Loan access difficult for Pierce County Black business owners

Black business owners face an uphill battle with systemic inequities, and the pandemic has only intensified their struggles in Tacoma and Pierce County.

Throughout 2021, a number of Pierce County Black business owners shared their experiences with The News Tribune about their struggles during the pandemic and beyond. Many said accessing loans has been one of the biggest problems.

The Black Lives Matter movement has called out systemic injustices in the aftermath of George Floyd’s death by police in Minnesota. While some local activists and experts have used the attention to rally behind Black-owned businesses, some are asking for larger, institutional change.

Linda Womack is director of the Minority Business Development Agency’s Tacoma branch. Womack said the social justice movement has not infiltrated the banking structure, hindering economic growth for Black entrepreneurs. The agency helps minority-owned businesses grow through access to capital and contracts.

“Banks lend to make money, not as social justice,” Womack said.

Some banks have recently made commitments to racial equity, allocating millions to support small businesses owned by minorities.

“A sense of true urgency has arisen across our nation, in view of the racial injustices we’ve seen in the communities where we work and live,” said Bank of America’s CEO Brian Moynihan in a statement in March 2021 . “We all need to do more.”

While becoming a business owner is tough for anyone, Hilltop bakery owner Cassandra Williams said Black entrepreneurs must also overcome systemic disparities that date back to slavery.

“Federal policy has been created to exclude African Americans from the wealth-building opportunity in this country, and now I’m seeing how that in and of itself has created barriers, even as it relates to starting a business in this country,” Williams said. “How do you fix the fact that as a community we’ve been blocked from building opportunities, in the form of purchasing properties in well-to-do areas?”

In the last century, Black people have been subject to “red-lining” from banks and other service providers. The term refers to the discriminatory practice of denying service like insurance and credit based on places where minority people largely reside.

“They were red-lined for decades,” Womack said. “I think there’s a new form of redlining in a way where banks are looking at urban areas as not being as profitable until gentrification happens.”

Gentrification occurs when wealthier residents move into city neighborhoods, bringing a rise in cost of living to the area. The newer residents also prompts new development and new businesses.

Kisela Canada (left) and Shundra King discuss client treatment scheduling at their For The Culture Counseling Services office in Tacoma, Washington, on Wednesday, April 21, 2021. Tony Overman [email protected]

PPP accessibility

The last two years of lockdowns have hit minority-owned businesses hard.

Small Business Majority, a business advocacy group based in Washington, D.C., reported in a January 2021 newsletter that entrepreneurs of color confront obstacles that white business owners do not, like ongoing discrimination in accessing capital and accessing critical business support.

“These problems have been highlighted by the current movement for racial equality, having dramatically worsened during the COVID-19 pandemic as Black and Latino-owned businesses have faced the brunt of revenue loss and business closures,” the newsletter said.

The National Bureau of Economic Research published a report in June 2020 that showed more than 41 percent of Black-owned businesses were closed during stay-at-home orders, whereas only 17 percent of white-owned businesses were affected.

Many minority businesses are retail and restaurant businesses, which are also seen as more risky loan applications to banks, Womack said.

Tacoma’s Black-owned businesses were no exception. Congress approved more than $300 billion for its Paycheck Protection Program (PPP) to help businesses keep their workforces employed during the COVID-19 crisis. Some Black-owned businesses in Pierce County struggled to successfully apply.

Melanie Norton, a spokesperson for the Seattle District of the U.S. Small Business Administration, said PPP loans did not require demographic information, and many applicants did not provide their race and ethnicity.

The bipartisan business think tank, Public Private Strategies, conducted a national survey on the PPP loan program, multiplying the percentage of applicants and percentage of loans awarded to calculate a success rate. Of those who applied, white business owners had a 60 percent success rate, while Black business owners had a 29 percent success rate.

Maamideede Hudson is the Small Business Support navigator at the Tacoma Urban League. She helps Black business owners apply for financial aid. She said loan accessibility has been an issue.

Applicants had to apply for the PPP loan through a registered lender, which was usually a bank.

“I have been working diligently to support owners with the application process. Unfortunately, many have been denied,” she said.

Tacoma’s branch of the national Minority Business Development Agency (MBDA) opened in 2016 as a public-private partnership to lower contract and capital barriers for minority business owners. It offer programs to connect business owners with bookkeepers and accountants and to help minority-owned businesses grow and find capital.

The federal PPP loan process was difficult for many Black entrepreneurs, Hudson and Womack said. Much funding from the first round was doled out to big business like chain restaurants, large manufacturing and law firms, national news outlets reported. That left many small, minority businesses feeling discouraged, Womack said.

“Sometimes it is that the will was not there,” Womack said. “When you’ve already had a history of rejection, it’s intimidating.”

