JPMorgan Chase Expands Business Lending Program in Communities of Color

February 11, 2019; Bloomberg

JPMorgan Chase (JPMC), the nation’s largest bank, is expanding its Entrepreneurs of Color Fund to the Washington DC region, following launches over the past two years in Detroit, Chicago, San Francisco, and the South Bronx. Initially investing a total of $12.5 million in these four markets, the bank’s model is to partner with local community development financial institutions (CDFIs) to do the lending and provide technical support, and with local foundations to expand the capital pool.

In Detroit, the fund is located at the Detroit Development Fund, a city-focused CDFI; in San Francisco, in a consortium of CDFIs (Working Solutions, ICA Fund Good Jobs and Pacific Community Ventures); in Chicago, with Accion and LISC; and in the South Bronx, with the collaboration of Excelsior Growth Fund and Accion East Coast. So far, JPMorgan Chase reports that approximately 200 loans have been made to small businesses led by people of color in these four markets.

In DC, Capital Impact Partners and the A. James and Alice B. Clark Foundation are matching JPMC’s investment of $3.65 million with $3 million. Unlike the partner CDFIs in the other four markets, Capital Impact’s expertise is not in small business lending. Originally the nonprofit arm of the federally funded National Cooperative Bank, this CDFI has focused on cooperatives, community health facilities, charter schools, affordable and senior housing, and healthy food initiatives in California, Detroit, and the District. Similarly, entrepreneurship by people of color is a new focus area for the recently rebranded A. James and Alice B. Clark Foundation, which has historically supported food banks health clinics, affordable housing, and cultural institutions in DC.

While it is impossible to forget that major financial institutions like JPMorgan Chase played a primary role in the predatory lending that decimated low-income and communities of color during the Recession—never mind the larger issue of reparations—it appears that this bank is recognizing the importance of its ties to the nation’s communities of color. The barriers such entrepreneurs face, however, in launching and sustaining their businesses—the result of systems-induced poverty, inequality and segregation—are substantial. These include disparate access to education, assets, and family entrepreneurial exposure, as well as capital, both debt and equity.

• Fifty percent of Asian and 29 percent of white Americans have college degrees compared to their Black (18 percent) and Latinx (13 percent) counterparts. This makes a difference because entrepreneurs who are college graduates are more likely to have sales over $100,000 and more paid employees. Also, Black and Latinx people are underrepresented in the business school admissions pipeline compared to both the total population and that holding a college degree.
• Approximately 15 percent of the difference in startup rates among Black and white Americans can be explained by differences in financial assets—white households’ median wealth is 20 times larger than Black households and 18 times larger than Latinx ones.
• Businesses owned by people of color are likely to pay higher interest rates and get smaller loans than those owned by whites, and they are also more likely to be denied credit and less likely to apply for loans in the belief their applications will be denied. From 1990–2016, entrepreneurs of color represented only approximately 20 percent of entrepreneurs funded by venture capital.
• These challenges are exacerbated for entrepreneurs of color operating in communities of color, where business financing to fund the creation and expansion of businesses is insufficient, in part because of biases in bank lending patterns against neighborhoods of color.
• A study conducted by the National Community Reinvestment Coalition found that banks were twice as likely to offer white entrepreneurs help with their small business loan applications compared to Black entrepreneurs, and three times more likely to invite follow-up appointments with white borrowers than better-qualified Black borrowers.

The need for a focused, well designed, and sufficiently capitalized initiative for entrepreneurs of color is particularly important for the District of Columbia, where businesses owned by people of color comprise 34 to 41 percent of all businesses and 18 percent of those in neighborhoods of color. While incubators and accelerators are providing some support helping entrepreneurs of color gain access to new customers, only five out of 90 resources in DC identify as focusing on this field, with the capacity to serve about 350 owners.

In sum, JPMorgan Chase’s new focus on entrepreneurs of color is sorely needed and its programmatic model of partnering with experienced CDFIs as their interface makes good sense. It needs to share what it is learning from these experiments with the broader policy, investing, and practitioner communities, given the complex and deep-rooted set of factors that make it so very difficult for businesses of color to launch, survive, and thrive.—Debby Warren