Last month, I happened upon an article on Blackenterprise.com about Chase Manhattan Bank offering to provide funds for minority small businesses in the Bronx and San Francisco. Out of a $150 million Small Business Forward program, Chase Manhattan Bank will give $3.1 million to San Francisco and $2 million to the South Bronx. The move is part of a $20 billion 5 year U.S. investment that looks to increase the bank’s commitment to small business lending and create economic growth in neglected urban centers. The investment will be for writing business plans and other support services. It sounds pretty cool, right? Eeeehhhh, let’s think about this a little more. How effective can this money be?
After reading the last word to the article, I was pretty emotionally blank. Many, many years ago, I would have praised this effort as a positive step for small business. But, now, I feel it does nothing. Actually, it may even hurt new entrepreneurs. I thought, “Is this adequate for the small business community?”, “How will this money be distributed?”, “Are loans the way to go?” All of these scenarios just don’t sit well with me. Some people may say I’m being negative but give me a moment. Let me see if I can persuade you to think a little deeper about this Chase Bank community investment program.
The Matter of Small Business in the Bronx
What does it take to start a business? According to an Inc.com article, Sharon Munroe, a market researcher from Austin, Texas decided to get into business for herself. In February 2011, she got to live her dream by opening her very first clothing retail store. She tallied up her initial cost to a modest amount of $30,000 to start her clothing store. The article laid out the math for the venture and the owner had an advantage of not having to pre-buy her clothing. She did great in her first six months. Fantastic! Wait… did I just say 30K?! 30 stacks is not chump change! Who can raise that type of cash today? We haven’t even adjusted that 30K for inflation in today’s market. What about other unforeseen costs? Now, what if you wanted to start a restaurant? A bakery? Electronic store? Pet store? Veterinarian practice? Dentistry? Mechanic shop? Child daycare? Alcohol & Wine store? Car Wash service? All those ventures would cost considerably more than 30K! Some of these businesses would require a modest base of 100K! Where is the average person going to come up with that kind of money?! Chase Manhattan bank wants to allocate $2 million for the Bronx?! Well, it doesn’t seem so much now, does it?
Since Chase bank wants to give money to the Bronx, let’s use the birthplace of Hip-Hop as the example for the rest of this blog. As listed in the United States Census Bureau, it was tabulated in 2015 there are around 114,000 nonemployer establishments (businesses without employees and generates $1000 or more and subject to federal income taxes) in the Bronx. Most of these businesses came into existence by either borrowing money from family/friends or having to acquire loans from their local bank. As previously stated, if it cost 30K to start a business with a business address in 2004, how much would you be eligible to borrow today? Nowadays, it’s close to impossible to get a substantial loan from the bank. Even if you can, you already have to have money or assets on hand to use as collateral. i.e. house, property, etc. Large portions of POCs don’t own a home or have adequate capital to use as leverage for a bank loan. What underserved communities can afford are micro-loans. They range from 10K to 15K that could be acquired at local SBA programs. Would that be enough to open a brick and mortar store as well as everything in it? No, it wouldn’t.
Remember, the BE article said that $2 million would be for loans and support services to businesses in the Bronx. Would that be enough to properly fund local businesses in the Bronx? The SBA Office of Advocacy report states in the 2nd quarter of 2014, New York had 14,078 small businesses start up, however, 13,062 businesses exited. The report continues on to say that over a 10-year period since then more business opened than closed. There is a lot of information to sort through to figure out why the “start and exit” numbers hover so close to each other. Pondering over the data had me thinking how volatile business could be in the Bronx community? In a 2016 annual report on small business by Empire State Development, the following are issues small businesses faced in New York State:
- 29% of business reported operating at a loss;
- 25% of businesses saw no change in number of full-time employees;
- 23% reported their top business challenge was uneven cash flow, and 23% reported operational costs as their biggest challenge;
- 57% of businesses use personal savings as their primary funding type, followed by 33% using retained business earnings;
- Micro-businesses and startups had the largest unmet financing needs with 63% and 58%, respectively, reporting a financing shortfall;
- The majority of employer respondents, 6%, hold debt. Most debt is in small amounts and secured with personal assets; and
- 42% of employer firms applied for financing in the first half of 2015.
If this data was pulled from New York State, what is the failure rate for communities in the Bronx? It looks to me $2 million may be nowhere close to what businesses in the Bronx needs. Mind you, a Chase Manhattan bank financial report posted online states in the 2nd quarter of 2017, they earned a net income of $7 billion dollars! In one quarter! Do you think $2 million dollars is enough? Is it just a few pennies thrown in the direction of the people in the Bronx? I would think so.
Is Lending the Answer?
So $2 million will be provided for entrepreneurs in the Bronx. Based on the information above, do you think it’s sufficient for today’s economic market? As we know, one tool used by banks to “help” bolster a community’s financial health is small business lending. In a market as volatile as we are currently in, why should lending be the only financial tool utilized for struggling communities? If you divide $2 million to the number of new businesses that need financial assistance in the Bronx, it would barely scratch the surface for adequate funding for each business. To me, small business lending is no different than a new college grad burdened with a hundred thousand dollar college debt shackled to his ankle! A young college grad is pushed out with the promise of attaining a high paying job but reality serves them the hard facts of scarce work and low paying wages. The jobs are not there. Creditors are calling. The dream isn’t as wondrous as they thought it would be. This, my friends, is the entrepreneur dealing with a microloan. It may serve an immediate purpose but it slowly becomes a burden after a person succumbs to the hectic life of being a new business owner. The dream has become the horror haunting the individual at every waking moment. All the while they’re constantly confronted by new bills and expenses as their business continues to function from one week to the next. Sadly, microloans may not be the answer the people need.
