic vitality, namely access to capital for small and microbusinesses. Small microbusinesses, and particularly those owned by people of color, have long had unequal access to finance and have faced higher closure rates. These firms often make up the very fabric of their neighborhoods and support local employment and promote wealth accumulation.

In recent years, many public and private programs have been announced to try and better serve the needs of small and often minority-owned businesses, yet the effectiveness of many of these efforts has been slow in coming. For example, research has shown that in the first round of funding from the Payroll Protection Program, much of this funding failed to reach small and minority businesses. Today, as part of today's discussion, we'll try and understand why the promise of many of these public and private efforts are not fully being realized.

To investigate the financial and capital issues facing these firms, we've examined an all-star panel. So let's jump right in. I now will turn the program over to our moderator, Joe Anderson. In addition to being a civic and business leader, Joe is a passionate advocate for minority businesses throughout Detroit. In his professional capacity, he serves as the CEO of TAG Holdings and also serves as a chairman of the Detroit branch board of the Federal Reserve Bank of Chicago. Joe, thanks for your dedication on this subject. And I'll let you introduce the topic and our panelists.

JOE ANDERSON: Thanks, Rick. Good morning, everybody. I am Joe Anderson, chairman and CEO of TAG Holdings and Chair of the Detroit Board the Federal Reserve Bank of Chicago. It is my pleasure to moderate today's discussion examining conditions and barriers to capital and financing the minority, small, and microbusinesses have faced in Detroit.

Today's program is divided into two sections. First, Dr. Maude Toussaint from the Federal Reserve Bank of Chicago will share preliminary findings from an October survey of businesses in metro Detroit asking them about their experience with obtaining capital and financing before, during, and after the height of the pandemic. The survey pays particular attention to Black and minority-owned firms.

Next, we will turn to an expert panel, who will react to the findings and suggest policies and practices that will need to change to improve these outcomes. Before we turn to the program over to Dr. Toussaint, I wanted to offer a few of my own thoughts on this subject. Minority and, particularly, Black-owned small businesses have long faced unequal access to capital. Historically, these businesses have faced weaker traditional banking relationships that created significant problems in qualifying for capital, even in the case of emergency federal programs, which occurred when the Paycheck Protection Program was rolled out. Early rounds of PPP funding did not find their way to small and micro minority businesses.

This raises several questions. Why have banking relationships for Black and minority businesses been so weak? Are there structural barriers? Is there a lack of trust between minorities, small, and microbusinesses and traditional lenders? A related concern is, do the existing financial products that are in the market reflect the needs of these firms? Are products designed to address the types of capital that are most needed and offer appropriate terms?

A second theme I want to highlight is the importance these small, Black, and minority businesses have in building vital and stable communities. Numerous studies find that Black households have significantly lower savings and accumulated wealth than white households. Healthy small businesses provide a key mechanism where wealth can be built and retained in Black and minority communities. This is critical to economic development of neighborhoods and creating investment opportunities. Supporting the vibrancy of these businesses by ensuring that they have necessary financing and access to capital to build, expand, and sustain their businesses will provide both economic and social benefits.

Moving along now, I would like to turn to the panel. Joining us today are four expert panelists. These complete-- their complete bios are on the website, so I will only briefly introduce them. Each panelist will have five minutes to provide their perspective on this issue, and then we will open things up to discussion. We have already received some questions in advance of today's program and will share these with you as and ask you to provide others in the chat feature on the program website.

Now let's get started with Dr. Toussaint, who will share high level findings from our survey. Maude, the floor is yours.

SPEAKER: Maude, you are on mute.

MAUDE TOUSSAINT-COMEAU: Morning, everyone. Thank you, Joe, for the kind introduction. I'm deeply honored to be part of this panel. And I want to give some quick result of what our preliminary analysis is showing and what we are seeing from our Detroit business survey.

First, just to give a bit of background for why we are looking at Detroit this survey is that the goal of the survey, as Rick has mentioned, is really to help us identify and understand the needs and gaps in financing and resources for all sorts for businesses in Detroit and at different stages of business. So we are interested in looking at startups and more mature businesses. And the analysis from this survey we are hoping is going to help or document the worth and value of those businesses in the local economy and help inform our own policy and decisions that might affect how we could address the needs of businesses in Detroit and other primarily Black communities.

The Detroit market is, of course, a very important market for us to study. There are a lot of entrepreneurial dynamism and interest and effort of having on businesses among minorities and peoples of colors. And small business is very important for minority communities, in that they are an important source of employment and wealth accumulation. And we know that there is a huge wealth gap that is really important for us to help fill, and businesses can help fill this gap.

