November 6, 2020

Research Resources: Go-Tos for Grant Seekers in Microfinance, Community Lending, and Business Development

As the COVID-19 pandemic in the United States stretches into its ninth month, small businesses continue to feel the fallout as consumers have less spending money and public health restrictions on indoor dining and other activities limit revenue opportunities. Unfortunately, due to historic disparities in business development resources, COVID-19 is imperiling some businesses much more others. According to a McKinsey & Company report, minority-owned small businesses in particular “tend to face underlying issues that make it harder to run and scale successfully, and they are more likely to be concentrated in the industries most immediately affected by the pandemic.” Three of the major underlying issues that minority-owned businesses face are:

  1. Generational wealth gaps that result in their businesses starting out with less capital than White-owned businesses; 
  2. Unequal access to formal business training opportunities and peer networks; and 
  3. Barriers to mainstream credit, which relies on traditional indicators of “creditworthiness” that exclude people with lower incomes and assets.

This current system also has an enduring problem with racist redlining—meaning people of color are often denied credit even when they meet the same qualification thresholds as their White peers. Women entrepreneurs face similar barriers—historical pay gaps that result in less starting capital, less access to credit (and venture capital!), and less access to formal and informal business development opportunities. Women are similarly concentrated in COVID-impacted industries like healthcare, retail, and hospitality.

Although the pandemic has certainly made business disparities more dire, Community Development Financial Institutions (CDFIs), credit unions, and other mission-driven lenders have been working for a long time to fill these gaps in lending and level the playing field for entrepreneurs. This means that there is a rich funding landscape for grant seekers working in microfinance, community lending, and business development programs targeted at minority, women, low-income, and other entrepreneurs who have been historically sidelined. Even better, this lending landscape is now bolstered with COVID-19 funding opportunities. Major funders include the CDFI Fund of the U.S. Department of Treasury, the Small Business Administration, the Minority Business Development Agency of the U.S. Department of Commerce, the National Credit Union Administration, and large banks (Wells Fargo, JP Morgan Chase, Bank of America), along with an array of national and local private foundations. (To keep an eye on pandemic-response funding opportunities, check out The Grant Plant’s COVID-19 Funding Resource Center.)

In order to be competitive for these opportunities, you not only need to have a strong, results-driven program to pitch—you also need to show that you understand entrepreneurial challenges and opportunities (nationally and in your state), systemic inequities, and which specific gaps your program will help fill (e.g., specialized loan products, technical assistance, business incubation and mentorship connections for certain target populations). Although by no means an exhaustive list, below is a round-up of some go-to research resources that can help you craft a compelling need statement that sets the stage for your proposed solution:  

The Aspen Institute spearheads a variety of initiatives designed to promote a “free, just, and equitable society,” including several programs focusing on economic development, business ownership, and finance. Its publications page is a rich resource for finding data on disparities in business lending, opportunity, and outcomes. One of the most compelling research reports to come out of the institute in recent years is its 2017 Unleashing Latino-Owned Business Potential, which documents the persistent opportunity gaps that prevent Latino-owned businesses from scaling at proportional rates—and what that means for our economy as a whole. 

The Small Business Administration’s Office of Advocacy features important research reports and fact sheets, including state Small Business Profiles that show how many small businesses are in a state, how many jobs they create, dominant industries, and how many businesses are owned by women and people of color. They also publish special reports such as Black Business Owners Hit Hard By Pandemic and Minority-Owned Employer Businesses and their Credit Market Experiences in 2017 that demonstrate the need for proactive interventions. 

Research reports published by the National Women’s Business Council highlight the challenges and opportunities for rural, veteran, millennial, Hispanic, and other women entrepreneur groups, as well as women’s representation in business incubators and other development opportunities. Its 2018 Understanding the Landscape: Access to Capital for Women Entrepreneurs is a thorough literature review showing that women business owners face across-the-board challenges to raising start-up and growth capital, have fewer institutional resource connections, and face systemic bias that causes lenders and investors to view them as “less credible.” The Council also publishes fact sheets on women business owners categorized by ethnicity, age, industry, veteran status, and more. 

In 2017, the the University of Arizona Native Nations Institute published the comprehensive Access to Capital and Credit in Native Communities: A Data Review, which details the barriers Native Americans face related to geographical proximity to financial institutions, credit scores, sourcing public and private capital, and land trust status. The report notes that “Native business owners appear less likely than business owners overall to obtain financing from banks” and that while Native CDFIs are an important presence filling this gap, “demand for Native CDFI lending . . . exceeds the sector’s capacity.” The review ultimately points to a need for much more funding going to CDFIs that serve Native American entrepreneurs.

