Equitable Access to Small Business Credit: Learning from Small Business Borrowers

First up, I’m delighted to welcome Kai Ryssdal to the stage to moderate our first panel on the experiences of small business borrowers. Kai is the host and Senior Editor of Marketplace, the most widely heard program on business and the economy in the country. Thanks so much for joining us today, Kai, and I’m going to turn things over to you.

Laura, it’s great to be here and thank you all for, I guess, tuning in is the phrase we use these days for coming to this meeting and a virtual stage, I suppose. So I’m not going to talk long here, but I want to set the scene for what we’re going to talk about.

There are rules in place in this economy and regulations that are supposed to guarantee that thing Mary was talking about, equal access to capital. But if there was one thing this pandemic has laid bare, and honestly it’s laid bare a whole lot of things, is that this economy has changed, that those rules don’t meet this moment, and that it is time now for regulators among whom is Mary Daly to really understand what is happening out there.

I had a chance to speak with Mary a week ago for the program. I flew up to Oakland and we sat on a park bench, right near Lake Merritt, Mary’s neighborhood, by the way. And you saw on the ground there what she’s talking about, small businesses, how they’re struggling, and why they make a difference in this economy. But the thing I want to mention out of that interview is that pretty much every question I asked her, which was along the lines of inflation and where’s the economy going, her answer was, “Well, it depends on the data. It depends on the data. We look at the data all the time.”

And I would suggest that this webinar, both this session and the one that’s coming up later on actual data, but specifically this conversation is about softer data. It’s about the lived experiences of people who are trying to get capital to underserved communities and how we can do that. And I would encourage the panelists, as I said in our pre-call a number of weeks ago, you’ve got to remember, the Federal Open Market Committee’s sitting here listening. Take advantage of that. Take advantage of that.

So with that, we’re going to get going. I will very briefly introduce the panel and then we’re going to start. Silvia Castro is with us today. She’s the Executive Director of the Suazo Business Center. Bulbul Gupta is the CEO of Pacific Community Ventures. Chris James is the President and CEO of the National Center for American Indian Enterprise Development. And Cecil Plummer. He’s the President of the Western Regional Minority Supplier Development Council. All of whom are going to bring context and experience to this conversation.

And we’re going to start off. And I think the way we’ll do it, at least in the beginning, and I would encourage you all to talk with each other and to each other. And if you need to cut me out of the conversation for a minute, that’s fine because you have more interesting things to say than I do. But the first question, and I’m just going to call on you for this one. I want to know the current lay of the land for all of you right now.

The economy is better than it was a year and a half ago. It’s better than it was six months ago. Where it goes from here, honestly, nobody knows. But Cecil Plummer, let’s start with you. What’s the lay of the land as you see it for the communities you serve?

Thank you Kai. Minority business owners are still experiencing significant challenges. We hear every day that because of COVID many business owners have had to either add new services or change their business models entirely to deliver different products and different services. And that’s created a big problem and a big strain because the way credit works now is they look backwards at what was. So when you’re changing your business model and potentially your product and service offering to something new, that can be very problematic.

So we’re seeing a lot of business owners turning to very, very expensive equity type investing for capital, as opposed to more reasonable debt because of the perception of risk, and in some cases, perhaps the reality of risk. And the system really isn’t set up to address that. The system is set up to protect the investment and the capital that’s lent. It’s not really set up to invest and stimulate.

Yeah. Silvia, same question to you, lay of the land and what you’re seeing.

Some of the things we’re seeing, it’s unfortunately the pandemic continues. So the uncertainty continues. As Mary mentioned it’s that there’s such a tie economic. Basically the economy is tied to this pandemic. We still don’t know what’s going to happen. We’re constantly shifting and we’re constantly changing.

One of the issues that also this pandemic brings is there are supply side issues. A lot of the small businesses are not able to get their raw materials. They’re not able to get what they need to do that. Or they’re competing with larger companies in terms of obtaining it. We’re also dealing with a labor issue. Small businesses are competing with some large companies in terms of attracting and keeping talent. So the ones that have made it are basically the ones that were resilient enough to make it through COVID and are still around are facing new challenges.