Yet we know that the business sector and, primarily, the Black business sector in Detroit remain far from reaching parity on several measures, including the number of businesses per capita relative to other places. Even after we control for various neighborhood characteristics, the Black businesses also still face challenges with having access to financing and resources and capital needed to make the businesses more sustainable. Although we know some of that, it's still-- we don't really have a lot of good data to allow us to really address the need and do place-based strategy intervention.

So a survey like this is very important for us. It's very timely. And it's going to be been informative for an institution like the Chicago Fed in its pursuit of inclusive full employment, because it is important for us to account for and understand what is going on with businesses where there may be some market inefficiencies that prevent the local economy from reaching its full employment and economic potential.

So I would like to share weekly five insights that we believe that the preliminary analysis are starting to show. The first have to do with the demographic itself of the survey respondent, which we believe is fairly representative of potentially what's going on in Detroit, so very excited to partner and to work with local organization in order for us to get the sample that is representative of the makeup of the business landscape in Detroit. And so the survey, of course, asked about business financial conditions. We asked about funding during the pandemic. We asked about overall financing access and utilization before and after-- before the pandemic. And then a big chunk of the survey really is devoted to identifying all forms of capital and resource needed and challenges, according to those businesses.

So the first insight we get from the survey respondent thus far is that we are looking at a very dynamic and diverse Black business landscape. Most of our results so far are from Black business owners. And we've seen that the educated-- equal representation of male- and female-owned businesses. And they are in a variety of industries-- retail, professional, but also what we could call, perhaps, urban entrepreneurship services in education, non-profit enterprises, charitable businesses.

And true to form of the national data, we do see that a lot of the businesses for those Black business owners are still very micro, in terms of the number-- many of them do not-- are full proprietary. And we were fortunate to also observe home-based, which is something that we usually do not know about in other surveys. And those businesses are still very low in revenue overall, although our sample still have a range of businesses. But the representative business, so far right now that we're seeing, has low revenue, under $25,000.

Next, we asked about the financial health of the business, and we asked the business owners to score that. And what we're seeing is that, really, the stock is not necessarily great there so far, that close to half of respondents are reporting that they're-- to the question of what's the financial health of your business, they're reporting that it's either fair or not good, which indicate that they could be struggling. And we're seeing that from specific answers regarding how they are operating profit-wise. And they're saying-- the same half are saying that they're operating either at break even or loss.

And then, what we're studying-- we asked, of course, about funding during the pandemic, because access to COVID emergency fund really impacted the survival of the businesses. It's unfortunate that we know that a lot of the Black businesses missed the mark, in terms of first wave of funding. They started getting funding fairly late.

So the survey respondent-- so far, we have not been able to see people who have lost their businesses. Most people who have responded so far still have their businesses. So we are looking at a sample of survivors, which means that we probably are having some overrepresentation of access to funding during the pandemic. And what we're seeing from the sample of survivors is that a very big portion of them, more than 65% of businesses, did apply for COVID-19-related emergency funding.

And primarily, for SBA, PPP, and SBA EIDL, or Economic injury Disaster Loan. We also see some grant from state and local government. And so those applications were made primarily to local banks and national banks with whom the business owners report having had a previous relationship, prior to the application for the PPP. So we also noted some application to fintech and credit unions and CDFI among the respondents.

And most of the application for the sample we're looking at were accepted, so denial rate is very low. Again, that's not really speaking of denial or missed opportunity of funding, et cetera. But we do get a sense that businesses that exist were able to partake in those programs and needed those programs to survive. And those who were not, who did not apply, said that they did not do that because they were discouraged. They didn't think that they were going to get it.

Again, we know this is a legacy of what we see in general, in terms of application for loans. We know that there are a lot of would-be borrowers but who are discouraged. So we did see that, even during this special program, among some respondents. And also, some did indicate that the process was, perhaps, too complicated for them and was too confusing, in addition to they're not thinking they would qualify.

And of course, we asked several questions about the general sort of relationship with external funding and other sources, relative to other sources of funds that business utilized for various purposes. And what we saw was, in spite of the revealed sort of interest in a relationship with a banking institution, which we saw with the special pandemic fund programs and the high application rate, we do see that, in fact, very few of those businesses report having ever-- having utilized external financing three years prior to the COVID. And perhaps maybe 2% so far of the respondents are saying that they have. And most people really have relied on retained earnings and personal and business credit cards, and a few on merchant cash advanced and trade credit to address the various needs of their businesses.

