Despite an entrepreneurial renaissance since Hurricane Katrina, New Orleans’ emerging small businesses and nonprofits, particularly those founded by entrepreneurs of color, continue to face difficulty accessing capital. A new $1 million fund will support and scale innovative ventures of entrepreneurs of color.
Working Towards a More Equitable City
Since 2009, Propeller: A Force for Social Innovation has worked to grow and support entrepreneurs tackling our city’s most pressing social and environmental disparities. We believe that social entrepreneurship has the power to correct for and tackle systemic issues – the deeply ingrained inequities that disproportionately impact populations of color. By building a critical mass of social entrepreneurs to solve those problems in four core issue areas- healthcare, food security, education and water – we work to create a more equitable society free of racism, poverty, and other systems of oppression.
Propeller’s Accelerator programs have launched 145 small businesses and nonprofits working to increase equitable outcomes for New Orleanians in food, water, health, and education. Together, Propeller graduates have generated over $85 million in revenue and financing and created over 350 jobs for New Orleanians.
However, through the years, even some of our highest-impact ventures encounter the same challenge uniformly faced by startup founders: early-stage businesses have long been considered too high-risk to be considered for traditional sources of loans and credit. This problem is compounded for founders of color.
The Problem: Lack of Financing for Emerging Small Businesses & Non-Profits Owned By Entrepreneurs of Color
Though New Orleans has experienced an entrepreneurial renaissance post-Hurricane Katrina, with start-up rates eclipsing the national rate by 56%, the boom has not been equitably enjoyed by New Orleanians of all races.
The founders of successfully financed startups in New Orleans do not reflect the diversity of the city, whether you look at demographic and socioeconomic characteristics, educational achievement or professional backgrounds. Racial inequities are particularly alarming: while people of color represent over 60% of the population citywide, they only own 27% of all firms, and for the past twenty years, their businesses have persistently received less than 2% of all receipts.
Emerging small businesses owned by people of color have particularly struggled to acquire loans from traditional banks. Surveys completed for the Data Center’s New Orleans Index at 10, show that MBEs (Minority Business Enterprises, or businesses with 50% or more ownership by a person of color) in New Orleans feel disconnected from the resources that have emerged to support entrepreneurs and that they are either unaware or excluded from the majority of available resources.
Why are small business owners of color struggling at rates so disparate from their white counterparts? We see two primary drivers behind this inequity. First, the reality is that small businesses with less than two years of financial track records typically lack the qualifications to be considered for loans from regional or national banks. Second, the racial wealth gap makes it more difficult for founders of color to bootstrap, access large investments from friends and family, and tap into high-wealth, influential networks. Relative to white entrepreneurs, Black founders rely more on family and friends than external loans or equity, but experience lower rates of household wealth. Lower levels of wealth also innately limit a Black entrepreneur’s ability to acquire credit and loans. A 2015 Kauffman Foundation study that controlled for business and owner characteristics found Black-owned businesses are three times as likely to be denied loans than white-owned businesses, and those who are approved receive lower loan amounts at higher interest rates.
The Solution: Innovative Financing to Create Social Impact
The issues business owners of color face will not resolve themselves, and equity will not emerge through the normal course of business growth. New, accessible sources of capital are crucial to the survival and growth of the New Orleans entrepreneurial community, especially if we are to activate the largely untapped potential of our city’s entrepreneurs of color. We believe that together we are uniquely positioned to fill this capital gap for early-stage entrepreneurs of color based on the experience and relationships we’ve built through our Accelerator programs, which is why we’re thrilled about the launch of our Social Venture Fund today.
Since 2008, the Foundation for Louisiana has provided loans to socially conscious ventures as a part of their mission to invest in people and practices that work to reduce vulnerability and build stronger, more sustainable communities statewide. Through their Community Investment Fund, the Foundation partners with organization like Propeller seeking to offer loan products to their clients while helping to build more community assets.
Together with the support of lead investor Living Cities, alongside other investors Reinvestment Fund, The blue moon fund, and Ella West Freeman Foundation, the $1 million fund will provide loans and technical assistance to New Orleans businesses and nonprofits seeking to grow their capacity to tackle critical disparities in the water, food security, education and health sectors. The Social Venture Fund will also provide loans and technical support to entrepreneurs of color establishing or operating brick-and-mortar businesses along the South Broad commercial corridor.
The Social Venture Fund is structured to meet the needs of local for-profit and nonprofit ventures, The fund will make below-market rate loans between $20,000 to $100,000 with terms that stretch between 2-7 years.
Ultimately, through the technical assistance and provision of growth capital provided through the Social Venture Fund, we hope to better prepare entrepreneurs and emerging businesses to graduate into the formal banking system.
Learn more or apply to the Propeller Social Venture Fund by visiting us at GoPropeller.org/funding/Social-Venture-Fund.