Interrupting history


Let’s Interrupt History: Racial Equity in a Time of Crisis

Data on the pandemic shows once again the dramatic consequences of racial inequalities. CDFIs must focus on ensuring equity for Black-owned businesses.

Image by Ivana Divišová from Pixabay

Interrupting history

Image by Ivana Divišová from Pixabay

Crises are the fulcrums of who we are as a society. The current COVID-19 pandemic is no exception. From the front-line health care and emergency workers to the idled people building toilet paper igloos in their homes, this crisis spotlights how our past experiences and decisions shape our current behaviors and reactions. And racism is our country’s most powerful shaper.

In the fifth week of wall-to-wall coronavirus news coverage, we began seeing data on the dramatic consequences of racial inequity. In Chicago, more than 70 percent of virus-related fatalities were among Black people—a percentage more than double their share of the population. In Michigan, Blacks make up about 15 percent of the state population but represent 52 percent of COVID-19 deaths. The same story is playing out in East Coast cities and Southern states where the virus has emerged.

We are told that viruses don’t discriminate, that this is an equal opportunity threat. Epidemiologically that may be true, but the conditions that created the virus’ existential consequences were years in the making.

Repeating History

Our finance industry is not unaffected. On March 27, Congress approved an unprecedented amount of money aimed at softening the pandemic’s economic consequences under the CARES Act. Included in the Act was $359 billion for the Payroll Protection Program (P3) to protect small businesses and nonprofits from being wiped out by providing forgivable loans through the Small Business Administration (SBA).                      

It was a major victory that, for the first time in history, the SBA opened up its programs to nonprofit corporations. However, the SBA is pushing out those loans through our current banking infrastructure, which has historically failed communities of color.

Thousands of small businesses and nonprofits applied to banks’ P3 programs, only to be told that the bank was only accepting applications from current borrowers (at many banks, even depository relationships are not qualifying). Once again, the fulcrum of crisis sharpens our ability to see the consequences and self–perpetuation of systemic racism.

Businesses owned by people of color have historically had difficulty obtaining capital from traditional banking systems for myriad reasons: too small, not enough collateral, not enough wealth, no co-signers with wealth, etc. Those able to defy the odds and stay alive despite these systemic barriers often did so at the fringes and while operating on slim margins. Now faced with the pandemic’s titanic challenge, they are asking the government for the assistance they were promised. And being denied again.

They will not be turned down because of race—that’s illegal. They will be turned down because they don’t have existing relationships, which they don’t have because of the persistent racial wealth and income gaps resulting from decades of racial inequalities

And the result will be that these established, Black-owned businesses will be destroyed.

Fast forward to five years from now. New Black-owned businesses will emerge, and they will apply for loans. Banks will turn them down, saying those new businesses are too new, too small, and don’t have enough wealth. Will we remember that the more established businesses were wiped out in the last (this current) crisis? 

We must interrupt this cycle in this crisis. We must, now more than ever, be focused on equity.

Interrupting History

The Community Development Financial Institution (CDFI) industry, unlike most banks, has strong relationships with, and understandings of, small businesses and nonprofits that serve lower-income communities. We understood from the beginning how the first round of the P3 program would quickly play out as history repeated itself.

When the second round of stimulus funding, approved April 24, injected another $320 billion into the P3, it included a $30 billion set-aside for “community financial institutions,” including CDFIs authorized to process P3 loans.

But this small legislative victory is not enough to change the course of history. We must also look at ourselves as an industry.

Every CDFI I know is working around the clock to protect itself, prepare for coming economic onslaught, and figure out how to protect and help its customers. There is little time for anything else. And that is the first problem. We know that “lack of time” for intentionality is an age-old barrier to equity. And emergencies are the ultimate time crunch. But now is the time to interrupt. So, pause, and make sure you ask yourselves and your staffs:

  • Who benefits from the activities you are focused on right now?  
  • Who doesn’t benefit?
  • Who might be harmed from those activities?
  • If you are only focused on current borrowers, what potential future borrowers might be wiped out?  
  • Are those potential future borrowers more likely to be applicants of color?

Interrupt! In the more equitable world that we aspire to, we have a duty to both our current borrowers and our potential future customers. 

“Resources are scarce” is another age-old axiom that is problematic for equity. Ask yourself: How can you divide your available resources in a more equitable way? How could you find additional resources if you focused on equity for those resources? At IFF, we are closely working with our arts and culture clients on their current loans, which are guaranteed by a foundation. But the foundation also allowed us to expand the program to a number of new grantees led by people of color that had been shut out of capital in the past.

Every CDFI will have a different formula for interruption based on its size and resources, but make no mistake—every CDFI can interrupt. So, consider:

  • Commit that that for every 10 customers you help, you will intentionally help 3 or 4 or 5 new customers of color.
  • If most of your existing customers are already people of color, then commit to making sure that for every 10 you already know, you will find 1 or 2 or 3 entirely new customers that might be more challenged in finding you.

Whatever your formula—interrupt it.

At IFF, we are helping both our current customers and greatly expanding our outreach to nonprofits shut out of traditional finance—and therefore shut out of the P3 in particular.

We formed a partnership with Community Reinvestment Fund, an SBA-approved lender, to make the loans that we are pulling in from smaller nonprofit agencies we’re coaching through the paperwork process. Together, our two CDFIs have committed to deploying $50 million in loans to Midwest nonprofits.

When we first reached out through our foundation and government channels to go beyond our usual customer base, we received nearly 200 inquiries in two days. (IFF normally approves about 120 loans in a full year.) We then partnered with and referred agencies to Financial Management Associates (FMA), which provides counseling to agencies about the P3 loans and how to comply with the rules to make sure they are forgiven.

Even when the government ran out of funds, we kept taking applications in anticipation of the newly approved funding, and we never stopped finding new partners to share our willingness to help any qualifying agency, regardless of how small. This Monday, when the second round officially opened, we filed nearly 60 loans for nearly $7 million. (So far, the average P3 loan IFF has helped process is less than $100,000, and the smallest is $1,500.)

And we’re not stopping there—dozens more are in process.

Honestly, we are nervous about liquidity and staff resources to make this move, but our senior management team unanimously agreed that we will not return to the status quo—we must continue to interrupt.

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