And the last set of areas that we looked at had to do with capital and resource needs and challenges for those businesses. The businesses felt that grants from government were something they were really in need of, but which were still not necessarily met overall. That reveals so far that some of the financial criteria, when it comes to external funding related to the terms of funds, collateral requirement, and interest rates were not advantageous for them. In other words, they didn't think there were good financial term for-- that were met for their business, but that was needed.

They also report non-financial-related resource needs, such as networking and connectivity and references. They say those things are very important for their business, but those support ecosystems are not necessarily fully met. And in terms of challenges, they have identified lack of institutional and government relationship and other institutional barriers and, specifically, barriers related to discriminatory practices in terms of lending, from their perspective, as being extremely challenging. And they also do acknowledge that lack of knowledge of sources of capital on their part could also be a challenge.

So I look forward to continuing getting the voices of the businesses in Detroit to ensure that we are telling a story that is true to the experience of the representative business in Detroit. And we are confident that we would reach this goal with the partnering with great organizations, like the National Business League and others, which is the methodology we've adopted to have this hands-on approach to getting businesses that otherwise we just would not know about and be able to tell their story and address their needs.

And the idea is for us to develop a methodology where we will organize the answers and try to identify priorities and identify gaps in resources and offer insights on targeted responses to address specific needs. And part of offering insight is also at every stage of the survey and, therefore, will not make it just a bland research process but engage in meaningful conversation, like we are having this morning. So I look forward to this morning's conversation.

JOE ANDERSON: Thank you very much, Dr. Toussaint. Now we'll turn to our panel. Leading off will be Dr. Ken Harris, CEO of the National Business League. The National business League traces its roots to Booker T Washington and advocates for Black-owned businesses throughout the United States. Welcome, Ken. As head of one of the largest Black-owned business organizations in the nation, what is your reaction to the survey responses, and what needs to change to reverse some of these findings?

KEN HARRIS: Thank you, Joe, and good morning to everyone. And Dr. Toussaint-Comeau, what a wonderful presentation. Again, I think that alludes to some of the information that we've been looking to validate in a tremendous effort on behalf of the rest of the team at the Federal Reserve Bank. Thank you all so much for this endeavor.

On behalf of the National Business League, the first and oldest trade association for Black businesses in the country, founded by the iconic and legendary Booker T Washington, I bid everyone participating in this virtual forum a warm welcome. As mentioned, I'm Dr. Ken Harris, the National President of the NBL, representing the organization 120,000 members nationwide, and our chapters throughout all 50 states and internationally, and our more than 125 Fortune 500 corporate partners.

This survey with the Federal Reserve Bank of Chicago as, specifically, the Detroit branch is conducting couldn't come at a better time. It has been predicted by CBS News, The Wall Street Journal, and countless other national publications that 40% of Black businesses have either closed their doors permanently or are one or two paychecks away, significantly, because of the pandemic and the racial unrest which exposed the tremendous barriers to capital resources and technology that still exist in the marketplace today, largely excluding Black and indigenous business from pivoting, building capacity, scope, scale in the marketplace to be successful.

The National Business League believes that there needs to be accountability towards Black racial equity of public and private economic agencies traditional banks, fintech companies, credit unions, CDFIs, and, especially, CRA lending institutions and, more importantly, policy-makers, to ensure that these barriers and disparity gaps and the lending practices are eliminated completely, and that the results produced by these banks should be made public, keeping a watchful eye on lending institutions who are successful lending to Black and indigenous populations, and also highlighting those that fail miserably. Accountability should be measured through data and results by the Federal Reserve and third party advocacy organizations that are looking to help their pipelines into the community be successful, in terms of business development.

The National business League was successful in giving out more than $10 million in emergency grant non-repayable assistance to Black businesses, helping more than 600-plus Black businesses receive $5,000 to $25,000 in grants and additional capital needed to help Black business firms and entrepreneurs stay afloat. This was an effort by just one organization. Imagine this as a response from the entire banking marketplace. There were a lot of press conferences, a lot of platitudes made by the financing and banking industry. And now, two years later, it's time to measure that success and hold accountable those promises made to Black and brown communities.

Detroit is unlike any other place in the country. There are more than 49,000 Black-owned businesses, 80% of the 62,000 total businesses in the city, with a city representing 70% of a Black population. This is produced in the 2012 census statistic variances. 95% of those businesses are solo entrepreneurs, home-based business owners, one-employee businesses, or what the mainstream society seems to call microbusinesses.

If we are still struggling to lend to Black-owned firms with this type of population setting, then in my opinion, it is either intentional or a complete failure of leadership, which has been going on for more than 150 years post-slavery, since 1865, and over 50-plus years post-civil rights to address what contributes to high poverty, lack of jobs and economic stability in neighborhoods. This is absolutely essential that we must solve this problem. No more press conferences, platitudes, benign neglect approaches, or empty promises, or public grandstanding with press releases attached. It is time for our banking and lending institutions to step up.

