If Massachusetts could close the wealth gap in Black and Latinx communities, the state could grow its economy by $25 billion over five years, according to a recent report by the Massachusetts Taxpayers Foundation.

Closing this gap will take significant systematic changes. A 2015 study determined that in Boston, the median net worth for Black households was $8, compared to nearly $250,000 for white families. Numerous studies show Black and Latinx entrepreneurs are less likely to get funding or a bank loan than white business owners. And COVID-19 has exacerbated challenges. While white-owned businesses declined nationally by 17% from February 2020 to April 2021, Black-owned businesses dropped by 41%, and Latinx-owned businesses by 32%.

Quincy Miller, vice chair and president of Eastern Bank, explains the wealth gap is “the manifestation of 400 years of systematic inequities in our society.”

Thus, there is no simple fix. But when small businesses grow, they create jobs, and in turn, new opportunities for others to create wealth. This ripple effect can cascade across communities, and future generations, so investing in Black and Latinx business owners could prove key to addressing wealth and income inequities.

Massachusetts-based organizations are coming together to make a difference, by building an ecosystem to provide people of color access to capital, and other tools for scaling a business.

Drawing the map of the future

Glynn Lloyd, executive director of the Foundation for Business Equity, an organization started by a $10 million grant from Eastern Bank and support from others to address the wealth gap in Greater Boston, explains that small businesses seeking capital face bias at every stage of their evolution, “from startup, to emerging, to maturation.” 

The Foundation for Business Equity has enabled the investment of millions in growth capital in Black and Latinx businesses since its founding. It also connects business owners with strategic advisors and potential clients. Sheldon Lloyd, CEO and co-owner of City Fresh Foods, says, to put it simply, the Foundation for Business Equity helps minority companies “draw their map of the future.”

“They help you define where you want the company to go, then provide the resources and expertise to get you there,” he says.

Sheldon Lloyd co-founded City Fresh in 1994 to provide fresh food to schools and communities across Massachusetts. He credits the Foundation for Business Equity for helping the company achieve its next phase of growth by connecting it with a network of business advisors and consultants. 

Acknowledging the gap

City Fresh had cashflow challenges in the beginning. When it had a chance to buy a building for auction by the city of Boston, it couldn’t find a bank to lend the $18,000 it needed. Instead, it worked with a venture capital firm that took a stake in the company.

Experiences like that have caused Black and Latinx communities to lose trust in banking. A 2019 report found that loan applicants of color tended to have worse outcomes than white applicants and, on average, received less financing than they sought.

Small business owner Germaine Dublin Harper didn’t bother seeking a bank loan when she launched Jewelz on Demand (JoD) in 2015. She also didn’t seek capital last October, when she decided to scale her business by investing in marketing and selling more jewelry besides her handmade creations.

“I never went to a bank because I was told that you wouldn’t get [a loan] anyway,” Dublin Harper says. “And, it is not just with lending to businesses — it is everything else.”

She recalls what happened when she sought to remortgage her home with her current mortgage provider.

“He offered me a higher percentage rate than what I actually had,” she says. “My credit score is good. I have been consistent with my payments. Yet this is how we get treated.”

Dublin Harper explains incidences like this have a compounding effect.

“If I were to take that [higher] interest rate, then it would take away more income from me,” she says, “which means less money to put into the business.”

Cressida Joseph, DMD, CEO and founder of Beacon Dental Group, faced similar challenges. She was outraged when a large investment banking company refused her a loan for working capital after “15 years of a great repayment history.”

“It’s frankly offensive and embarrassing,” she says. “I felt overlooked and underappreciated, and frankly, used. How could my hundreds of thousands of dollars pass through your bank yearly, but you can’t find a way to get me a loan?”

Joseph notes she later reached out to Eastern Bank, per the recommendation of her accountant, and was approved for a loan in “a matter of days.”

Patterns perpetuate

The Paycheck Protection Program (PPP) is a prime example of how patterns of inequities are perpetuated. Only about six in ten Latinx business owners and four in ten Black business owners received all of the assistance they requested, according to a report from Boston Indicators and the Boston Foundation. Nearly one in ten Latinx business owners and two in ten Black business owners received no PPP support at all.

