The SSBCI Black Business Working Group, which is comprised of the leaders of some of the best and brightest in the Black business policy ecosystem – including the U.S. Black Chambers, Inc., Prosperity Now, Hope Credit Union, Association for Enterprise Opportunity and the African American Alliance of CDFI CEOs takes this opportunity to respond to the Department of Treasury’s Request for Information regarding TA opportunities in the SSBCI.
Below is the response ———————————————————–
Mr. Jeffrey Stout
State Small Business Credit Initiative
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220
VIA ELECTRONIC SUBMISSION: Submitted to Regulations.gov (87 FR 57558) Document #2022-20326
Re: Request for Information (RFI) on $200 million in remaining Technical Assistance funds as authorized by the American Rescue Plan Act
Dear Director Stout:
The SSBCI Black Business Working Group, which is comprised of the leaders of some of the best and brightest in the Black business policy ecosystem – including the U.S. Black Chambers, Inc., Prosperity Now, Hope Credit Union, Association for Enterprise Opportunity, and the African American Alliance of CDFI CEOs – appreciates this opportunity to respond to the Department of Treasury’s Request for Information regarding technical assistance (TA) opportunities in the State Small Business Credit Initiative (SSBCI).
To miss out on this opportunity to support Black businesses would be catastrophic. Already, Black business owners are cut out of the private financial markets with the Federal Reserve finding that Black business owners are three times less likely to receive all non-emergency funding requested compared to their white counterparts. Furthermore, 80% of Black-owned businesses fail within the first 18 months of operation, primarily due to lack of adequate funding, compared to 30% of all small businesses over the same time frame. SSBCI capital can be the catalyst Black-owned businesses need to survive and thrive in the current economic landscape.
On behalf of the hundreds of thousands of Black business owners that we represent and have in our collective network, these comments express our feedback to the RFI on the Treasury Department’s plan to disburse the remaining $200M in SSBCI TA funding.
With the consent of the states, Treasury should publish approved state plans.
We would be remiss if we did not strongly advise Treasury to publicly publish each state’s approved SSBCI plan. We fundamentally believe that residents of each state deserve an understanding of how the funding is being disbursed and the thinking behind those plans. Furthermore, without knowledge of what states intend to do with the funds, or promised
Treasury it would accomplish, experts such as us are curtailed in our ability to be helpful and responsive to states that might be struggling.
What criteria should Treasury consider in selecting recipients and sizing awards if Treasury conducted a program to provide competitive TA grants to jurisdictions?
States currently have access to a generous amount of non-competitive SSBCI TA. We have heard from implementing partners that some states are even considering not seeking that funding. Given this, we recommend that any additional funds dispersed on a competitive basis should be highly targeted to those states that are most interested in making their SSBCI programs as equitable as possible.
Implicit in this is a strong recommendation to not be hasty in getting the funds out the door. From our perspective, additional TA to states should be based on need and demonstrated progress made towards the SEDI goals, particularly those with greater track records of effectively meeting the needs of Black entrepreneurs. This way, we can ensure that additional TA dollars are going to those that are truly investing in the spirit and intent of the program.
In terms of distinct criteria for evaluation of the above, we urge you to consider the following when prioritizing which jurisdictions get the additional TA funds:
- Jurisdictions that are committed to providing holistic wrap-around services that not only address the various levels of local small business funding needs, but also help connect business owners to free or low-cost accountants, business planning resources, legal services, and other wrap-around resources to ensure businesses have a sustained ecosystem of support.
- Jurisdictions that have shown a real commitment to transparency by publicly releasing demographic data – broken out by race, ethnicity, and gender, etc. – on an ongoing and reliable schedule beyond that of Treasury’s annual reports.
- Jurisdictions that create and publicly disseminate goals for Black business participation in programming, with plans for improvement where necessary. These goals should be on par with Black population or demonstrated Black business owner need in the state.
- Jurisdictions that understand the deep need for cultural competency and therefore prioritize working with Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) that can demonstrate a deep track record of meeting the needs of the State’s local Black communities. Cultural competency, or rather the ability to understand, appreciate, and respectfully interact with people from cultures or belief systems different than one’s own, has long been absent in the private, public, and even parts of the non-profit financial sectors.
- Jurisdictions that are working across and engaging with regional public, private, and social sectors (e.g., local government leaders, major regional industry representatives, CDFIs and local philanthropies) to understand the diverse – and sometimes conflicting – cross-sector needs and challenges that will either break or make the state’s SSBCI program long-term impact. These partners should be diverse in terms of demographics, but also perspectives and backgrounds.