If Black and indigenous businesses are to survive, thrive, and build capacity, scope, and scale necessary for us to erase the prevailing economic gaps plaguing the city of Detroit, an internal and external banking scorecard should be produced, or even a banking policy institute on disparities, or a summit should be called to order in 2022. The National Business League is looking to partner to get this done. This is the solution revolution. If there is a will and an intent, we can solve this Black business problem.

So I want to, again, in my short message, thank you for the invitation to participate on this esteemed program and in partnership with the survey on Black and minority businesses exiting COVID with the Federal Reserve Bank. Thank you so much, and I look forward to participating even further.

JOE ANDERSON: Thanks for those insights, Ken. Now we will turn to Paul Jones, Business Support Network Coordinator with Invest Detroit. Paul, maybe you can tell us a little more about the work of Invest Detroit and how your organization can help address some of the issues identified in this survey.

PAUL JONES: Thank you, Joe, and thank you for the panel. Thank you, Federal Reserve bank for continue to elevate this discussion. And I think that with the pandemic, several challenges were created for small businesses. But more than anything else, I think that many of the traditional and institutional fault lines that our institution-- that our financial system relies on have been further exposed and highlighted. And I think that the pain points that our small businesses face have become more acute. So a lot of what we're facing is not necessarily new, but it is elevated.

The other side of the pandemic is, through the various programs that have been instituted at the federal, state level, and even amongst the private sector, we have clearer data and a broad set of information where we can see real-time what's happening within our ecosystem. So with the housing prices, for example, 10 years later, we're starting to see what happened and what we need to do to change. So just in case another housing crisis happens in 100 years, what could we have done differently?

What's unique about this pandemic is we're able to see, thanks to the disclosures of the SBA and other institutions, who has been receiving funding, who has not, and, as it was highlighted, we're not clear on the people who had not received-- who had not applied or who were denied. But we were able to see who did receive funding. And the numbers are quite astonishing and a bit incredulous.

People of color-- unfortunately, I'm not as surprised. But people of color were disproportionately left out of those funding. And Blacks in particular receive less than 2% of the PPP money, for example. So the question is, why and what do we need to do with the data that we have to change this dynamic?

I think that there is-- it's become clear that there is a need for readiness programs amongst our small businesses. So a test case was, when we threw the money out into the ether of the PPP world, we hoped and prayed and wished it landed in the right hands, for the right things. But we did not have the institutional mechanisms to make sure that the distribution and the receipt of those funds was intentional. And hence, the underserved became even further underserved, and the gap of resources became further widened.

I think that we need to, one, recognize that capital, in and of itself, is not a end-all outcome. So the outcome and the narrative that we speak on is we need to make sure more of our businesses have loans or debt products in their hands. And I think that we have to recognize that money, while it is the lifeblood of companies, it is a facilitator of growth, of sustainability. It allows us to seize on opportunities that we wouldn't normally be able to seize.

So I think that we need to change the narrative and create programs that allow our businesses to be more ready to seize the opportunities and have access to capital so, should another crisis happen, should the opportunity that we're seeing on the procurement side happen occur, that our small businesses are better positioned so the outcomes are growth and revenue and jobs sustainability and using capital as a tool to achieve that.

We're seeing a lot of opportunities come in the procurement space from various sectors, private and public. More, there's been a lot of highlights and press releases about how-- about new opportunities, procurement opportunities, that are going to be focused on underserved businesses. The real tragedy is that, if we don't ensure that our businesses are ready to engage in and accept these opportunities, it's just going to be another-- there's going to be another highlight that says, we tried to provide these resources. We tried to engage a small businesses, but they weren't ready.

So in our role and our ecosystem, the outcome that we're looking for is, how do we ensure that our businesses are better positioned to obtain capital? How do we ensure that they are able to have plans when they receive the capital to put it to productive uses? And how are they in a position to engage with some of the institutions that they need to engage with, in order to be teed up for accessing capital?

On the other side-- and I'll tell you, this is a secret or a point that most people don't talk about. There are-- while most surveys, if not all surveys, will highlight that small businesses have access to capital issues and challenges, so in other words, anyone you ask in the small business, especially in underserved space, says, we need money. Banks and other mission-based lenders have deployment challenges. And there's more money that's coming through the pipeline to them.

So there's this gap where, on one side, small businesses are saying, we need money. We need access to capital. On the other side, the lending institutions are saying, we have money, and we can't get it out the door. We can't find the right businesses. We can't find businesses to give it to or to lend it to.

