A report identifying sources of capital available to small-business entrepreneurs in Detroit, Hamtramck, and Highland Park, as well as strategies to help them access the capital, was released this week.
Titled “Capital Access,” the report was commissioned by the New Economy Initiative and JP Morgan Chase. It was authored by the Eckblad Group, a consulting firm that has worked with community development financial institutions to create microloan programs that support underserved business owners.
“The New Economy Initiative’s work has been increasingly focused on building businesses from and of our community by investing in strong support systems for local entrepreneurs,” says Don Jones, associate director of New Economy Initiative. “The Capital Access report gives us a picture of what is needed to ensure that all entrepreneurs can access the right resources at the right time to grow their businesses.”
The report makes three statements regarding the accessibility of small business capital in Detroit. First, it is essential that local capital providers take a collaborative, ecosystem approach to ensure that the right type of capital is available to underserved entrepreneurs at the right times.
Second, underserved entrepreneurs need support building financial and small business management skills, navigating the capital ecosystem, and building trust in systems that were not originally built for them. Finally, coordination at all levels of the small business support system, from neighborhood organizations to banks, is needed to address structural issues faced by underserved entrepreneurs.
“Detroit is a trailblazer among its peers in addressing the challenges of historically underserved entrepreneurs, but there are still gaps in the continuum of capital that small businesses need to start, grow, and thrive,” says Barbara Eckblad, principal of the Eckblad Group. “The Capital Access report gives a snapshot of the state of the continuum today, and the products, tools, and policies needed to make that continuum available and accessible to all members of the community.”
An accompanying Capital Readiness Checklist also is available online. Neighborhood business advocates in the report’s region designed the checklist, which serves as an assessment tool to help entrepreneurs learn about creditworthiness. The checklist is available in English, Spanish, Arabic, and Bangla.
In 2018, the Eckblad Group researched the sources and availability of capital for small businesses operating in the report’s region. The authors conducted dozens of interviews with entrepreneurs, private- and social-sector financial institution leaders, and representatives of relevant community organizations to explore perceptions of capital availability for entrepreneurs, particularly those who are underserved.
From 2009-2010, the number of small-business loans in Detroit dropped by 60 percent, according to the report. Lending returned to pre-recession levels in 2015, but accessible capital remains elusive at the lower stages of the capital continuum, particularly at the microloan level, or loans of $50,000 or less.
Three nonprofit organizations — ProsperUS Detroit, Michigan Women Forward, and the Detroit Development Fund — focus on microloan products that are being accessed by small businesses in the region. Other resources, such as the U.S. Small Business Administration’s microloan program, are available but do not provide a significant number of microloans to businesses in the region.
“Detroit, Hamtramck, and Highland Park are chock-full of talented, motivated entrepreneurs who wouldn’t otherwise have access to capital if it weren’t for the vigorous network of microlenders serving our business community,” says Matthew Bihun, a senior loan officer at ProsperUS Detroit. “Prosper US, Michigan Women Forward, and Detroit Development fund have demonstrated successful lending models that are predicated on a high tolerance for risk combined with creative technical assistance, intensive relationship-building, and the ability to be flexible in areas where traditional lenders may not.”
The report identifies opportunities for future research to improve the lending landscape.
“For those who come from neighborhoods or communities that have historically lacked access to money or networks of people who can serve as mentors, there are additional layers of awareness, trust, systems navigation, community-building, and institutional bias that must be considered and provided to realize the full force of entrepreneurship,’’ says Eckblad. “Money alone will not address the resource needs of the underserved in these areas.’’