Yet, the PPP loan program is done. Now we’re talking to forgiveness. We have the EIDL Loan Fund now available. But one of the issues that has been constant is that there have been some new loan programs, the PPP, the EIDL. Now that the SBA, the business owners have to deal directly with the SBA is creating some issues, because they’re not really in the business to work with people of color.

There’s so many constraints that instead of the model being how do we help overcome the gaps, it becomes a very bureaucratic process where just going through the EIDL, you’re constantly trying to be on the lookout for emails. And then you’re given five days to turn everything in. It’s not a form of, hey, how do we ensure that the capital gets into the hands of minority business owners or small business owners? It’s, we’re just going to create this process. And you’re either going to jump through our hoops or you just don’t get it.

And that has not changed. And unfortunately, I feel that there was a lot of lessons that I think should have been learned because of the inequalities when it came to capital access during COVID. Yet nothing has changed.

Right. Hold that thought because that’s a good one. We’re going to come back to it, lessons that should have been learned. But Chris James, lay of the land, what you’re seeing. Give us a brief overview.

Yeah. Thank you so much, Kai. Our Native American communities are in some of the most rural areas of the United States. So as you can imagine, our reservation based businesses had already issues in accessing capital, accessing people infrastructure. So coming on board with COVID not only did they have to continue the challenges that we already have in our communities, but then you have this extra layer of this pandemic that we all are going through and still going through. So that has increased the closures of businesses, especially rural and reservation on a threefold basis.

And then accessing, as Silvia mentioned, about accessing some of the programs. Those were often non-existent specifically in PPP where tribal businesses, the smaller ones, they never had a relationship with a financial institution. So it was very difficult for them to get that support.

So right now the lay of the land, I think our businesses are resilient. They are diversifying. But there still is a long ways to go to get even back to some type of normalcy that we’re all going through.

Bulbul, same question to you then, just to wrap up the first round here.

Yeah. Thanks for having us. I think lay of the land, from what we see as Silvia and Chris were also laying out. We saw in the first three months in California alone, half of black owned businesses went under, small businesses. 36% of Latinx owned and 25% of AAPI owned. PPP is now ending. Grants programs are largely ending. And if we are putting larger amounts of money, including a lot that’s coming through the federal government, through the same pipes that have not been truly reformed over the past year to be less classist, less racist and more accessible language also, then you are exacerbating a problem of access to credit that always existed and not necessarily serving folks better.

We see right now, I think, a lot of hesitancy to take on more debt among black and brown communities. But if we know PPP and grants programs are ending and most of those businesses are not necessarily going to be equity appropriate, how do we make sure that debt and working capital is really affordable, accessible, friendly, and warm to be able to beat that on-ramp so that folks don’t fall through that crack like they did in the last recession?

We really need to make sure that we are continuing to offer a blended continuum of capital to bring people into those on-ramps so that they can afford that next tranche of capital to stay in business. And I think this is the time in terms of where we are in the landscape that we’re going to see who really walks the walk versus talk the talk over the past year, year and a half, to do some systems change, to show up for those communities.

Let me actually stay with you Bulbul. And the thing you mentioned there out about a blended form of access to capital. If you could design it, what would it look like?

I mean, in our case as a community development financial institution, we practice impact investing in communities, right?

Right.

We were born out of the tail end of the civil rights legislation out of an acknowledgement to systemic discrimination, red lining in the formal financial industry. So for us, it’s imperative that we show up with the warmest, most supportable capital.

Over the past year and a half, we’ve slashed our rates and costs to be able to go down as far as possible to just barely sort of stay in business. And I think a lot of CDFIs have operated so thinly on the margins. But a lot of what we’re trying to do is raise … Use grant capital. We can raise impact investing, low-cost capital in order to keep our capital out the door to small businesses. And our mission right now is to stay … keep our capital zero to 4.25%. We’ve brought the state of California down to 4.25% with the California Rebuilding Fund we launched last year.

We’re trying to do whatever we can to show up with 0% to 3% capital, even more so knowing that that’s a really hard rate of capital for most people to access. And that is how the on-ramps, how do we build those on-ramps by blending even 0% to 3% capital with grants for small businesses, in our case, when they are able to improve the quality of the jobs they offer. So that we’re really lifting the floor under more small businesses and their workers into a more inclusive recovery.

So that’s a lot of how we think about blended capital, is how do we use government programs ending, grants programs ending to build the next on-ramp so we catch more folks.

