Carolina Small Business Development Fund Filling Much-Needed Capital Gap For Black Businesses Trounced by COVID

An accomplished economic development executive, Kevin Dick uses a life rescue analogy to sum up what his community-lending nonprofit is doing to aid small businesses in North Carolina.

“Businesses are drowning but we’re helping them to survive,” says Dick, CEO and president at the Raleigh-based Carolina Small Business Development Fund (CSBDF).

Small- and medium-sized American businesses have been some of the hardest-hit companies clobbered this year by the COVID-19 pandemic. Black-owned businesses have certainly felt the sting, possibly much more than others. Some 41% of those firms had closures due to COVID-19 as of May 2020, data from the National Bureau of Economic Research reveals.

In the Tar Heel State,  businesses requiring capital help are fueling banner activity for CSBDF. Dick says the amount of demand the fund has realized for small business assistance is unprecedented, adding it surpasses what the fund saw during the financial crisis.

“Based on our current pace of activity, the amount of assistance transactions undertaken by CSBDF related to COVID-19 will create a record-breaking year for us,” he says. The activity is even more phenomenal because COVID-19 has had a far more reaching impact on small businesses than other catastrophes such as economic downturns, hurricanes, and other natural disasters that have hit North Carolina.

Started in 1990, the CSBDF is a strong ally to small businesses. It is a statewide nonprofit and Community Development Financial Institution (CDFI) offering small business loans from $5,000 to $250,000 to startups and existing businesses in North Carolina. Its core pillars include small business lending, technical assistance, and policy research. Since 2010, 49% of the agency’s loans totaling roughly $68 million in capital went to Black-owned businesses, including barbershops, salons, restaurants, accounting firms, and law firms.

Dick became president and CEO of the CSBDF in February 2020. He previously held senior positions with the City of Charlotte, Durham Office of Economic and Workforce Development, the Durham Workforce Development Board, the Broward Workforce Development Board, and the City of Dania Beach, Florida, along with private sector marketing and sales experience positions in New Jersey and Delaware.

Initiatives under his watch have been nationally recognized, and have been cited by the National League of Cities, U.S. Conference of Mayors, Walmart Foundation, the U.S. Department of Labor, the U.S. Environmental Protection Agency, and the National Civic League.

BLACK ENTERPRISE connected with Dick to chat about the CSBDF and its work.
Black business barbershop
Jimmy Evans, owner of Headquarters Barbershop, in Raleigh, NC. (Photo credit: Headquarters Barbershop)

BLACK ENTERPRISE: How many loans and grants do CSBDF expect to issue businesses this year? How much of an increase would that be over last year or previous years?

During the first eight months of this year, we’ve done 316 grants worth about $2.3 million, with an average size of $7,500. We’ve done 240 loans for about $6.1 million, with an average size of $26,000. Our loan production rose about 400% from approximately the same period a year ago. The fund did not do any grants last year because grants are a new addition to the agency’s portfolio. The total amount of capital deployed in fiscal year 2019 was roughly $5.4 million, compared with fiscal year 2020 when it was over $10 million, reflecting a 200% increase in total capital deployment. The agency did start not offering grants until after COVID began. Most CDFIs don’t do grant-making, making that financing unique for CBSDF.

Since April 2020, CSBDF has had a focus on COVID-19 assistance. In the wake of the COVID-19 disaster, many organizations started offering grants to small businesses. This has included CSBDF. We have engaged in these activities because our data suggest grant aid is important for small businesses to remain operational. One example is our partnership with the City of Durham, Durham County, and Duke University on small business relief. Through August this program has funded 58 Black-owned businesses.

Overall activity this year related to COVID-19 from April through August have included the Mecklenburg County Loan Program: 183 loans for $4.6 million, which small business beneficiaries report will help them create or save 1,195 full-time jobs. City of Durham and Durham County (Loan and Grant Program): 16 loans for $424,000, which beneficiaries report will help them create or save 103 full-time jobs. City of Durham, Durham County, and Duke University (Grant Program):124 awards for $904,000 in grant aid.

For fiscal year 2021, we expect to issue about 300 to 400 grants for roughly $6.1 million. We don’t have as certain a projection on the number of remaining loans in fiscal year 2021. That’s because we are not certain what COVID-related funding will be available to us from partners. Loans we do provide will likely be a combination of products from COVID-related funding and capital from other partners. We are still in the process of securing funding commitments for dollars that we would deploy during FY21.

Why is  funding needed more now than before the pandemic?

Even in the best of times, Black-owned businesses are less likely to have access to affordable capital. During economic contractions–like the current recession–financial institutions tend to tighten credit access to small businesses. Federal Reserve research staff argued that the economic impacts of the pandemic are disproportionately likely to impact Black-owned firms. Due to structural barriers to success often faced by minority small businesses, they tend to be more financially “at-risk” or “distressed” than enterprises owned by White entrepreneurs.

Why do Black businesses need funding? If they don’t get it, how many might be forced to close?

CSBDF’s research has summarized the challenges small businesses are facing due of COVID-19. In general, our data have shown these challenges are even more severe in the African American community. For example, across all racial groups, early data suggest Black-owned firms are among the hardest hit in the pandemic. The number of African Americans operating a business (actively working in it) plummeted from 1.1 million in February to 640,000 in April. At the same time, the overall share of small business ownership by Blacks (even if not working in the business) also dropped several percentage points.

For small- and medium-sized firms owned by African Americans, the biggest challenge to short- and long-term recovery is usually a lack of financial resources. Less than half of small businesses can cashflow their expenses for a month before having to lay off staff or reduce costs. Thus Black-owned small businesses are at high risk for permanent closure after large-scale disasters (including COVID-19) partially because they cannot pay for their expenses while being shut down.

What are the biggest challenges the CSBDF is facing now to provide Black small businesses capital and how is your agency overcoming them?

One of the biggest challenges for CDFIs is adding unrestricted lending capital and getting more capital to provide grants. We have overcome some of the challenges through partnerships we have with municipalities and four-year universities. That in of itself is very unique. We’ve done a lot of lending because of partnerships we have with: Mecklenburg County, City of Durham, Durham County, City of Raleigh, Duke University, Golden Leaf Foundation, North Carolina Rural Center, the State of North Carolina, Piedmont Community College, and HBCU’s such as Shaw University, Elizabeth City State University and Johnson C. Smith University. We also work with a host of not-for-profit organizations and other community colleges throughout the state.

What upcoming programs or workshops will the CSBDF be offering to help small businesses survive and continue to grow post-COVID?

CSBDF is unique compared to other CDFIs. What makes us different is that we use robust research to assess and evaluate our efforts. Our work in spotlighting the importance of small businesses during this time has included research reportsbriefs, and blog posts. In addition to financial assistance (loans and grants), CSBDF provides free holistic technical assistance solutions. Another is the City of Charlotte Program, running currently through December 2020. It provides customized technical assistance assessments to COVID-19-impacted firms in Charlotte.  Interested businesses in the Charlotte area can take an assessment and work one-on-one with CSBDF to get virtual training in the areas they need the most help with related to COVID-19 recovery. We’re working to expand this programming statewide. CSBDF plans to host a virtual Black Entrepreneurship Week series in 2021

What advice would you offer to other CDFIs now to increase their lending activities to Black-owned small businesses seeking capital to start-up or expand businesses?

Assessing specific needs are important. Remember that it’s one thing to help businesses survive and another to help them thrive. So technical assistance, in tandem with financial assistance, is really critical. And finding partnerships that can help you deliver the technical assistance is really critical. Use virtual means to get these messages out. Be strong with technology, enabling you to deliver these messages to your audience.