Hudson said many Black entrepreneurs don’t have the same support as white entrepreneurs with financial education or connections. She helps them organize financial documentation and forms to apply for programs like the federal payroll protection program.

“A lot of Black business owners don’t pay themselves,” Hudson said. “If you never pay yourself, how can [your financial documents] protect you or get you benefits? You need that paper trail.”

She said the disparity in business and financial education can be frustrating for Black business owners applying for loans.

“Our parents were just surviving and [white people] have generational wealth. Now we are learning to do that, but having a paper trail, it’s not taught because we are learning as we go through the stages,” Hudson said. “They do it because their passion is there, but it is discouraging to apply and never get it and no feedback on how to improve. You see your white counterpart getting it, and it’s, ‘What makes you qualify and not me?’”

The Economic Development Board for Tacoma Pierce County published a report in January on the struggles Black, Indigenous, people of color (BIPOC) entrepreneurs face in Pierce County.

The report concluded that minority-owned businesses make up 19.6 percent of the Pierce County business community. Minorities comprise more than 25 percent of the county, according to the U.S. Census data.

Cassandra Williams owns the Hilltop bakery, Love by the Slice.

Seeing large companies awarded millions of dollars of federal relief shows the disparity in business development, Williams said. She wants to see more investments into local, small businesses — especially those owned by people of color.

When Williams initially applied for a PPP loan Initially, she said, a banker told her she did not have the documentation in an acceptable format. She reapplied and was awarded $3,800. The pandemic funding helped her hire two employees and renovate her new space.

“The pandemic, as bad of a situation it has been, I think a lot of people are in a better position now than they were before, because now they have outreach dollars,” she said.

Several of the business owners the Tacoma News Tribune spoke to were not awarded PPP loans.

Systemic inequality

A study from the National Bureau of Economic Research in Cambridge, Massachusetts found that BIPOC firms often receive lower start-up capital vs. white firms, $35,000 compared to $107,000. The report found that white-owned businesses are more likely to borrow than Black-owned businesses.

“In the year of founding, white-owned firms on average borrow nearly six times as much black-owned firms,” the report said.

Some Tacoma business owners shared their experiences in trying to get loans from banks.

Williams said she has felt intimidated going to the bank asking for a loan. Her mother, who operated a hair salon out of their home, never went to the bank.

“If I’m generating four times less money than my Caucasian counterpart, how realistic is it going to be that I’m going to have a bookkeeper on staff?” she said. “When it comes to submitting these applications at the bank, they’re not looking for [Microsoft] Word documents. They want official financial documents. Many of us don’t even have a QuickBooks account.”

Thea Feltz is Black and owns an insurance and health care company, Comparative Solutions. She started the company during the pandemic, after 14 years in the insurance industry. Her business opened in August 2020. She has been rejected for loans. Many financial aid opportunities revolve around impact by the pandemic, she said.

“Loan accessibility has not been in our favor,” Feltz said.

Since Black entrepreneurs have not been able to rely on financial institutions, they built their own stores, restaurants and professional-services businesses using family and friends for financial support.

“We haven’t had the ability to really build a relationship with bankers,” Womack said. “When you don’t have that relationship, it makes it difficult to continue to build that credit line, or the working capital.”

This year, Williams opened her first storefront location for her baking company, after building up her business from home for years. In 2017, she moved to a commercial kitchen after discovering she was making too much money to continue baking from home. The state allows small businesses making $25,000 or less to bake or make jarred goods like jellies from home. Williams earned more than that, and a friend of a friend offered space in a co-working kitchen. Her connections also helped her find a Hilltop location at 1112 S. 11th St.

“I always wanted to have my first storefront flagship store in Hilltop where I was born and raised and that person knew that the couple were retiring, they remembered my story, and they called me and asked me if I would be interested,” Williams said.

She feels there is a double standard for white- and Blackowned businesses.

“Our network can only push us so far. I’m only going to have so much financial resource available to me within my network,” Williams said. “You have people who have stronger connections in the city. They had to rely on their network.”

Williams said she has been able to financially survive for two decades as a business owner because she is good at saving money, but she will never have the support or investment of some white-owned businesses. She looks at the story of the Tacoma Baking Co. and sees white privilege.

Employees at the Tacoma Baking Co. spoke to The News Tribune in April 2020 about mismanagement and bounced paychecks. After four years of preparation, the bakery opened in Hilltop in January 2020. Three months later, the bakery announced its closure after telling staff it was “officially broke.” Later that summer, the bakery was awarded between $150,000 and $350,000 in a PPP loan after shutting down.

Williams said she is awe of the fact that another bakery could get a more than $20,000 loan.

“How is this even possible? First of all, you’re going to charge $12 for a loaf of bread in Hilltop? So how does a business with that kind of business concept even get funding?” Williams said. “I feel like there are just certain opportunities that others get, that just don’t even seem like it would be a possibility if it were me.”