So to me, that implies a couple of things. From the banking and institutional side, it means that they're not able, intentionally or otherwise, to reach the right people, to reach some businesses that are willing and need the capital. It means that-- either that, or they don't have the infrastructure in place to obtain the information that they need to process loans, to provide the right type-- to provide the capital to the people who need it. Or third, they don't have the right type of capital.

Capital is not just a ubiquitous one size fits all term. There's different types of capital for different businesses, for different needs, and for different parts of your business lifecycle. So matching the type of capital that's available to what the business needs are is the next tranche or the deeper dime of that conversation that has to happen. There's clearly a mismatch between what the banks and lending institutions are doing and capital-- again, for their size, not the issue.

I haven't heard too many institutions say, you know what, we've lent all the money we just need more money coming through the pipeline. I think it's more of, we have this money. We think that we need to be more flexible in our terms and the way we engage the small businesses. And the other side-- having institutions that are helping the small businesses prepare for accessing capital and preparing to engage in all of the opportunities that should be coming their way.

My organization, Invest Detroit-- we are a mission-based lender, a CDFI. We provide capital to different spaces in the capital deck. So that's from everything from term loans to even providing more patient capital to our Invest Detroit ventures team. And we're trying-- we're actively looking to not just deploy capital, but also helping our businesses become more capital--ready by engaging in discussions around what technical assistance looks like to get the businesses better prepared. So we prime the pump and take some of those businesses that aren't right positioned now to receive capital to better position them, so they can not only receive capital, but they have a broader foundation to grow and sustain.

I'm also working closely with the New Economy Initiative. And they launched recently a $20 million fund to provide resources to business support organizations. All of the infrastructure in our ecosystem, the institutions that are engaging with small businesses in the neighborhood, that are engaging with small businesses and providing them the assistance they need to be prepared to obtain capital-- we're engaging on that level. So it's the readiness aspect that, I think, we have to focus on. We can't just throw more money at the system and expect that the system is going to work itself out.

We saw that with PPP. It didn't work. It's about making sure that we're engaging the small businesses and helping them prepare for obtaining capital and long-term growth and survivability

JOE ANDERSON: Thank you very much, Paul, very insightful. Next, we'd like to get a perspective from a banker. Joining us from Huntington Bank is Senior Vice President Maggie Ference. Huntington has announced several initiatives to expand lending in minority communities. Maggie, what has been Huntington's experience with supporting small and micro minority businesses?

MAGGIE FERENCE: Thank you, Joe. Dr. Harris's words were just so powerful about the Black business problem. I'm going to ask for a little bit of grace in changing the verbiage as I walk through some of my points today, and that's to really say that banks have a Black business opportunity, and it's a massive one. There's two primary points that you're going to hear me talk about specific to the role that banks have to play immediately in this discussion.

As we think about the practical application of access to capital, and Paul walked us through some of that here in the last couple of minutes, the process, as it exists today-- we don't get very far without talking about topics like credit scores, liquidity, financial education. And frankly, we should be talking about trust. Let's talk about policy, beyond individual bank walls.

So a credit score is a measure at a point in time of your probability of default. It's essentially the system saying, we're betting on whether or not you're going to succeed. And it's based on decades of data. One can actually say it's based on historical data, and we've spent so much time today talking about how history should not be maintained if we're going to change any of this going forward. So other people's behaviors in the past are predicting the viability of your small business. It's based on mortgage lending, student debt, credit cards.

So what if you rent? What if you don't have a student loan? What if you don't have a credit card? Now, if we've learned nothing from our call today, it's reliance on doing things the way that we've done are not going to get us to where we need to go. Business plans, quality financial statements-- they're all required for lending. They're all required for that access to capital. But they require accounting expertise. They require time and expense. These are things that the average small business owner may not have access to.

I always joke with my team, I want my brain surgeon to be good at brain surgery, not to be a good accountant. But that also means that my brain surgeon has to pay someone to be that accountant. As a lending institution, including banks, we have the greatest means to administer capital, like we just heard. There's money available, and there is generally logistical infrastructure. But we also have a greater opportunity than we've ever had before.

It's not a secret the banks are publicly-owned. So as the America of our future is here today, there's such an incredible opportunity for us to gain market share. It's good business for us to appeal to the average America by finding ways to establish trust, for the average Black, brown, female, or veteran small business owner to think of a bank first when they need access to capital, not last, or not at all. You heard when we kicked off today that, in the last three years, heading into the COVID crisis, so many Black and brown small businesses are not looking to banks for financing needs, while bank financing is often the cheapest option out there. It's not where they go first for that partnership.

