COVID-19 has revealed paths forward to address inequities in lending

The historic inequities regarding access to capital financing have recently been amplified as businesses have shut down due to COVID-19. As Black Americans face racist lending practices and so have a distrust of financial institutions, community development financial institutions (CDFIs) can provide an alternative way to access capital and lift up minority owned businesses.

Melissa Roberts-Chapman, senior program officer at Kauffman, was joined by Chris Evans, president of T-Shirt King, Inc., and Ruben Alonso, president of the Kansas City community development financial institution AltCap, for a conversation about banking, financing, and alternative capital.

AltCap launched a COVID-19 relief loan fund in March. “In the first 72 hours, we had over 600 businesses requesting $30 million in financing and we were talking about standing up, at that time, a $3 million loan fund. We increased that to $5 million, but it was overwhelming,” Alonso says. “But hearing what those businesses were going through, it was just something that we felt we had to be there for them.”

Evans says he knew COVID-19 would have a serious impact on his family-owned business when his larger clients began cancelling orders.

“With the money that we got from AltCap, we were able to make good with all of our suppliers immediately so when business did come back around, we did still have an open account with them and that was definitely huge for our business,” Evans says.

Alonso says, “Kicking into high gear with the COVID-19 relief and recovery loan fund was just our attempt to find a way to make sure that small businesses had access to capital, some sort of financial lifeline once the economy essentially shutdown.”

While lenders like AltCap provide an alternative way for small business owners to finance their business if they are unable to get a loan from a traditional financial institution, Evans says Black Americans have historic distrust of banks, as a result of racist lending practices.

“A lot of times, we finance our businesses through credit cards and figure in that urgent moment where you have this big order of three or 4000 t-shirts and you don’t have that cash to pay for them, you put it on a card, it doesn’t necessarily all get paid off, now you have these high interest payments because you didn’t have that traditional financing,” Evans says. This results in “expensive” financing compared to bank loans.

Roberts-Chapman says, “COVID didn’t cause problems, it just exposed problems that were endemic in society that we were ignoring. In the age of COVID and the age of protests against police brutality, at no time is that more apparent than today.”

In 2019:

57% of Black people who applied for credit were denied or approved for less than requested; 24% of White people were.
Most business starts, we already know, are financed by personal credit, personal savings, and bank loans. The Brookings Institution found that Black household net worth, $17,000 on average, roughly 10% the net worth of the average White household.

“When you add all that up, and we expect everybody to have the same opportunity at starting a business, it just doesn’t work,” Roberts-Chapman says.

Watch the full conversation in the video above.