MILWAUKEE — With the announcement of The Equity League, the investment team will help entrepreneurs of color tackle their biggest barrier to entry in the world of business.
“If you start a business, ask any entrepreneur, especially a person of color that started their business and they are, what we call, undercapitalized,” Marjorie Rucker, Executive Director of the Business Council and the Ethnic and Diverse Business Coalition said. “It is very hard to operate your business under the pressure of not having the necessary amount of capital for you to be successful coming out of the door.”
It’s an issue Benny and Angela Smith had in opening Daddy’s Soul Food & Grille near 27th and Wells.
“A loan officer came in to explain and said, Mr. Smith, you’re wonderful,” Smith said. “You’re an awesome guy. But the numbers don’t lie.”
Smith’s financial situation is representative of the issues facing the majority of African Americans. They didn’t own their home, a major asset that could help in acquiring a loan. Nationally, 42.1 percent of African Americans own their home, although it’s much lower in Milwaukee, at 27.4 percent.
It’s a big reason why we see 59 percent of African American entrepreneurs looking to use their own cash reserves and look to family and friends for help in financing their startup. The overall average in those two categories is 47 percent.
“Our financial background was very shaky,” Angela Smith said. “It wasn’t strong enough to get any traditional bank loan. They wouldn’t touch us at all.”
The Smiths are an example of this. Benny started catering through their church, since he didn’t have the funding to make the jump to the next level. Almost 10 years ago, his father was diagnosed with stage four cancer and Benny was forced to slow down on his dream of opening up the restaurant and therefore, was not able to save as much money.
The Smiths benefited from a professional friend who helped vouch for them in acquiring funding and offered a vacant building he owned at low rent. Without this help, the Smiths felt they wouldn’t have been able to take their idea from a church catering company to a brick and mortar storefront.
“We didn’t have that strong backing that others might have,” Angela said. “Like, do you have a cosigner? No, we didn’t have a cosigner. No one in the family can string together $100,000. It’s a struggle that way.”
“Your personal credit and collateral are what they consider to obtain that loan,” Rucker said. “If you don’t have those things, you don’t own a house or own something the bank would feel is enough to underwrite your loan, you’re probably not going to get it.”
Rucker says this is a large reason we only see roughly 13 percent of small businesses in the state are minority-owned. She helps people of color navigate the startup process through the Business Council. She says there are ways to get assistance, but often it can be difficult to find the help you need.
“There are over 70 different providers that can help you as a business of color to get what you need but you have to seek that information,” Rucker said. “Even search for a chamber of commerce or someone you’ve heard of. Make the phone call and ask the questions you need to ask. The resources are there.”
Oftentimes, it can lead to failure. It was a risk Benny made in opening up his restaurant.
Before they even opened their doors, they were at risk of closing them forever. He says, they had $800 in their bank account but needed to pay $1,200 for a license from the city.
So, he signed the check and prayed. He made $800 that first day and was able to get the money into the account before the check cashed. They’ve continued to succeed since that day, but it was a gigantic risk.
“I didn’t have the money in the bank,” Smith said. “I was really all in. But our counterparts, they have better equipment, better point of sale systems, top of the line everything. The stuff we did, we covered it up, taped it up, fixed it up. It looked nice on the outside, but don’t lean on it too much!”
Smith’s sense of humor is contagious and lends itself to his positive attitude and tenacity at achieving his dreams. They are six years in now and have plans of opening a second location on Bluemound. However, success is unfortunately not the norm for people in his situation.
The Equity League could change all of that. While its focus won’t be on helping budding restauranteurs, the support they’re discussing could go a long way in lifting up voices of color.
“Access to capital, we need innovation in that,” Rucker said. “Lots of markets do a good job providing capital in non-traditional lending formats for businesses of color. Wisconsin has had conversations, but I think that we need innovation around what that looks like and how we support these businesses.”
Innovation is exactly what The Equity League is all about.