Business and government can partner for a fair economic recovery
Running a small business has never been without its challenges. But COVID-19 has brought to light some stark disparities, as the hardest hit businesses during the pandemic have been those owned by people of color, immigrants and women.
A 2020 study by the Federal Reserve Bank of New York found that at the height of the pandemic, black-owned businesses were nearly twice as likely to close as white-owned businesses. Meanwhile, 32% of Latin American businesses and 26% of Asian businesses closed in 2020.
Access to capital is part of the problem: Black and Latino business owners are half as likely to have access to business loans as white owners.
We believe that government and business can work together to address these disparities and fuel a fairer economy. A successful example of this is the Small Business Flex Fund, which was launched by the Washington State Department of Commerce in June and has provided more than 350 businesses with low-interest loans of up to $150,000. . Nearly 80% of those loans went to businesses and nonprofits with diverse ownership, though any Washington business with fewer than 50 employees and annual revenue of less than $3 million is eligible.
The fund represents an innovative collaboration between business and government. It began with a seed investment of $30 million from the Department of Commerce and received subsequent private sector investment from Umpqua Bank, Heritage Bank, JPMorgan Chase and WaFD Bank. The fund’s current total is $85.5 million, moving closer to its stated goal of $100 million. Community development financial institutions, including the National Development Council (also the trustee of the fund), are the nonprofit lenders of this program, and their work serving underbanked communities makes them ideal partners for small businesses and non-profit organizations.
This structure can be used to support organizations beyond COVID-19, and this type of partnership model could be applied to other systemic issues.
Although the program was an immediate response to the pandemic recovery, its intent is to provide working capital for businesses to grow and prosper. Many lenders who work with the Flex Fund have provided financial mentoring, access to the Paycheck Protection Program, and leasing assistance. If a business does not initially qualify for a loan, Flex Fund lenders will work with them to re-apply more successfully.
Causey’s Learning Center, a preschool in central Seattle, was one of the first Flex Fund recipients. When the pandemic hit, the center lost almost half of its staff and enrollment dropped by 80%. Executive director Ruth Brown had been reluctant to take out a loan because, as a black business owner, she had been turned down by lenders in the past.
“So many times when you’re a person of color, when they see you, they don’t believe in you,” Brown said.
But when she was referred to the Flex Fund, she was able to get a loan, and now Causey’s is increasing enrollment and looking for a bigger facility.
Skyhawk Press, a clothing printing company in Poulsbo, also benefited from a Flex Fund loan. His income fell 90% at the start of the pandemic, but with a Flex Fund loan, it is on the rise again in 2022.
These successes are the result of the unique partnership that is the Small Business Flex Fund. Because 40% to 60% of all small businesses fail without tech support (and those numbers have no doubt been exacerbated by COVID-19), it’s time to reflect on what we’ve learned during the pandemic and encourage more innovative public-private partnerships . This can only lead to a fairer recovery process and a more vibrant Washington economy.