Finding ways to rewrite this narrative is absolutely imperative. It's in the best interest for the lending institutions to expand products and services to speak to these gaps, while working with our regulators, which is not a small feat, to make sure that we keep the deposits of our community safe and the investments of our shareholders sound. We need to find better ways to work with under-resourced communities. And like I mentioned, it's, frankly, good business.

It certainly increases the value of our stock, but let's talk about the dividends that are going to be paid to local communities. This will compound for decades. We can't capture that business without adapting, and banks are looking for ways every day to change the ways that we interact and support with our communities. We have to encourage this type of activity. Ripped from the headlines, you can learn about community plans. Dr. Harris spoke to this, that there's a lot of noise out there. Let's see how we're actually using the money. It's the teams like this that are working to channel that energy-- when I say teams like this, the team on this call, trying to find ways to channel that energy into action in our local communities.

So second, we also have a responsibility, and this is not a CRA comment. We have a responsibility, as lending institutions, to our communities, to encourage financial education, like Paul talked about a few moments ago. If you work for me and our institution-- my teams hear me say all the time, one of the best things we can do is make a loan to a small business. And one of the worst things we can do is make a loan to a small business.

If that business is not prepared for debt, it can be absolutely devastating to more than just the small business owner, to the employees, to the community, to a family that was represented by that small business. So continuing to invest in community partners who already have the trust to act as an intermediary to these under-resourced communities is extremely vital, helping our partners recognize ways to mainstream their clients faster, creating economic ecosystems for small businesses in each of our communities, and creating networks of professionals to provide legal, accounting, and HR advice, but more important than anything, providing the grace, the patience, and the time necessary for a small business to be successful.

Some of the most successful entrepreneurs in our nation have chapters of their memoirs that talk about failed ventures. If at first you don't succeed, try, try again. But as I let off today, as Joe mentioned in his opening comments, we can't get very far into the discussion without talking about liquidity. Small business owners do not have the means to cover tough times like COVID. And we've seen, really, the catastrophic results of this national pandemic, this worldwide pandemic, really start to personify themselves over the last couple of years. They don't have the grace to feel. By creating more ways to give our entrepreneurs breathing room with patient, low-cost, non-predatory access to capital, which is extremely critical, through traditional, regulated institutions, we're investing in a better America.

At Huntington, within my programs, we leverage partnerships with the SBA. We work with CDFIs in each of our metro cities. Recently, in the last year and a half, we launched an innovative program called Lift Local for Business. This is a program exclusively for Black, brown, female, veteran, LMI-owned small businesses.

Yeah, from time to time, it catches some flak from people that don't qualify in one of the words that I just said. But this is absolutely focused on making sure that we make more lending in the space than we ever have before. And I'm the first to tell you we have only scratched the surface on the change that is needed to support these communities.

I frankly encourage any of our lenders who are dialed in today-- give me a call. I'd love to talk about this program and tell you how we're managing the aspects of Reg B. And some of our regulatory compliance is required to do something like this. But again, this is the type of thing that we just have to rip off the Band-Aid and say, how are we going to address policy? How are we going to advance relationships with our regulators, so that we go well beyond the walls of any individual bank and say that we're going to change the landscape of lending, change the landscape of access to capital for small businesses in our nation.

So thanks for the time today, Joe. This was fantastic.

JOE ANDERSON: And thank you, Maggie, for your fantastic perspective from a bank. Lastly, I'd like to see if Dr. Toussaint would offer a few perspectives from her experience in researching business development in Detroit. How does this fit with the work that we have here? And then, we'll-- after her, we'll open it up for a couple of questions. Dr. Toussaint? Maude, you're muted.

MAUDE TOUSSAINT-COMEAU: So in terms of financing issues and the research we've done, I think that the work that we've done looking at the lending gap in business gaps in the Detroit market was very telling for today's discussion, because we built some models where we sort of controlled and accounted for a lot of the characteristics of the owners and comparable to other places and other ethnic groups, for example. And we still see gaps that couldn't be explained by necessarily the caring and the characteristics of the business that could be receiving more loans.

So we think that the analysis that shows clarity gap-- we have a paper not too long ago that came on that, and that really make an argument that there are opportunities to be had, like Maggie just mentioned, for a financial institution to really work in very pragmatic ways to increase flow of funding to businesses and create more opportunities. I think that's one of the researches that, I think, is really telling for the discussion we're having today.