Prosperity Now offers a plethora of resources to grant seekers looking for information on wealth and income inequality, business disparities, policy recommendations, and more—they also have a growing COVID-19 resource and research center, which includes a brief outlining the “Cascading Impact of COVID-19 on Microbusinesses and the U.S. Economy.” One of its most useful tools is the Prosperity Now Scorecard, which you can filter by location or issue area. For example, when I filter by the issue area Businesses & JobsBusiness Value by Race, I see the summary, “Not only do workers of color own businesses at a lower rate than White workers, the value of businesses owned by workers of color is generally far less than that of businesses with White owners,” followed by state-by-state data on business values by race. (You can do the same thing for gender, and you’ll see similar results—unfortunately.)

The CDFI Fund has a very handy mapping tool[1] that you can use to determine if your program service areas fall within Qualified Opportunity Zones and/or New Markets Tax Credit Zones. All you have to do is enter an address and the tool will zoom in and show you OZ and NMTC zone status (by census tract), as well as that area’s population, median income, poverty rate, and unemployment rate. Why is this important? Major funders (including the CDFI Fund and other government agencies) typically want grant seekers to show that their lending and business development programs are serving entrepreneurs in areas that the federal government has qualified as “economically distressed.” The SBA has its own version of this in the form of HUBZones—“historically underutilized business zones”—and you can find out if your service area falls into a HUBZone here.

The Asset Funders Network publishes reports on a wide range of income and wealth-building topics, including Employment & Entrepreneurship. Relevant publications include Building Assets through Microbusiness, Forging a Successful Business Formation Path for Returning Citizens, Prison to Proprietor: Entrepreneurship as a Re-Entry Strategy, and others that highlight the effectiveness of business ownership as a pathway to financial stability and prosperity—and why it’s so important to equalize access. For example, its 2019 Unlocking Assets: Building Women’s Wealth through Business Ownership “explores ways business ownership can serve as a wealth-building tool for women, explains the systemic barriers impeding women’s ability to build wealth through business ownership, and suggests ways grant makers, policy advocates, and practitioners can intentionally promote wealth-building by entrepreneurial women through business ownership.”

Similar to the Asset Funders Network, the Association for Enterprise Opportunity publishes reports on systemic hurdles for entrepreneurs, their contributions to the U.S. economy, and best practices for supporting entrepreneurs in succeeding in their business. Its publications include big-picture reports like Bigger Than You Think: The Economic Impact of Microbusinesses in the United States, Micro Capital Task Force: Moving Money to Main Street, and The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success. 

The latter publication eloquently explains how the stark disparities for Black business ownership came to be. It describes “three major persistent barriers . . . the Wealth Gap, the Credit Gap, and the Trust Gap” and why it’s so important that we address these disparities: “Black business owners are wealthier than their peers who do not own businesses, and business ownership creates new wealth faster compared to wage employment. At the same time, small businesses tend to hire from the community, creating jobs for neighborhood residents. Therefore, opportunities for Black entrepreneurs to succeed are critical for economic empowerment in Black communities.” Just as important, the report dispels long-standing, biased myths that perpetuate lack of investment in black entrepreneurs, showing that “the entrepreneurial spirit remains robust in the Black community. In fact, Black business owners are similar to other business owners in terms of vision, passion, and a desire for economic independence.”

This last resource brings us to a critical consideration when framing the problems surrounding unequal access to business development, capital, and wealth-building opportunities: it is very easy to fall into a solely “deficit-based” framework for describing why funders need to invest in programs that equalize access. This can have the unintended effect of portraying impacted populations as “victims” or “burdens,” rather than resilient communities who would unleash a whole new world of potential with the proper resources. To that end, our next blog post will pick up this thread and give a primer on using “asset-based” frameworks in grant writing—focusing on ingenuity, opportunities, and strengths—and how they can be harnessed into impactful solutions.     

 

[1] This map currently requires that your internet browser allows the site to run the most recent version of Adobe Flash Player, which is being discontinued at the end of 2020. Keep an eye on the CDFI Fund’s main site or subscribe to their mailing list to keep tabs on what may change with the mapping tool. 

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