Rendering of plans for Pittsburgh Yards, a redevelopment site in southwest Atlanta that will include work spaces at accessible rates for maker and creative enterprises, among other small businesses. (Image courtesy of Columbia Ventures)
Poverty stands in the way of far too many children in the United States, particularly kids of color. Their families lack the assets—emergency savings or homeownership, for example—to help weather unexpected expenses or life changes, or to pave the way for greater stability and success for the next generation.
This is a big problem, not just for these children and families, but also for the entire nation, as children of color—who disproportionately contend with poverty and other obstacles—will soon represent the majority of kids in the United States. That means more than half of America’s young people may not have the chance they deserve to realize their full potential.
As a nation, then, we must fight poverty on multiple fronts, connecting parents with training and job opportunities that enable them to support their children, and helping children meet developmental milestones so that they can succeed in school and beyond.
The population of the United States is changing. By 2020, kids of color will represent the majority of children. (Image courtesy of the Annie E. Casey Foundation)
As part of the Annie E. Casey Foundation’s commitment to ensuring that all kids have the opportunity to succeed and thrive, we intentionally pursue strategies to address the racial inequities that continually undermine child and family well-being. This commitment extends to our social (or mission or impact) investing: We seek to leverage our endowment for larger-scale impact. We, like several contributors in this series, see the value of entrepreneurship as a path to economic opportunity and wealth for communities of color—particularly in the South, where kids and families consistently fare worse than in other regions.
Entrepreneurship: Another Path to Financial Stability
Creating and owning a business is a well-established way to achieve financial stability. Enterprises with fewer than five employees represent more than 90 percent of businesses in the United States and drive about 30 percent of private-sector employment. Businesses are also an asset that can pass from one generation to another.
In 2013, the median net worth, or wealth, of white families was more than 10 times that of black or Hispanic families, a wealth gap that widened after the Great Recession. (Image based on a Marin Economic Consulting analysis of the Federal Reserve Board’s Survey of Consumer Finances, 1989–2013)
These facts become even more pertinent when we consider the nation’s persistent and gaping racial wealth divide. In 2013, the median net worth, or wealth, of white families was more than 10 times that of black or Hispanic families. According to a 2016 report, if the average wealth of black families continued to grow at the same pace it has for the past three decades, black families would need nearly 230 years to build the same amount of wealth as white families had in 2013. Hispanic families would need 84 years. And, while all racial and ethnic groups experienced losses during the Great Recession, the wealth gap widened after that period.
Research suggests that investing in entrepreneurship can help close these gaps. Black entrepreneurs have 12 times more net worth than their peers who work for an employer, and their donations of time, money, and services to their communities further strengthen their neighborhoods. Entrepreneurship also has risen to unprecedented levels among women of color over the past two decades, driven largely by necessity and a lack of employment opportunities. People of color own nearly 50 percent of women-owned businesses, and the number of firms owned by women of color has grown four times faster than women-owned businesses overall, with black and Hispanic women leading the way.
Increasing Access to Capital for Small Business Owners in the South
Despite these promising trends, people of color encounter major roadblocks in starting a business. Among the biggest are not having the necessary capital and support to launch, sustain, and grow their enterprises.
The Casey Foundation has made several social investments to boost lenders’ ability to provide financing to more entrepreneurs of color so that they can purchase necessities such as equipment, materials, or commercial real estate. We’ve focused on entrepreneurs in the South, specifically in Atlanta and Baltimore, where we’ve made long-term commitments.
Our approaches have varied based on context. In Atlanta, one of the nation’s fastest-growing metro-area economies, several major development projects are underway. We and our partners are working to ensure that entrepreneurs of color can capitalize on these opportunities. In 2018, for example, the foundation launched a redevelopment project called Pittsburgh Yards, located in southwest Atlanta and adjacent to the Atlanta BeltLine, a 22-mile trail and transit loop around the city. The site will include work spaces at accessible rental and lease rates for entrepreneurs.
We’ve also invested in strengthening small businesses in the area, which is central to our local community development work—and home to our local office. In 2016, we gave grants to Access to Capital for Entrepreneurs (ACE), a Georgia-based community development financial institution (CDFI) with a strong track record. ACE seeks to lend to businesses that are owned by people of color, in low-income communities, or hiring people in those areas. The grants helped ACE build relationships with and provide technical assistance to southwest Atlanta businesses. And since 2017, we’ve supported a local wealth-building initiative and partnership—of which ACE is a member—to help black entrepreneurs grow their businesses, hire their first employee, or pay existing staff a family-supporting wage.
To complement those efforts, we’ve committed a total $4 million in program-related investments (PRIs) to ACE since 2016, enabling it to lend to more entrepreneurs. As of June, ACE had leveraged our initial $2 million PRI to finance $2.6 million in loans to 15 businesses that created 73 jobs. Of that, $280,000 went to nine businesses in the southwest Atlanta neighborhoods.
One such business is Marddy’s Shared Kitchen and Marketplace. Marddy’s offers classes for food-service licensing and business development, along with affordable commercial kitchen space, to neighborhood entrepreneurs such as home bakers and gardeners. A loan from ACE helped owner Keitra Bates buy and renovate a storefront and create space for microbusinesses in an area where new development has sent rents soaring.
In Baltimore, foundation-funded scans of the small business landscape revealed that local CDFIs can provide only limited capital to small business owners, nearly half of whom are black. Short on staff and resources, these CDFIs and small business development organizations—especially those serving low-income communities and people of color—are generally unable to deliver strong, individualized technical assistance to fledgling enterprises. They spend about 10 percent of their time coaching and mentoring, and the demand for their services frequently exceeds what they can provide.
We’ve therefore started with strengthening the entire small business landscape. Together with the Surdna Foundation, JPMorgan Chase, Baltimore Community Foundation, PNC Bank, and others, we developed a fund that will begin providing grants this year to help small business development organizations assist entrepreneurs of color and increase access to affordable financing. We eventually hope to support lending through local CDFIs to businesses owned by people of color.
Three Lessons
In all this work, we never lose sight of our goal: enabling families to support their kids and achieve financial stability. The stronger families are, the stronger their communities can and will be. Entrepreneurship can help build individual and community wealth, but only if we are intentional in our efforts.
First, to drive change, using a combination of grantmaking and social investments is important. That means investors of all stripes can foster entrepreneurship. While we’ve used traditional grants to provide direct assistance to entrepreneurs and the organizations that support them, we’ve drawn on social investments to increase access to the financing required to build or expand a business.
Second, to help close the racial wealth gap, philanthropic and other investors should make sure their grants and capital truly benefit entrepreneurs of color. For example, our agreements explicitly require that partners direct financing into communities of color and report information on borrowers to us by race, ethnicity, gender, and income level.
Finally, funders and investors should strive to understand the unique circumstances of any given community and tailor their investments accordingly. This means engaging everyone affected—residents, small business owners, CDFIs, other lenders, civic leaders, and others—to inform strategies and ensure that they respond to local needs. Our grantmaking investments and relationships in Atlanta and Baltimore helped shape our distinct approaches in both cities.
In taking these steps, we hope to forge new paths to opportunity so that all children, regardless of race, ethnicity, or community of origin, can realize their potential and thrive.
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Read more stories by Lisa M. Hamilton.