- Jurisdictions that work with local Black communities to educate about the need for data collection, emphasizing that the collection cannot be used to harm their prospects and explaining how the information provided will be kept secure, separated from the funding decision-makers.
What gaps exist in the types and availability of TA to small businesses that seek small business financing?
Support across the business life cycle. Beyond discrimination in the capital markets, one of the other dampening factors on Black businesses being able to access capital at fair rates is the community’s lack of access to legal, accounting, and financial advisory firms. Despite the known linkage between business development and mentorship with business success, McKinsey and Company found that only 58% of Black business owners sought out professional advisory services, citing cost, accessibility, and mistrust as barriers. Just as these resources are critical for setting one’s personal economic success, these kinds of wrap-around services are even more critical at all stages of the business life cycle. Black-owned businesses need affordable professional advisory services provided by people and institutions that have given their local Black communities a reason to trust them.
Analyzing different funding options. There are now more legitimate, regulated, and unique funding methods to support business startup and growth than possibly ever. One thing TA must do within the SSBCI is help Black business owners – who come from an array of backgrounds, including different socioeconomic classes and education levels – thoroughly understand the various funding options available to them to allow them to make the best, most educated decision for their business. This understanding should come in the form of financial literacy about all the options from trusted sources, provided in ways that align with styles of communication and cultural expectations unique to Black founders.
Diversity in equity-based funding. States need to understand that “diversity investing” is good investing. Beyond this fact, when we talk about venture capital (VC) or other equity-based financing (including revenue-based financing), we often make the mistake of only viewing it from the perspective of how it will help the recipient business. The other, even more lucrative side, however, is those doing the investing – the fund managers. While VC funds continue, year-over-year, to break records in fundraising, less than 3% of VC funds employ Black and Latinx investment professionals, meaning that the success of Black-owned firms that are VC-backed will be a financial boon for white, largely male, investors. This simply reinforces the status quo. Therefore, who is investing equity capital matters almost just as much as who is receiving the investment, and states need to seriously consider this if they are looking to set up equity-based financing products through the SSBCI. Black-run equity firms are Black-run businesses and must be included in the effort to craft equity-based products that respond to Black business needs. We further encourage those states with the highest concentrations of Black Americans, which are predominantly southeastern and include Mississippi, Louisiana, Georgia, Maryland, Alabama, and South Carolina, to not only have an equity-based product as a component of their SSBCI product mix but to also take care to partner with Black-led funds in doing so. Numerous resources exist to help states tap into the depth of Black fund and finance professional talent that exists, and we at the SSBCI Black Business Working Group are happy to work with Treasury and states to make those connections.
How can the deployment of TA funding under 12 U.S.C. 5708(e)(1) and (3) most effectively impact VSBs and SEDI-owned businesses in communities throughout the United States?
The most effective way TA funding can be deployed in a way that truly impacts SEDI-owned businesses is to be race-conscious. We understand that programs that exist to undo the harms of past discrimination and, hopefully, lead to an equitable economy, are under attack, with many governments opting for proxies to race that, ultimately, are ineffective at reaching the goal. The fact that the wealth gap is worse now than it was during the Civil Rights Movement proves that. It is the opinion of this group that a problem that was created through explicit racial discrimination can only be rectified with solutions that are explicitly racially integrative.
If Treasury contracted with legal, accounting, and financial advisory firms to provide TA to qualifying SEDI-owned businesses under 12 U.S.C. 5708(e)(3), what types of entities are best positioned to provide TA to address gaps in TA availability?
As you saw above, one of our core criteria for states seeking additional, competitive TA funds is that they connect business owners to free or low-cost accountants, business planning resources, legal services, and other wrap-around resources. The data show that this is the best way to ensure businesses have a sustained ecosystem of support.
With the prospect of Treasury directly contracting with SEDI-owned businesses that provide those services, we recommend tapping into Black-owned businesses within the 8(a) program and those certified by our member organization, U.S. Black Chambers, Inc.’s (USBC), ByBlack initiative. As a complement to certified Black-owned businesses, the entities that are best positioned to provide TA to address gaps in TA availability are those small business TA providers with expertise providing services to immigrant communities, communities of color, low-income communities and other historically excluded communities. Demonstrated expertise reaching aspiring Black entrepreneurs and very small businesses (VSBs), as well as experience advising small business owners with Individual Taxpayer Identification Numbers (ITINs), are also critical to ensure no Black business owners get left behind.