Right. Chris James, this seems to me to be of interest to you because there’s a disconnect between the established economy that is not serving the native population now, and the way you all have had to engineer for yourselves, I think. There’s a definite infrastructure issue.

Yeah, absolutely. And I think the CDFI industry has really done well of hitting, of being able to get into some of those markets. However, they’re so few and far in-between in the native communities to help to bridge some of those gaps. And you’re totally right with the infrastructure development. The more rural you are and the less … Sometimes you don’t have the access to broadband or other initiatives to even get capital access, or do your business online.

So, having the infrastructure is a big issue being even, some of our communities, we’re 30, 40 miles from a financial institution. And if you go into our Alaskan village communities, you may be a three-hour flight from a financial institution. So, definitely I think as we look at other opportunities, there’s so many holistic factors that need to be addressed to look at business diversification and continuing supporting those businesses.

Right. Silvia, I told you I’ll come back to this, and so I will. If you could give me the top one or two lessons learned that you’re not sure people have grasped, and by people, I mean those in a position of power enough to do something about this, what are the one or two things?

I think actually it’s do we have the right incentives in place for banks and CDFIs? We saw that with PPP loans. So with PPP loans, one of the issues was that the minority, the small business community was kept out because there was an incentive to give larger loans. So the larger their company, the more sophisticated the company, they were able to grab that funding right away. There wasn’t really any thought in terms of any kind of incentive to the banks or to the CDFI to say, “Hey, will there be maybe a higher percentage for you to be able to really reach those communities of color?” So they are at the top of your list. But really it became more of an incentive of getting larger loans out as quickly as possible.

So the concept of small business it’s, I mean, you have to, in some industries is under 500 employees. That doesn’t sound like small business. But that is the equivalent of small business. Somebody that might have an operation of 10 people versus 500, there’s a huge difference in terms of accessibility to accountants, to lawyers. So where the capital needed to go, it did not. Yet, we’re still continuing to use the exact same system. This is what I mean nothing has changed. There was not a lesson learned. Even though we saw the capital disappear.

This is why we had a second and third rounds of PPP, to finally make sure that it got to the community. There was never an incentive for them to truly reach that minority community. And this is where we see more of our paperwork pushing. You need to, again, run through our hoops instead of figuring out a way for this financial institution to say, “Hey, how do we understand this community? And how do we actually solve the issue?”

We have an interesting perspective. So we’re a 501C3 based out of Utah. We work with the whole banking community, CDFIs, et cetera. But our focus really is the economic mobility for the minority community. So one of the things that is important, it’s not just try to give a check or try to give capital. There needs to be education and mentoring. We’re working with communities that basically are already behind. They usually don’t have the safety systems. They don’t have equity. They don’t have homes. Home ownership is very low in these communities. So it’s hard to put up equity against any kind of loan. And this is where there’s hesitation to take out loans.

But, if you give out loans to this community without any kind of mentoring, any kind of knowledge of what it can do, frankly, you’re giving them a rope to hang themselves. And that’s the other thing that I think is important. And I’ve seen some CDFIs understand this, where a borrower will actually have access to ongoing training, ongoing resources.

The other thing too is I’m seeing, instead of looking at minority-led nonprofits, so minority-led CDFIs, everything always goes to the exact same player. I will look at us, a minority-led. We are usually closer to the ground of what’s going on, but we’re never a priority in terms of funding. We’re never a priority in terms of listening to us when it comes to policymaking. And that’s the other thing that doesn’t seem to … that lesson doesn’t seem to stick.

Right. Cecil, let me follow up on something in the Silvia just said, this idea of mentoring, and if you just give these companies and people money, you’re not doing them a service. First of all, do you find that? And second of all, what’s the fix?

Well, I think Kai there’s a couple of different things going on down there and it depends on who you’re serving. Keep in mind the minority owned businesses that we look at are fairly sophisticated, supply chain facing. These are folks who do business with big companies like Upland, Google, Bank of America, or they’re doing business with big county, state, and federal municipalities.

My point being there is that, yes, mentoring and training is good, but depending on who that population is and where they’re located, I deal a lot with people in major metropolitan areas. So what we see is a high concentration and a saturation where I usually say training programs are raining from the sky. Financial literacy programs are raining from the sky. But then the lack of being actually the throughput of getting the capital into the hands of these business owners.