PPP funds didn’t get to the people who needed them most because they didn’t have the same banking relationships as white-owned businesses, say Senofer and Adrian Mendoza, founders of Mendoza Ventures. The organization is the Boston area’s only Latinx- and woman-founded venture capital fund that invests in women- and BIPOC (Black, Indigenous and people of color)-led startups in fintech, cybersecurity, and artificial intelligence.

It is on financial institutions to build those relationships, Miller says, noting that Eastern Bank has opened locations in low-income communities that haven’t had a bank branch in 20 years.

“Trust comes from being present, being involved, and being local,” he says.

Miller doesn’t believe the government intentionally designed the PPP program to overlook people of color — but he doesn’t think they intentionally designed one that included them either. For example, applications were only in English, and to qualify, you had to submit payroll documentation, which smaller businesses didn’t always have readily available.

It takes an ecosystem
To ensure Black and brown business owners didn’t miss out on the second round of PPP funding, entrepreneurs, government leaders, businesses and financing partners, and nonprofits, including the Foundation for Business Equity, helped initiate the Massachusetts Equitable PPP Access Initiative which has evolved into the Coalition for an Equitable Economy.

The coalition was created in response to COVID-19 to help Black, Latinx, immigrant, and low-income business owners access capital, business networks, education, and other resources. Together, they have helped 682 businesses apply for over $9 million in PPP loans.

Glynn Lloyd is proud of their progress. “We put millions of dollars on the street with BIPOC (Black, Indigenous, and people of color) businesses preferred — front of line,” he says. “We have never seen that before.”

This kind of support can make all the difference. Beacon Dental Group fared well during COVID-19. She credits the Foundation for Business Equity. She was accepted to the Business Equity Initiative in 2018, and her advisor helped her create a plan to scale. Thanks to the partnership, she increased collections by 20% in one year. And, because her advisor had urged her to get her bookkeeping in order, she was more easily able to apply for a PPP loan. While Joseph had to furlough employees during the first lockdown, she was able to bring them all back. The practice is now growing at a record pace. 

The past year also marked a historic milestone for City Fresh. On Juneteenth 2020, the company borrowed funds from Eastern Bank to buy back shares from impact investors and create an employee stock purchase plan.

“We no longer have outside partners,” Sheldon Lloyd says. “Now, two-thirds of our company is owned by working employees. With all the craziness going on at that time last year, this was something tremendously positive and a big win for us.”

To create more success stories like these, Glynn Lloyd suggests banks develop banking products specifically for customers of color; analyze the criteria lenders use to make decisions for biases; and partner with microlending companies and community development finance organizations (CDFIs), such as Mill Cities Community Investments (MCCI), Massachusetts Growth Capital Corporation, Accion Opportunity Fund, and LISC.

Supporting Black and brown business owners creates new opportunities, strengthens the economy, and contributes to a more inclusive entrepreneurial system. Decades of systematic racism have had lasting effects on individual families and our broader society, but removing barriers and creating opportunities will have lasting effects, too.

“I’m proud and humbled to say that our second daughter has chosen to follow the path beaten by her enterprising pioneer of a mother,” Joseph says. “She is, of course, being factored into my succession plan. All of this hard work will not go in vain. Generations to come will benefit greatly.”

Miller also acknowledges the long-tail effects of his efforts, which are additionally taking hold across Massachusetts through the New Commonwealth Fund, a nonprofit he helped to co-found last year during the pandemic and in the aftermath of the killing of George Floyd. Established by a coalition of Black and brown executives from Massachusetts’ leading corporations, its goal is to dismantle systemic racism by providing essential resources to Black and brown-led community organizations.

“I was the first in my family to graduate college, which created the access for me to get to where I am today, and to be able to help create new opportunities for future generations,” he explains.

The individual pathways of Miller, Joseph, and others are closing gaps. With intention, investment, and collaboration, Massachusetts-area organizations can create changes like these at scale.