And of course, we're only just now starting to talk about a whole ecosystem of resources that are also needed. And typically, research-- we're just focusing just on financing. So we're recognizing that, really, speaking in the broad sense of the whole ecosystem of business and the infrastructure that is inclusive of minority businesses is really important for us to consider, as we think of uplifting businesses.

JOE ANDERSON: Thank you very much. Question from our audience that came in before the panel presentation today is as follows. What kind of technical assistance is needed for small businesses to develop a business plan that will help them get financing and capital? Paul, you want to take that one?

PAUL JONES: With pleasure. There are-- in Detroit there's-- and most cities. Don't want to limit it to Detroit. But there are several resources available, most of them no-cost or low-cost resources, that assist businesses at different points in the cycle. Some are for startups and how do you develop a business plan and do financial projections. Some are for businesses that are a little bit further along in the process, that are a bit more seasoned but need to prepare their financial statements and, again, do projections around that as well. So bookkeeping, business plan development, and projections, as well, are available.

SBDC, the Small Business Development Council funded by the federal government, is a national resource. Score, as well, is funded by the federal government. That's also a national resource. But there are several local resources that I'd be happy to share with you that do an extremely good job, and not just the technical side, but the cultural sensitivity side.

So it's sometimes intimidating, when you are expressing your business needs and how you plan to grow your business, when you're not speaking to someone who, one, maybe understands you, your community, and the community of the people you're looking to sell to. There's been countless examples of people who are early stage looking for private equity money, and Black women owners who had hair care businesses or salons, beauty salons, and, across the table, the counterparts who didn't fit their demographics said, what? That's a need? I didn't know that women spent this much at salons or this was-- they had to have their hair done this often.

So they didn't quite get it, and they weren't as willing to fund it. So there are tremendous resources that are funded by the federal government but are also localized that have that focus on developing businesses around your cultural sensitivities and competencies.

JOE ANDERSON: Thanks. Thank you very much, Paul. Ken, the Brookings has identified that Black-owned businesses, even in the same industry, failed to scale to the same size as similar white businesses. What does access to capital-- why does access to capital limit the size of Black-owned businesses, and how can we generate some accountability to overcome that situation? Please, Ken.

KEN HARRIS: Yeah, I think that question is interesting. I think decades of data supports that capital has always been the number one detractor from Black- and minority- and indigenous-owned businesses reaching the marketplace. What has been obvious to us all is that white business owners are able to exploit those resources and capital more effectively. And why is that?

And so when you look at that disparity gap, when you have a low percentage of a white population in Detroit accessing more resources, and accessing more technical assistance, and accessing more capital in the city, why is it that the 80-plus% of the population is not? So that's a very stark difference, when you paint a picture.

And again, a famous Booker tee Washington quote is, "Draw down your buckets where you are." The ivory tower approach doesn't work. We have to meet Black businesses where they are. And I agree with Maggie. As an economist knowing Schumpeterian theory, I'm sure Dr. Toussaint can relate. The market disrupts. It crashes, and there are new opportunities.

Well, I think this is a new opportunity. As we have identified the Black business problem, as Maggie said, there's an opportunity here for us to reinvent, to innovate, our banking processes and how we connect capital to those existing pipelines that are extremely disconnected, marginalized, isolated, and in some cases, intentionally looked away from. And so this is a unique opportunity.

I think the data you cannot ignore. It's been here for a very long time. Prior to civil rights, Blacks were locked out of the capital market completely through policy and law. And post-civil rights, 50-plus years later, we haven't seen any movement. So it's time for us to come together, to be intentional, to be willful. I think we have the right people at the table.

And I have to credit, the Federal Reserve Bank for bringing awareness to this issue and collecting the real data through this survey, because that allows us to push the envelope. So moving forward, obviously, we have to deal with capital if Black businesses, in particular, are to build capacity, scope, and scale, and hire and contribute to the neighborhoods and rebuilding those neighborhoods, especially where jobs and transit and all of the other existential resources are nonexistent. So capital is absolutely critical if we are going to rebuild Detroit in a sustainable way.

JOE ANDERSON: Thanks, Ken. Maggie, this question is for you. Can traditional banks create products that reflect what these businesses are looking for? Specifically, there is some evidence that fintech products are gaining tradition in minority communities. Are there barriers to traditional banks that make it difficult to offer competitive fintech products?

MAGGIE FERENCE: So my answer is going to be a little different than you would expect. Fintechs absolutely terrify me, but not because they are a competitor to banks, not because they're taking good business away from me. It's because, frankly, they're unregulated and, in some cases, even predatory.

And the reason that they're gaining traction is not for the reasons that we would think, like ease of doing business. But it's because they're readily available and because they do not require the interaction of the average small business owner to display confidence. So many of small businesses are-- like you said, we go back to the conversation around trust. They're uncomfortable walking into a branch. They're uncomfortable having a conversation with a financial advisor and say, I'm ready to access capital.

