Capital Ventures

Gaining access to existing sources of financing remains a priority for black-owned firms

of sources.

Then we went to the SBICs
program and the Specialized Small Business Investment Companies (SSBICs) program to try to get a sense of how equity was being placed in minority businesses through that program. We found that $4.2 billion was invested through the SBIC and this includes both SSBICs and SBICs. But of that, $4.09 billion went to majority firms and only $128 million, which was 3% went to minority firms.

GRAVES: You say that the SBIC put out $4.2 billion and only $128 million of it went to minority businesses. I’m not so sure I understand the purpose and focus of SBIC. If its focus is to lend money to small businesses, I find it hard to believe that they were only able to find $128 million worth of “qualified or worthy companies” to put money into. One business can get $128 million, much less all minority businesses, in total. Is there an explanation of the vast inequity that you have in SBIC loans, where very little of it actually finds its way into minority businesses?

COOKE-WELLS: What we are told by venture capital companies is that they don’t know the networks into the minority community. They will tell you that they don’t know the minority businesses and that minority businesses don’t know them. Also, what you hear is that for every company that gets funded, 100 applications for funding are turned down. So, whether people are coming in with the right types of proposals and business plans to obtain the financing is another issue and something that we need to look at as well. That’s the official explanation on why it is that the funding levels [for minority businesses] are so low.

CONRAD: The part that strikes me as incredible is this notion that ‘we don’t know this market’ or ‘we can’t tap into this market,’ as if this market is someplace in another country. Many of these businesses are already mainstream businesses of the type that these banks are probably lending money to. It’s hard to believe that if you want to make loans and you can make profitable loans, that you don’t go out and seek the information.

GRAVES: And when you say they come in unprepared, I’m not in that camp. I think that you have a new economy of businesses now, of African American and Hispanic entrepreneurs who are better educated and who clearly understand what they want, and they should be given [the same] opportunities [as] their counterparts. The problem is that if one minority loan fails, then the entire minority community [is painted] as a failure. However, 99 white applicants could fail, but they don’t paint the entire [white] community as failures.

WILLIAMS: The question is what exactly are the incentives of the lenders? Because if they can put a lot of their money in Treasuries, for example, and get a risk-free return on them that exceeds whatever the cost of the capital is, they just collect free money. They really don’t want to lend the

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