David Comb runs Spaceworks Tacoma, which provides startups space and training to grow. Before that, he and his brother, Willie Combs, ran Tshirt Men in Hilltop for 10 years.

Starting up a new business is hard, but Combs said it’s much harder when you feel separated from the banking or business communities.

“I know the power of knowing folks,” Comb said.

He has seen Black-owned businesses struggle to find access to sell products, to access capital and commercial property. He is also the president of the Hilltop Business Association.

Initially, the Comb brothers wanted to start a clothing line and have T-shirt printing company as a side business.

Spaceworks helped the Tshirt Men find a Hilltop location in 2014, giving them foot traffic and allowing them to build a stronger client base. Over the first five years, both brothers were working other part-time jobs and making just enough revenue to cover expanding the business. Water damage to the building forced the company to relocate across the street. Combs said they were lucky to know the owner, who gave them “a handshake lease.”

“Getting into that spot really allowed us to grow up with it, because now our rent was half as much as it was before and we had double the space. So I think without that happening, there’d be no Tshirt men,” Comb said.

Banks’ community investments

A number of banks contacted by The News Tribune responded to questions on loan accessibility for minority entrepreneurs by providing details on their work to support minority-owned businesses through philanthropy and investments.

Bank of America recently made a national $1.25 billion five-year pledge to address economic and racial inequality accelerated by the pandemic, spokesperson Britney Sheehan said.

The money includes:

  • $200 million to provide minority entrepreneurs with “proprietary equity investments,” which includes trading stocks, bonds.
  • $50 million for financial institutions owned by a majority of BIPOC people.
  • $25 million to support job initiatives in the Black and Hispanic/Latino communities.

Sheehan said the company does not track race data on loan applications because it is illegal.

BECU’s Dana Gray, senior vice president of Commercial & Business Services, added that new regulations are being proposed by a federal agency. The Consumer Finance Protection Bureau is working to include data collection and demographic assessment of business loans.

While not just open to minority business owners, BECU, a Washington-based credit union, helps small businesses apply for loans through “business specialists.” The employees are rotated around branches to help entrepreneurs through scheduled appointments, Gray said.

The credit union has partnered with Business Impact NW and Score, to offer free or reduced-cost courses and mentoring for small businesses on financial education, Gray said. Business Impact NW emphasizes working with under-served populations.

KeyBank has partnered with organizations like the Tacoma Urban League to support minority-owned businesses, company spokesperson Laura Suter said. The bank has invested more than $336 million since 2017 into the South Puget Sound market, $55 million of which the bank has loaned to low- to moderate-income people and communities.

Not everyone knows about those programs or has had success using them.

Jessie Baines, who is Black, owns Hulk Construction and is a Tacoma Metro Parks commissioner. When applying for a loan recently, he was denied several times before meeting with top bank management to leverage his position as a park commissioner.

“Even with my good credit score and stature in the community, I’m still told no because I don’t have relationships with bankers like others do,” Baines said. “I would say that your proximity to wealth determines how successful you are in business.”

The Tacoma-Pierce County Chamber of Commerce has seen Black business owners struggle to attain loans.

“These are examples of systemic racism that persists in our community and communities throughout the country,” said Tom Pierson, who recently retired as CEO and President of the chamber.

In an interview with The News Tribune in August, Pierson recalled a specific instance of frustration. A Pierce County man was selling his business to a Black man, who was able to provide a portion of the funds through the help of friends and family, but there was still a financial gap. Pierson tried to go to banks and nonprofits on his behalf to cover the difference, but no one helped.

“Here we are, the Chamber, and if we can’t get this guy help, how many other businesses are having that same struggle?” Pierson said. “I asked the question of what was wrong, and I never got a good answer. We never got some traction.”

Womack holds out hope that the recent social justice movement will bring about more awareness to change the status quo. She is starting to see banks, government programs and other financial institutions change the standards from requiring a certain, initial credit score to gross receipts.

“It’s not lowering the bar to make the inequities ignored or to narrow the inequities, I think what they’re doing is they’re looking at different instruments and measurements so that African American businesses can obtain more access to capital,” Womack said.

Bank of America bases its loans on cash flow first rather than collateral or equity, focusing on whether an applicant makes enough net income before taxes to repay the debt and have enough funds left over, Sheehan said.

BECU considers several factors before approving a loan, including revenue, cash flow, collateral coverage, company leverage and liquidity depending on the requested amount, Gray said. The credit union offers small business loans under $50,000 “on an unsecured basis,” meaning no collateral is promised to the bank.

In the meantime, Womack said she has been pleased with the cultural shifts across companies, but calls for more funding from the state and federal government for programs and resources to help minority businesses.

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Josephine Peterson covers Pierce County government news for The News Tribune.