So if it's 2 o'clock in the morning and there's a fintech available that just will take your social security number and give you $25,000 with very few questions asked, it's scary. And we want to make sure that doesn't come along with a two-year burn rate and a 25% interest rate, things that are not going to create patience and grace and provide them the chance to succeed. So I want to make sure that they're not turning to a fintech because they don't think that the banking industry is going to support them, and just making sure they take the time to interview any financial investor. It could be-- that entity becomes your partner now. And it doesn't have to be an equity investor to take control of your business. So that's really where they worry me the most.

But I will honestly go back to the first part of the question. Banks are absolutely catching up and quickly investing in the ease of doing business that fintechs provide. So you don't have to walk into a branch to get access to capital with the average bank. You just definitely have to take the time to interview that institution and make sure they are good for your business.

JOE ANDERSON: Thank you very much, insightful perspective. Maude, a significant part of your research has examined financing issues in minority communities in general. Can you give us some examples of what work has been found about financing resources in minority communities?

MAUDE TOUSSAINT-COMEAU: Sure. Sure, I can definitely add to a little bit of the earlier comments I made about the fact that we have found gaps that suggest that-- about the opportunities to be had. But I also wanted to talk about something else we've been really focusing on in connection to business is the neighborhood, the neighborhood context, because a lot of the businesses-- also, that's something I didn't mention.

One of their big concerns is, really, they just want to sell. The demand aspect of running a business is as important to make the business viable. And we find that in speaking about Black businesses in general, who tend to be in low-income communities, when we speak about neighborhood disparities, we also should highlight the importance of messaging and perception around the places. And just simple negative perception and stereotype regarding-- could devaluate Black places and sort of reinforce and create market failures.

So we have argued that, as part of the business ecosystem, we really want to think of place-based initiatives-- beautification of places, safety, et cetera. That's going to change perception and socialize people to understand the value, and even historic value, in some cases, of Black business corridors. And we think these are part of the strategies to also support businesses. So that's been, also, part of our research.

JOE ANDERSON: All right, very good. Thank you. Ken, we have time for one more question. The National Business League has a very diverse membership, companies of all sizes. We've talked a lot about small businesses and microbusinesses. What are the challenges of access to capital for some of the larger firms that are members of the National Business League?

KEN HARRIS: It's the same thing. Surprisingly, most people would think that companies that are pretty successful and have the capacity and revenue generation have easy access to traditional lending, which is not the case, as well, and data supports that. When you think about the city of Detroit in particular, which in Black Enterprise magazine's top 100, you have at least 16 to 25 firms which are the largest firms in the country right here in the city of Detroit.

And I can tell you from that membership, several of those business owners have went to traditional Lenders of $20 million to $200 million companies and been denied loans. And based on having PO opportunities, it will in the supply chain. So when you look at the vast scenarios in place effectuating Black business in terms of really tapping into the capital marketplace, we find those difficulties still exist.

So I think one thing that needs to happen is that the Federal Reserve Bank is starting this coalition of putting together the right types of people to figure out and, again, as I mentioned in my earlier comments, this is the solution revolution. We must find solutions for Black business problems. And I think we're more than capable of dealing with it, if there is a will and an intent. We have to get past the fluff. We have to get past the press conferences, the platitudes, and the very colorful articles, because we have influence on the mainstream media. We have to come down to where people are, and we have to bring them into the banking discussion.

Now, we're collecting the data. We have the data that supports and validates where the issues are. And it's important for our folks that you have on this panel and other external and internal partners to come to the table to start to address this issue. But that problem is not just a micro- or solo- entrepreneur business problem. There are major Black businesses being denied capital access, not just in the city of Detroit, but throughout the country.

JOE ANDERSON: Well, thank you very much for that perspective. We've come to the end of our time here. And I certainly would like to thank the panel for all of your insightful contributions to this discussion. Certainly, Dr. Toussaint the research and effort you put in in getting the survey organized and out and so forth-- just a tremendous effort.

And for all of our participants and listeners, it is ongoing. And so if you have it sitting in your inbox but have not done anything with it, please send it in to us, because we want to continue to collect this data. It's a very important topic. As the chair of the Federal Reserve Bank in Detroit branch, it's something that I am very anxious to see us all pay attention to. And as Rick said, what are the policy issues that need to be addressed so that we can address this access to capital challenges.

Thank you, everybody, for participating. And we look forward to going forward and making a difference in the community. Thank you, all. Have a nice day.