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Eliminating the CDFI Fund Would Harm Black Entrepreneurship

President Trump released his full Fiscal Year 2018 budget yesterday, and it calls for a reduction in the Community Development Financial Institutions Fund from $248 million to a paltry $14 million. This essentially amounts to elimination of the crucial fund, which would be a heavy blow to small businesses in distressed rural and urban areas. The administration’s reasoning behind their decision is that the program has been so successful that it is no longer necessary. The first part of that statement is accurate. The last part is dangerous.

The CDFI Fund supports hundreds of mission-focused lenders (CDFIs) that provide capital to communities and entrepreneurs who often find traditional sources of capital closed to them. It enables CDFIs to leverage their allocated awards into additional funding, which is then invested back into the community. Eradicating the Fund would have a devastating impact on distressed communities, particularly the Black-owned businesses that often exist in those areas.It is no secret that Black business owners have more challenges when applying for credit from traditional banks, including higher denial rates and lower approved loan amounts. CDFIs play an important role in helping to bridge that gap. According to the U.S. Census Bureau, Black businesses are the fastest growing segment of America’s small business owners, increasing 38% between 2008 and 2012. Is this a group we can afford to sabotage economically?

My organization, the Association for Enterprise Opportunity, recently released a report

The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success,” funded by the W.K. Kellogg Foundation. The report, presented to members of the Congressional Black Caucus last Thursday, found that the gap in average wealth between Black and White adults decreases from a multiplier of 13 to 3 when comparing the wealth of business owners by race. That makes entrepreneurship the greatest tool that the Black community has in equalizing racial wealth disparity. And CDFIs are the greatest tool that Black business owners have to launch, start, stabilize, and grow their businesses.

Since CDFIs, many of which are nonprofits, are focused on helping existing and aspiring small business owners, they have become a critical vehicle for small business lending in low-wealth communities. CDFIs can often be more innovative than traditional lenders, taking more time and resources to perform full underwriting, using factors beyond a credit score alone to determine risk and approval, deploying subsidies to insulate from losses, and more. CDFIs not only provide affordable access to capital, they are adept at using multiple resources to ensure the success of a loan. This can include everything from training programs, mentorship, monitoring to catch problems before they can escalate, and more. The comprehensive support system that a CDFI provides can make a significant difference in whether a business survives or thrives.

Ardina Pierre, a Black business owner in Hapeville, Georgia, took over a small herb shop two decades ago, Nature’s Own Herb Shop. Connecting with a Georgia-based CDFI, Access to Capital for Entrepreneurs (ACE), enabled her to open a juice bar which increased foot traffic and revenues. With another loan, Ardina was able to revamp the energy systems in the commercial rental properties she purchased, increasing their attractiveness to renters. Every month, a consultant from ACE connects with her to set goals, review results, and identify potential problems. Her annual revenues are expected to surpass $1 million in 2017, and she says ACE’s professional support has been essential to her success. Iris Phillips, president and CEO of professional services firm Grace Federal Solutions, also knows what it’s like to grow her business phenomenally with the help of a CDFI. A loan in 2015 from Carolina Small Business Development Fund (CSBDF) gave her the opportunity to take on a sizeable contract she would have otherwise had to turn down. As a result, in the last two years her company has grown from 25 to 125 employees, and increased their services to providing staffing for the healthcare, administrative, research, training, IT fields, and more.

As evidenced by Ardina and Iris’ successes, CDFIs give Black-owned businesses a stronger chance not just to survive but to flourish. CSBDF’s average loan is $63,000 and 57% of their loans are to Black-owned firms. ACE’s average loan size is $104,000 and 63% are to Black-owned firms. Those numbers alone illustrate what a negative impact eliminating the CDFI Fund would have on Black business ownership.

Connie E. Evans is president & CEO of the Association for Enterprise Opportunity (AEO), the national association for microbusiness.