Well, if lending is not the answer, then what is? What the Bronx needs is an influx of cash and “business-assist” programs. If we are to give these communities a fighting chance to succeed in this new market, then money needs to be made available to underserved communities. What do communities need? How about venture capitalists? How about business grants? Owners of new businesses need the proper numbers to get on the right track and VCs sounds like its the way to go. VCs or business grants can offer the right amount of money to get a business off the ground. All a new business owner needs is something between $125K to $300K to get a business moving in the right direction. To ensure grants are utilized in the best way possible, programs can offer skilled business agents to support young entrepreneurs path to success.
Venture Capitalists: Ok, More Bad News
Ok, you’re a small business owner looking for financing. You feel lending is not the answer. You just can’t afford to owe a debt plus it’s not sufficient to supply your needs. The obvious turn is to a venture capitalist. The good news is venture capitalism is on the rise. The bad news is, if you’re a person of color, the numbers are just not there. In a Bloomberg.com article posted on January 25, 2018 by Laurie Meisler and Christopher Cannon, they write that VCs boomed to $67 billion in 2015. It exceeded the previous year by 5%! The article goes on about what cities are trending upwards and what industries are doing great compared to others (by the millions of dollars, of course). That’s fantastic, right? Well, not really. In another article by beltmag.com posted February 6th, 2018, Steve Friess writes that black entrepreneurs are actively excluded in getting funding from VCs. He presented a few black entrepreneurs as examples of hardship in his story. The owners of these businesses hit proud milestones yet they’re still ignored in the VC world. They’re at a complete loss on how to get to that next step in their business without the help from a venture capitalist. Davidson Moss, a black tech entrepreneur says, “It’s just white folks giving money to white folks for ideas that white folks like. And they say, ‘Hey, it’s business, it’s not personal.’ But VCs are definitely more comfortable losing money on white folks’ dumb ideas than sitting still to listen to something that’s outside their world.” Is he wrong? In a medium.com article posted March 1, 2018, titled “This VC said out loud what many others only hint at…”, a black founder thought he secured financing but, at the last minute, the VC backed out. The VC writes in an email to him: I’m sure as a company founder you know that certain patterns work for you for test trials over a period of time. If we see that the demographic of founders that give us the best return are white men in their late 20s/early 30s, you can expect the choice of management team who we invest in to reflect. Wow! Can it get any more obvious?
To further press the issue, in another article by the New York Times dated March 4, 2018, Kevin Rose wrote about the place we know as Silicon Valley becoming a thing of the past to many VC execs. These corporate execs are deciding to leave because of a “constricting work environment” (i.e. left-leaning politics, expensive neighborhoods) to the mid-west and other areas of the United States. Their inspiration came from seeing new places after taking planned tour bus rides out to the rust belt of America to find new business ventures! Patrick McKenna, the founder of High Ridge Venture Partners says,” It’s so expensive, it’s so congested, and frankly, you also see opportunities in other places. Every single person in San Francisco is talking about the same things, whether it’s ‘I hate Trump’ or ‘I’m going to do blockchain and Bitcoin,’” he said. “It’s the worst part of the social network.” Michael Moritz, founder of Sequoia Capital also agrees with the growing sentiment in Silicon Valley. Yours truly (hand raised), in the past, attempted to communicate with Sequoia Capital for investment but was politely turned down! Hmmm, I wonder why? As a black man, it’s always a question you think of as you go about your travels in life.
What are the Alternatives?
If small loans are potential debt-traps and the majority of financially robust VCs are consciously choosing exclusion, then what are the alternatives? The alternative is to self-finance. The network of millions will have to be built to fund institutions and individuals. There is more power in the masses than a handful of people starting a venture capital firm who help ignored founders and economically strapped communities. Small donations on a consistent basis from hundreds of thousands of people into other people, businesses and/or institutions are far more practical than seeking VCs or government programs that provide capital for neighborhoods. There is no red tape, no unrealistic bureaucracy or annoying biases by executives. If we’re all tied in within the global/local network and we know what we contribute benefits human progress, why wouldn’t we partake in such a system?
Lyfeblood.com was built for this very purpose. There’s no shame in plugging my business. After all, I am the founder of the very site I blog on. Lol Here is a place where we can communicate, network, and deliberately construct a world we’ve been asking for. Network donations work… and sometimes it doesn’t. Look at the American Red Cross receiving half a billion dollars to build only 8 houses in Haiti after the earthquake. Imagine what we can do if we donate to each other. Imagine forming a community institution with the right people together with full transparency to ensure communities thrive. There is no limit to what we can accomplish. All Americans. All people. The whole world!
Here is some simple math for ya… Based on the Department of Labor, there are 577,000 employed people in the Bronx. If 577K people put in $25 per month in a fund, they would have collected $14.4 million… in one month. Annually, the community can amass roughly $173 million. If a specific campaign was created, in this case for small businesses, the people could top off their collective savings for the community with a grand finale fundraiser. Each household (Census Bureau: Household # 490K) could donate $100. In total, the grand finale would raise $49 million. The Bronx community would have raised a GRAND TOTAL of $222 million for small business development! The monies can be distributed to every hungry entrepreneur needing a helping hand. Now they have a fair chance at success. No loans. No interest. No bureaucracy. No extra bill. Stress-free. Remember, we’re only talking about the Bronx borough alone. Imagine any other borough, city, county, or small town across the United States. The potential is mind-blowing!
So what are you going to do? Are you going to take the same path as before? Do you really need Chase Manhattan Bank’s loan program? Do you want to be indebted and broke before you get 20 steps out the gate for your business? Do you want your community to be successful? It’s up to you and the people around you. Do you want that financial freedom or sink in an economic money pit? As always, the choice is yours.
Written by Nova Phoenix