So I think it can be different depending on whether you’re in a rural community or whether you’re in a major metropolitan area, or you’re talking about business to … B2C business, small businesses, or you’re talking about supply chain focused businesses that have a tendency to be larger and more sophisticated.

So I think, when you’re setting up policies, there’s a desire to kind of standardize and have a one-size-fits-all approach, but it certainly doesn’t work that way. And so you need to look at each of the different, who are you trying to serve, be able to create segments within the underserved communities, and then appropriately direct policies and processes for the people in those areas that would service.

Right. But let me ask you this. What has worked, what have you been surprised to hear or learn from your interactions with your colleagues that’s been better than you thought it might be? Has there been any?

Very little, but there is some ray of sunshine. We do want to talk about some of the positive things. One thing that I saw with all of our constituents, and I serve over a thousand businesses in my territory, is the communication among peers. There were lots and lots of WhatsApp groups and Facebook groups that popped up with business owners communicating and giving tips, how to live it, what state has programs, what county and cities have programs? How can you get this paperwork filled out? I think Sylvia hit it right on the head. When it comes to the financial institutions and the PPP loans, there were some big lessons that could have been learned that haven’t been addressed and haven’t changed. And I think she hit it right on the head with the incentives for bank owners and reaching out to those relationships.

I’ve got to tell a story myself. We couldn’t get a PPP. We couldn’t get our bank to respond to us. We ended up going to a small minority owned bank in another state in order to get our processed. And I’ve got full-time people working in accounting and all that kind of stuff. And so those lessons haven’t been learned, but I think there’s a really big … to look at what did work. And what worked was creating networks of communication, standardizing communications, and leveraging non-standard, not just I think folks think that they can throw up a website and say, “Hey, here’s how you do it.” But I think finding ways to push information out.

I felt like a lot of COVID communications were very, very effective during COVID where I was getting messages to my cell phone. And I was like, “I didn’t even know how I signed up for this service,” for the state of California and the city of San Francisco were pushing messages out. I think there’s some great lessons to be learned there, about how we can use alternative methods of communication to make sure that people are aware of the resources that are available and how they can access that information quicker, in a more easier fashion, and to make it more shareable with other folks. And that’s where I think we can go with this.

Bulbul, same question to you with a twist. First of all, what did work? And also, I guess, the question that Cecil alluded to, financial capability and awareness, how big of an impediment was that for your clients and your column?

Well, I’ll tell you one thing that worked that’s really interesting, we saw in our impact survey data this year with the small businesses we lend to, and we’re unpacking it further this winter. So to be held in terms of more research here, because it’s really intriguing. One of the things we found in our data is that employee owned businesses served, did a little bit better, fared it a little bit better, and people of color and women of color owned small businesses tended to hang on to their workers better.

So we’re unpacking that in our own portfolio data further this winter, because it’s definitely, there’s definitely some things in our data that showed the truly small businesses who are closest to their communities, they hire from their communities. They have very close lived and direct experience of what it means to live that paycheck to paycheck. And the ability to then want to hang on to even just partial income, partial schedules, partial revenue for those families and workers who are so intrinsically linked to your own business and wellbeing and community health, you tended to hang on to them and find some way of mutuality to survive in business together.

So that’s fascinatingly interesting to unpack further. I love that that sort of small silver lining of the hustle and resilience that also shows us. But it also tells us what we need to do to serve those businesses better. It is imperative on us to systems change to show up for those businesses better, knowing that 89% of new businesses started in this country are started by black and brown women. How do we show up for them better?

So I think one thing on the systems change side that’s showed some promise and we’ve been unpacking this a lot this past year is how do we dismantle this notion of risk in lending in accessing capital? How do we take out where the word risk comes from in investing in black and brown communities or low-income communities, and double down on the communities that clearly are showing up for their workers and their job holders? How do we make sure we are changing our systems of accessing capital?

And I think one of the things that we certainly need to see further is the accessibility, the language piece. When the PPP was first launched, it wasn’t just launched to the big banks. It was also only launched in English. It took a lot of advocacy from a lot of our organizations to get it, to be approved in the second round, to have CDFIs be able to access. And even then, it was only with CDFIs above 30 million assets under management, which kept out a lot of small and medium sized CDFIs. And the Spanish language piece didn’t come until months later.

