An older Black woman in an apron stands behind the counter of her small business, smiling and looking up optimistically.
Image credit: JLco – Julia Amaral on iStock

It’s been nine years since Freddie Gray’s death at the hands of Baltimore police—an event that sparked protests that shook the city and led to what the Washington Post labeled a “huge effort to heal Baltimore.” Yet myriad challenges for Black entrepreneurs remain.

In Baltimore City, where African Americans make up 61 percent of the population, they account for only 47 percent of new business owners. This sounds not so bad, but the numbers are deceptive. As a 2021 Annie E. Casey Foundation blog post notes, “Bal­ti­more busi­ness­es owned by peo­ple of col­or are gener­al­ly small­er and less sta­ble than those of white busi­ness own­ers.”

For example, a statewide study that same year by the US Small Business Administration found that there were 144,000 Black-owned businesses and 297,000 White-owned businesses in the state of Maryland. Adjusted for population, a Black resident statewide is actually more likely to own a business than a White resident.

However, the same study finds that the numbers differ dramatically when looking at businesses with one or more employees. In that case, there are more than 10 times as many White-owned businesses (77,462) as Black-owned businesses (6,750).

Research from the Brookings Institution has highlighted similar trends, emphasizing that systemic financial barriers restrict Black business ownership nationwide. Black entrepreneurs often operate with less financing and are less likely to have employees, which compounds their difficulties in business sustainability.

Often, community involvement can feel transactional and lacking in genuine connection.

These findings highlight the need for targeted financial programs and policy reforms to enhance economic opportunities for Black entrepreneurs in Baltimore and beyond.

Despite the efforts of many to increase economic opportunities for Black-owned businesses, the persistent economic disparities, exacerbated by the aftershocks of Gray’s death, call for a more direct and decisive approach to fostering racial and economic equity.

Challenges and Shortcomings of Community Development in Baltimore

Efforts to address the increasing racial wealth gap and ensure equitable economic growth in Baltimore have centered on multiple strategies, including local purchasing efforts, workforce development, and affordable housing. These strategies aim to create economic opportunities and have done so with isolated successes. A few factors, however, have been too often missing, including the following:

  • Community trust and involvement

Community engagement and trust are vital in effective community development planning. While many programs involve community input, mere voicing of opinions doesn’t always signify trust in the resulting plans. Often, community involvement can feel transactional and lacking in genuine connection, resulting in plans that lack enduring support. To create impactful and lasting change, there’s a need for deep listening and collaborative planning where communities are not just contributors but central partners in shaping outcomes.

  • Economic displacement

Urban development initiatives, while promising economic growth, often lead to gentrification that threatens the very fabric of communities. The displacement of long-standing residents has happened at different times in multiple Baltimore neighborhoods; residents remember past promises not kept and this erodes trust in long-term visions and short-term planning. Displacement doesn’t just change demographics; it erases people’s history, culture, way of life, and community pride. Even when financial aid is offered to displaced residents, it often falls short, preventing their return and perpetuating the loss of community identity.

  • Access to capital for Black entrepreneurs

In examining the broader capital ecosystem, it’s clear that traditional barriers persist for Black entrepreneurs seeking access to financial resources. The dynamic nature of entrepreneurship demands a more diverse and creative approach to capital access. Entrepreneurs require financial support and strategies that minimize burdens and foster sustainable growth. This entails reevaluating existing financial mechanisms to ensure they align with the diverse needs of Black entrepreneurs. Enhancing transparency about interest rates is a step forward, but addressing fundamental issues of cost, accessibility, and trust in the financial system is paramount.

Community development financial institutions (CDFIs) are often cited as a key resource for supporting historically underserved businesses. They are crucial in bridging this gap, yet their inherent limitations highlight systemic challenges beyond their scope. While CDFIs are essential in providing financial assistance, the high interest rates they often charge, which are necessary to cover their operational costs and lending risks, can present significant hurdles for entrepreneurs, particularly those in economically challenged areas of Baltimore.

Expanding our imagination of an inclusive and supportive capital ecosystem can better support Black entrepreneurs to thrive and contribute meaningfully to economic prosperity and community development.

A Business Stage-Appropriate Approach

Challenges such as those mentioned above fuel the work of Innovation Works and its loan fund subsidiary, Ignite Capital, which together support social enterprises through a comprehensive five-stage enterprise development pipeline. This approach is designed to help Black entrepreneurs work their way through the entire life cycle of their business journey, allowing them to enter at any stage and receive tailored support that evolves with their needs.