Not-for-profit financial services providers, like community development credit unions and CDFIs (particularly Black-led ones), are a key example of the value of this approach. Many of them provide small business TA, including for VSBs and small businesses that are not yet loan ready. Then, when a business is ready to borrow, they already have a strong relationship with financial services staff who know their business model and can support them through the process and ensure the loan they take out is appropriate for their needs and finances. This approach sets a business up for long-term success.
It is with this knowledge that we further strongly suggest Treasury direct a portion of the remaining funds to CDFIs, Minority Depository Institutions (MDIs), and small business development organizations (including chambers of commerce) that can demonstrate reach into and trust with their local Black communities. CDFIs and MDIs know how to create and underwrite the products that Black-owned businesses need while providing wrap-around services. However, these deep investments – fiscal and otherwise – require capacity and capital. Investing in the portions of the small business ecosystem that have a demonstrated track record of meeting the needs of Black entrepreneurs will help ensure SSBCI capital leads to the long-term sustainability of Black-owned small businesses, especially low income and rural Black business owners who face additional hurdles because of lack of wealth or geographic isolation.
The Working Group stands as a resource with a ready pipeline to meet Treasury’s needs and looks forward to an ongoing conversation about how our pipeline can tap into Treasury’s contract dollars.
How could the Federal TA funding crowd in and leverage private, nonprofit, and philanthropic funds for the same purposes? Are there existing private sector, nonprofit, and philanthropic funded TA services for VSBs and SEDI-owned businesses and how could Treasury’s efforts leverage that funding?
Part of what makes the SSBCI Black Business Working Group unique is its mix of member organizations that provide direct TA to Black businesses and those that have deep private and philanthropic sector connections.
In our experience, the private sector is most willing to fund concrete ideas that can make it easier for the business community to find Black-owned businesses or those that will make sure said Black-owned businesses are “ready” – from the perspective of the private sector – for private investment, either through contracting or direct dollars.
For example, the USBC’s aforementioned ByBlack certification and accompanying Black business directory was made possible through private funding. The Association for Enterprise Opportunity’s (AEO) direct-to-consumer product, myWay to Credit, which is a referral platform that connects small businesses to business mentors and credit options from trusted community lenders, was initially sponsored by the U.S. Treasury’s CDFI Fund, with follow-on financial support from the JPMorgan Chase Foundation. In addition, CDFIs and MDIs receive grants and loans to relend from philanthropic investors, private social investors and mainstream banks. These funds will help leverage SSBCI funds. Through their deep reach into the communities that they serve and their regional partnerships of service delivery, CDFIs and MDIs are well positioned to direct technical assistance funds.
On the other hand, there are gaps that Treasury could take the lead in servicing and helping us make the case for additional private and philanthropic support. For example, the African American Alliance of CDFI CEOs exists because Black-led CDFIs, on average, receive fewer philanthropic and public dollars than their counterparts. This lack of investment – and, in some cases, strategic disinvestment – keeps Black leaders from infusing more capital into their communities. In particular, there is a dearth of organizational capacity grants and other unrestricted funds that are critical to the development of locally based, Black-led organizations. In 2020, we saw a spike in more unrestricted and administrative grantmaking, however, unfortunately, those efforts seem to be losing steam. Promoting or incentivizing this investment for existing, Black-led TA providers will go a long way towards ensuring Black communities can receive what AEO refers to as trusted business guidance, especially if the funding is multiyear.
Finally, at the same time, racial equity dollars do not always flow towards the regions that most need assistance in infusing Black equity into the ecosystem. Another member organization, Hope Credit Union and its related Policy Institute know this firsthand working in low-income communities and communities of color predominantly in the Deep South, where dollars are desperately needed, but leaders do not always seek them. Bringing public, private, and philanthropic funds to the geographic areas where the data support they are needed, but local politicians are not seeking it, should be a priority for Treasury.
These are all considerations for Treasury to keep in mind as it looks to leverage its position with private, nonprofit, and philanthropic funders.
In closing, the SSBCI Black Business Working Group greatly appreciates this opportunity and Treasury’s support of our work thus far. We look forward to keeping an open dialogue with the agency and being a resource to the states as they begin to implement their SSBCI programs.
Sincerely, Members of the SSBCI Black Business Working Group