So there’s a lot of accessibility issues we’re talking about when we think about how do we change these pipes. And I think Silvia was right earlier when she called out the SBA for better or for worse. Well, maybe for worse in this case we saw. If your federal definition of small business is up to 500, you are inherently better at serving the larger size small businesses. And that has been a challenge every small business we work with faces. How do we get them to see me, at 10 employees, five employees, 20 employees? I’m a main street business with job holders in this community. And I think that is a huge systems change opportunity. We really need to see better. How can the small business administration truly serve truly small businesses in America?

So let me ask you to actually Bulbul. If you could get the head of the SBA on the phone right now, and they could wave a magic wand and make small businesses 10 people officially, what difference would that make? How big a deal would that be for you?

Well, fortunately Isabella Guzman, the new administrator at the SBA is an advocate for truly small businesses and worked with us in setting up the California Rebuilding Fund last year. So I at least feel like we have a good advocate in place. But I think she’s coming into a bureaucracy that isn’t used to that.

So what does that mean by centering businesses that are 20 people businesses on average? It means you show up drastically differently. Your application processes are vastly different, acknowledging a lot of what Silvia and Chris were calling out earlier in terms of access. Your application processes, your size of capital, your ability to offer and customize technical assistance. I mean, all of those programs show up different. Because we know technical assistance without improved access to capital doesn’t work. It’s just moving money around. Improving access to capital without technical assistance also can be challenging as Silvia called out earlier. So we have to have those hand in hand. And how you show up for truly small businesses is just vastly different than the access that 500 size businesses have.

Yeah, for sure.

And Kai, if I could-

Yeah, go ahead, of course.

I wanted to add. We were talking about what worked. And one of the things that really worked during PPP that kept many of my constituents alive was the forgivable aspect. And I think Silvia talked a little bit about those grants. And so when I talked about that difference, and some places needing more technical assistance and other places having technical assistance raining from the sky, I think what regulators can do is make it easier for big banks, first of all, to collaborate and share technical assistance so there’s not as much redundancy. And then repurpose some of the funds, which would allow the banks to repurpose some of the funds and some of the grants they’re making to CDFIs let’s say. I’d like to see more unrestricted grants going to CDFIs. I’d like to see more resources put into forgivable loans and grants as opposed to business as usual.

So what really worked is when we talked to our constituents, the forgivable piece, and we asked, “Hey, how many of you did this help?” 71% said we’re alive today because of that forgivable loan. And that was a big bridge because the revenue streams were turning, was really, really slow. And as Silvia, I think it was Silvia who mentioned earlier, and because of supply chain, it’s still slow because they are having trouble getting materials, the raw materials and the products that they need to move to their clients. It’s still slow. So forgivable is a big deal. So whether that’s the straight grants or forgivable loans, I think that’s something that really worked and something that needs to be looked into deeper with processes to make it easier, faster, and more accessible for the smaller businesses.

I know Bulbul just said it, Silvia said it, but we need to say it more, that there needs to be an incentive for larger institutions or a requirement that says not only when these programs come along does it need to go to the businesses that really need it, but long before that ever happens. Part of the reporting and monitoring should be, how often are they touching those small businesses? How often? Where are the relationships, the things that forced us to go to Michigan to get a PPP loan from California, right? Because there’s no incentives there on a day-to-day basis for really small businesses to have face time with the larger financial institutions.

Yeah. So Chris, sort of along those lines, but also with a note that I think the word risk has come up four or five times, maybe a little bit more in the conversation so far. And there’s perceived risks and actual risk. And I’d like to start around a conversation about how you go about changing that perception for your community.

So there’s two things I think I do want to touch about on the successes because we find ourselves getting before I get to risk. But one thing in the tribal communities and I think Bulbul and Silvia might have touched base on how communities were able to help keep jobs going during the hardest of the pandemic, all of our tribal enterprises, especially the more rural enterprises, they’re sometimes the number one employer for our whole county or half the state. So their ability to keep folks into jobs in rural communities was so important. And very few that were even closer enterprises, if it was a gaming enterprise or other enterprises, they might’ve closed them for two or three months. They still kept their people on board. And I think that’s commendable to a lot of communities to that and one thing.