Ignite Capital is in some ways similar to a CDFI, but there are some differences: 1) it’s not certified as a CDFI, and 2) it manages a unique capital model that deploys funds across the capital continuum—offering stage-appropriate and sector-agnostic financing, with support for pre-revenue through post-revenue stages. The loan fund also employs a structure that is designed to minimize the debt burden on entrepreneurs by using what is often called nonextractive financing—in which payments by entrepreneurs back to the loan fund are not required until the business is generating sufficient revenue to be able to afford to make payments. This model prioritizes supporting enterprises facing systemic biases in raising investment and tailors its offerings to meet entrepreneurs at their point of need.

Tailoring financial products to each entrepreneur’s unique circumstances, particularly those facing systemic biases, demands a high level of adaptability

The launch of Ignite Capital was shaped by engaging and learning from national impact investing leaders, such as the Boston Impact Initiative and California-based REDF. Boston Impact Initiative has developed a framework for using integrated capital that targets the racial wealth gap, employs an array of financial instruments and support systems, and fosters a more inclusive and equitable economy that builds economic, social, and political power for entrepreneurs and communities of color in Boston—and which has helped incubate similar models in over a dozen cities. REDF has focused on advancing the employment social enterprise field first in California and then nationally for more than 25 years by providing capital, capacity, and community networks to amplify the success of the enterprises it supports.

Pain Points

While playing a crucial role in supporting diverse enterprises, Ignite Capital confronts several challenges in building a supportive ecosystem. Not being a certified CDFI means Ignite Capital operates without some of the recognition and funding opportunities that certified CDFIs enjoy, potentially limiting its visibility and influence.

Additionally, the Ignite Capital model, which covers a broad range of funding stages and is designed to minimize entrepreneurs’ debt burdens, presents its own complexities. The model, by its nature, requires ongoing philanthropic support. Subsidy money, in short, is a key part of the model. This model also requires careful calibration to offer financial solutions that are flexible and applicable to businesses at various stages of development, from those just starting out to those that are more established. Tailoring financial products to each entrepreneur’s unique circumstances, particularly those facing systemic biases, demands a high level of adaptability and a deep understanding of diverse business needs. These intricacies can complicate the management of funds and the measurement of impact, posing ongoing operational challenges in maintaining effectiveness and sustainability. 

Changing the Story by Building an Ecosystem

In Baltimore, Ignite Capital envisions helping to build a transformative ecosystem by fostering collaborations with various stakeholders committed to changing the narrative around economic equity.

Among the members of this ecosystem are local leading community-based capital providers such as the Baltimore Community Foundation, Baltimore Community Lending, and other local financial institutions. The idea is to build alliances that can leverage existing philanthropic and CDFI resources and expertise so that our specialized programs can reach more people and businesses by helping businesses that develop sufficiently to “graduate” to these more mainstream funders.

An additional promising approach is to strengthen ties with entrepreneurship support organizations like the Social Innovation Lab at Johns Hopkins University, which provides vital infrastructure and mentorship. Collaboration with community organizations such as the West North Avenue Development Authority is also crucial, as these entities are deeply embedded in the local context and can facilitate direct engagement with the communities we serve. By weaving the strengths of these diverse partners together, the goal over time is to develop a more robust support network that nurtures individual enterprises and effectively overcomes systemic barriers.

To move businesses from sole proprietorships to being able to hire employees and accept capital…requires a conscious, multistage intervention.

Closing the Racial Wealth Gap—For Real

Last year, in an article for Brookings, I noted that “like many other urban centers across the United States, Baltimore City grapples with deep-rooted racial inequalities that have persistently stifled economic opportunities for communities of color. Generations of systemic barriers have hindered talented individuals’ entrepreneurial ambitions and stifled local businesses’ growth.”

How do you close the racial wealth gap? Evidently, there is no one single magic bullet solution. Indeed, the journey toward bridging the racial wealth gap is multifaceted and ongoing. It is not merely a matter of economic growth but of social justice and empowerment.

Investing in entrepreneurship and supporting early-stage ventures can help create new pathways to economic prosperity and ownership within marginalized communities. To move businesses from sole proprietorships to being able to hire employees and accept capital from more mainstream lenders like CDFIs requires a conscious, multistage intervention of the type that Ignite Capital is seeking to create in Baltimore.

The good news is that by filling this gap, a great deal of opportunity that has been bottled up due to the lack of access to capital can be mobilized—thereby enabling Black communities to unlock long-present entrepreneurial potential to drive meaningful change and build a more equitable future for all.