On the inherent risk of our community, I think it goes back to how we look at a borrower, and there is still … There’s still this, I think all the technology, even the technology we’re using because of COVID, we still are seeing a lot of larger financial institutions not necessarily adapting to that technology or understanding how things have changed for just one quick example, wet signatures. I feel like, and some banks and some financials, but I find that the smaller community-based financial institutions are adapting to a better way for identification and risk management with their borrowers than some of the larger institutions. However, the larger institutions sometimes have the most loans.

So I see that we need to see more shift, better uses of technology on how we analyze risk, and different tools than maybe our standardized let’s look at the three credit bureaus. So there are some things there just to touch base on risk.

That’s a great point about the technology for sure. Silvia, let me ask you this. Chris was talking about the big institutions. So there’s a layer. You got the regulators and then you’ve got the CDFIs and smaller, more local institutions. And then you’ve got the small and … I’m sorry, the medium and big sized banks. What is their responsibility, and what would you have them do to help your community and your clients and your colleagues thrive?

That is interesting because … Look, we knew that we had an interesting problem with PPP. We actually ended up having to reach out to a CDFI in Wisconsin to serve our clients, because we actually, we find ourselves sometimes educating banks on how their PPP process worked. There wasn’t any consistency. Every bank was doing PPP differently. Their request was different. And it wasn’t actually like the small banks were better than the other ones. It was so different. Some of them, a lot of them screwed up the sole proprietors, telling them that they could not apply for PPP, even though that was inaccurate. A lot of it it’s, I think there was a lot of good intentions in terms of trying to get that capital. And frankly, like Cecil mentioned, whoever got the PPP made it. There’s no question. The businesses that are still around is because they were able to get some funding. The ones that are not around is because they were not able to. It was a huge have and have nots.

I think the responsibility, this is where we actually tried to work with the banking community very closely here in Utah, and they were excellent when in terms of getting some feedback from us and saying, “Hey, this is what we’re seeing. Like, this is how you can make the process quicker. This is what we’re seeing in other banks that is working really well for them. And this is where I think every community, every state has nonprofits that work directly with these communities of color to engage them.”

And this is something that seems so simple in terms of go to actually the communities, the nonprofits. They work with them. They know them. Partner up with them. Fund them. And you will actually be able to serve the community because it’s not going to be an overnight process. A bank is regulated. There’s so many regulations that are constantly changing. But a nonprofit is actually on the ground. Empower the nonprofit. Partner up with the nonprofit. And that will be able to actually serve the community better.

Bulbul, you’re nodding. Tell me your experience with those medium and bigger banks. Do they come to you, or do you have to go knock on their door and say, “Hey, help us out”?

I would love to say they’re knocking down my door. I think through COVID, I mean, those banks, medium and larger banks froze their lending first. So we’re the ones who kept our doors open and stayed accessible, knowing that people were going to need affordable capital to make it through. Only 2% of black owned small businesses were able to get a PPP to Silvia’s point. 7% of Latinx owned. So who does that tell you about who the system works for and medium and larger sized banks are connected to and have trust with, connections with?

We saw in our own lending portfolio, I mean, when we think about dismantling risk, less than 1% of our portfolio had write-offs in 2020. I mean, through like the worst first nine months of the crisis. So if 87% of our capital is going to entrepreneurs of color and women, and to low and moderate income communities, and less than 1% is write-off compared to the loan loss rates of medium and larger sized banks, that’s not risky-

So how do you-

Right? Risk average.

Sorry to interrupt. How do you get that message up the financial food chain as it were, because that’s a great story?

Yeah, I agree. Yeah. I mean, it’s how do we pass them on. I mean, we talk about missing middle finance. For us, we pick up at 10,000, we end at 250. So between second or third check from us, you should be ready for a bank ideally, if a bank knows how to treat you and help you get access to their capital well, treats you well. So we want to be able to send people to organizations, financial institutions that are going to keep their trust and treat them well, as we’ve tried to. And we pick up from micro lenders who do the same that we want to build a warm, trusted relationship with.

And if there isn’t trust building, if you’re not dismantling the racism and accessibility in your work, you’re not building trust in the communities that have been the most historically excluded for decades, centuries in this country. So changing your pipes and really showing that you are actually going to show up better and treat them better, also makes us want to graduate them to you. Which are the institutions that are going to show us that they’re ready to do that and committed to doing that? And that’s part of the warm, I think, trusted relationships.

We partner with nonprofits in our ecosystem to make sure we are being responsible in who we source from and how we show up in those communities. And that’s a big, I mean, that’s a big effort for us too. It’s not like we’ve solved it by any means. But it’s the intent behind it and making sure you’re showing up with products and services that have clearly done some systems change to show up better. And that commitment and that making sure you consistently show that is how you start to build that trust again. And this is a really important time for us to all collectively be doing that.

Chris James, you’re doing a whole lot of nodding right there.

Well, I wanted to agree with almost everything that was said there. And I was just thinking as we think about over the past year and a half, and Cecil can probably talk really well about this, but a lot of our not only bigger foundations and some of our larger banks have made some big commitments into our communities. So we haven’t necessarily, I don’t want to say I’ve seen it that a lot of those institutions and a lot of those folks have made these commitments that says, “Hey, we’re going to help support your organizations,” or, “We’re going to help support more smaller organizations.” Suppliers are saying, “We’re going to help build better supplier diversity programs.”

And I think for my community, the majority of large suppliers, I’m not going to call anyone out, but they’re less than 1% of contracts they award to Native American, Alaska Native or Native Hawaiian businesses. So a pretty small percentage. Though I do think commitments have been made and they continue to be made and we will be seeing more support from some of those big organizations.

Chris, just because … I’m sorry, Cecil, just because Chris mentioned suppliers that of course made me think of you and your membership and your companies. Just to turn the tables a little bit, what responsibility do you think your colleagues have down the financial food chain to make sure that they are aware of opportunities and mentoring in reverse, I suppose?

Oh, so I want to make sure I answer your question accurately, Kai. When you say my colleagues, are you talking about what responsibility diverse business owners have or the supplier or the big companies and the supply chain professionals within this company?

Actually both. And thank you for clarifying.

Oh, okay. Okay. All right. Buckle up, buckle up.

All right. We’ve got like nine minutes left and I got one more set up to get us to the next thing.

Okay, I’ll be as quick as I can.

Okay.

Well obviously, I think there’s a huge responsibility among corporate America, right? I mean.

Yeah.

Corporate America, none of our small business owners have the trucks zooming up and down and turn up the freeways, right? Those are all big businesses. Amazon, FedEx, UPS. I think corporate America has a huge responsibility because they consume, they accumulate a lot of the wealth, but they also disproportionately use the resources. So they have a whole lot of responsibility in terms of making sure that the economy thrives as a whole. And in order to do that, you have to pay attention to putting people to work. And that means paying attention to small business, less than 500 employees.

I think something that the Fed and the banks could do much better is paying attention to those large commitments … that you were talking about that have been made and tracking them and having public reporting year over year, informing consumers, both corporate consumers and private consumers of who you’re doing business with. How are you choosing your bank and your financial institution? And let’s give awards for those who are keeping those commitments versus not.

We also want to make sure that we’re encouraging those large companies and institutions to report on the real numbers on their total spent. A lot of people when they talk about supplier diversity, go, “Hey, look at me. I’m spending 50%,” but they’ve manipulated that denominator by saying, “I’m going to take what I pay for real estate out and I’m going to take what I pay law firms out. And this is what I’m really spending,” which gives a false picture of how well we’re doing in America when it comes to serving women and minority owned businesses.

So finally, I know we’re limited on time, I just want to say, what we can do better through policy is making sure, again, we incentivize banks to report and track their interactions with small businesses from underrepresented communities. And then we also want to look at alternative. We talked about risk, right? Alternative underwriting criteria. If you look back at history, SBA has been doing like 3% to 4% with women and minorities of those loans are going to women and minorities. But yet we have millions of these women and minority owned businesses all across the country who survived, right?

So there’s something in the underwriting criteria that we’re not looking at. It would be great to see a study between the Fed and the banks on what are the attributes of those businesses that are making it in spite of the hostile credit landscape they’ve operated in, and use that to develop criteria that can be used to get more capital to more businesses.

So the last question I was going to go around the horn, but we’re going to get tight on time and I want to make sure Cecil that I’m characterizing your answer properly. Basically what you want the Fed to do is increase transparency, right? You want more people to be able to know about what’s going on, fair?

Correct. Correct. Correct.

All right. Silvia, same question and your chance at the last question of the day. What specifically do you want the Federal Reserve to do to make sure that small businesses and underserved communities can get better access to capital like Mary was talking about at the beginning?

I think a combination of I want to echo the transparency. I think also frankly, there’s a saying what gets measured, gets done.

Yes.

So data, being able to track and actually have a standard of tracking, not something where somebody can manipulate the data. We all know we’re looking things apples to apples, and make sure that we are actually measuring the exact same thing across all these banks. I would love to see some thought in terms of what kind of incentives can we provide the bank in addition to tracking.

And I think the question of risk is huge. We have our own micro loan program. We are a lender of last resorts. And because we spend time with them, because we believe in them, because we provide their resources, we have an almost non-existent default rate. Yet we lend to people nobody else will touch.

And I think the other thing is really let’s look at Cecil is right. In spite of all these constraints, we still have successful minority business owners. They know something banks don’t, and we should find out what that is, and change those credit requirements because of it.

Bulbul, same question. You got Mary Daly on the phone. What do you want to tell her?

Well, first of all, I want to stop using the word underserved. I find it just … Anyway.

That’s fair.

People of color are going to be the new majority in this country by 2044. We’re not just talking about a moral responsibility. We are talking about the fastest growing rate of consumers in this country. So if banks and other institutions want to leverage that incredible economic power of people of color communities, this is the time to start showing up that you really mean it. And you really want to build that trust with those communities.

So how do we do that with banks, medium-sized, community banks, and through CDFIs and other organizations like ours? I think right now, as all of these grants and PPP programs and stuff are drying up, we really need to show that we are showing up with affordable capital. What does bank CRA capital look like? We haven’t had folks offer us 0% capital that often. So for us to be able to keep our capital really affordable, what is the Fed’s role in terms of bank buyback windows? What does the CDFI buyback window look like where we can sell our portfolios and increase liquidity in our portfolios? I think that’s something we’re really working on at the state level in California.

I think one other thing I would say is I know the Fed has a FinRegLab that’s really been thinking about how to improve these alternative credit scoring models. One, no matter how many fintechs talk about responsible lending and capital access, there is not a single fintech that is yet a signatory of the Small Business Responsible Lending Coalition. And that is really important when we think about this window of opportunity where fintechs are inherently going to step into a breach of access to capital with speed that very few CDFIs can keep up with, and we’re trying our best, but that’s going to be really important to make sure that we’re not suddenly using up that capital in three months out.

So how do we look at rent, live streaming repayment, cell phone repayment, all of these other alternative models that exist. There’s been all kinds of interesting startup efforts. This is an opportunity for innovation out of crisis that I think is absolutely under the Fed’s purview to be really exploring and creating out of scale that an industry like ours can access that very few CDFIs can afford independently.

Don’t let-

So appreciate-

Don’t let a crisis. Yeah, no, don’t let a crisis go to waste. I’m sorry to have to cut you off. I want to get Chris. He’s got a minute, last word, you get Mary Daly on the phone. Here’s what you need to do.

Yeah, well, I just commend the Federal Reserve system for putting these webinars together. I think we sometimes get on the bashing of any type of federal support, but I do commend that the Federal Reserve is listening. What I do recommend to the Federal Reserve is really take our recommendations. I think all of our organizations have probably submitted some type of written policy recommendations to either the federal government or the Federal Reserve directly. So really take those recommendations to heart, really understand them and follow up with questions.

And lastly, the Federal Reserve Bank of Minneapolis has set up the Center for Indian Country Progress. It’s amazing. It’s an amazing program. I’d like to see more of that replicated around the United States. I think it’s coming, but I’d like to see all the Federal Reserve bank systems do that.

Excellent, Chris. Thank you. And thank you all. Let me go around the horn one more time. Silvia Castro, she’s the Executive Director of the Suazo Business Center. Bulbul Gupta, she’s the CEO at Pacific Community Ventures. Chris James, also the President and CEO of the National Center for American Indian Enterprise Development. And Cecil Plummer. He’s the President of the Western Regional Minority Supplier Development Council. Thank you all for your time and your thoughts, and thanks to the San Francisco Fed.