If ever there was a time to be a small business owner in Detroit, or someone desiring to become a small business owner, this is indeed the perfect time. Who knows how long the goodwill will last, but for now it is starting to seem like a rapidly increasing number of investors are getting the word that Detroit is the place to drop some cash.
Detroiters need to mount this wave and ride it for as long and hard as they possibly can.
As a prime example of this phenomenon, Detroit’s Entrepreneurs of Color Fund announced that it has nearly tripled in size from $6.5 million to over $18 million, attracting expanded investments from JP Morgan Chase, the W.K. Kellogg Foundation, the Ralph C. Wilson, Jr. Foundation, the Kresge Foundation, and Fifth Third Bank.
“Our Entrepreneurs of Color Fund has created great economic opportunity for minority-owned small businesses in Detroit this year,” said Ray Waters, president of the Detroit Development Fund. “This expansion of the fund will create countless new jobs and bring new goods and services to even more neighborhoods in the coming years.”
During last week’s roundtable press conference discussion, Waters expanded his comments further:
“Of the 45 companies in our portfolio today, not one of them would be able to get a traditional bank loan. It’s not because banks don’t want to do that; JP Morgan does a lot of small business work, but they’re highly regulated. ..So the goal of this fund is to build a ladder. We start with companies small, they get a small loan. They do well, they get a larger loan. It creates a ladder of success for these companies. So it’s access to capital that we think is critical to helping these businesses climb up the ladder.”
As part of JPMorgan Chase’s $150 million commitment to Detroit’s economic recovery, the W.K. Kellogg Foundation (WKKF) and Detroit Development Fund (DDF) together created a fund in 2015 to provide minority-owned small businesses with access to capital and technical assistance. JPMorgan Chase originally invested $3.5 million and the Kellogg Foundation committed $3.5 million as part of its larger roughly $25 million annual investment in the city and commitment to promoting equity.
“We’re doing everything we can in Detroit to create more opportunities for people of color and providing entrepreneurs greater access to the small business capital they need to succeed is helping us accomplish that,” said Mayor Mike Duggan. “Detroiters who’ve opened or expanded a small business already have created hundreds of jobs. We need more, so I’m very grateful to JPMorgan Chase for encouraging investors to work together and grow the Entrepreneurs of Color Fund, and for its ongoing support in the revitalization of our city.”
To meet the ongoing demand of the fund, JPMorgan Chase and the Kellogg Foundation each are making new investments of $2 million and actively recruiting new funders to significantly increase the size of the fund. New investors include the Ralph C. Wilson, Jr. Foundation ($2.5 million), Fifth Third Bank ($3 million) and the Kresge Foundation which has committed to providing first loss guarantee up to $2 million. All of these new investments are expected to encourage other investors to support the fund.
“We tend to overlook how powerful of a driver small business is. Not just in the economic and business development realm, but in neighborhood development. I think we don’t often understand the extent to which you cannot revitalize neighborhoods without these kinds of anchor [institutions]. It becomes more than just a one-off. It creates a whole different energy. …The multiplier effect is just enormous,” said Kresge Foundation CEO Rip Rapson.
Ted Archer, vice president and Small Business Program officer at JPMorgan Chase, brought it down to the numbers in terms of just how much a community profits – in dollars and cents – when smart investments are made in that community’s business structure.
“According to the Center for Global Policy Solutions, if people of color were just proportionately representative of business ownership, we would have 1.1 million more businesses, 9 million more jobs, and almost $1 billion more in …income. We just can’t afford to leave that kind of wealth on the table. Our efforts are designed to address that,” he said.
“According to our analysis, 58 percent of consumer spending goes to small business. But on the other hand, according to the JP Morgan Chase Institute report, small businesses in Detroit only have about 27 days on average of cash buffer. So they’re really vulnerable.”
Created in 2015, the fund, which is facilitated by DDF, a Michigan 501(c)3 Community Development Financial Institution (CDFI), provides loans ranging from $50,000 to $200,000 as well as business assistance to Detroit entrepreneurs of color, allowing them to grow, hire locally and further contribute to the city’s recovery. To date, the fund has lent or approved $4.5 million to more than 43 minority small businesses, resulting in over 600 new or preserved jobs. Fifty-three percent of the loans are supporting minority women-owned businesses. Nearly three-quarters (70 percent) of the loans have supported small businesses based in Detroit neighborhoods.
In early 2018, JPMorgan Chase will launch similar loans funds for minority-owned small businesses in San Francisco and South Bronx, applying what the firm has learned from investing in Detroit’s comeback.
There are approximately 50,000 minority-owned small businesses in Detroit, making it the fourth largest city for minority entrepreneurship. The fund is designed to increase economic opportunity by providing these businesses with greater access to capital and business assistance, allowing them to grow, hire locally and further contribute to the city’s economic recovery.
“The Kellogg Foundation developed and initiated this fund to dramatically change the wealth trajectory of people of color in the city and its neighborhoods,” said La June Montgomery Tabron, WKKF’s President and CEO. “Our commitment to the Entrepreneurs of Color Fund provides a pathway for community ownership, better jobs and more opportunities. The goal is more equitable economic development and an increase of quality of life for the people of Detroit and their children.”
According to the JPMorgan Chase Institute, spending at Detroit small businesses has grown significantly – from down over 4 percent in early 2014 to up by 4 percent in mid-2016. Nearly six in ten (58 percent) of consumer spending took place at small businesses in the city, which is 20 percentage points higher than the average small business spend across 14 other major U.S. cities.
“Detroit’s full and inclusive recovery depends on its longtime residents and small businesses having access to capital to launch or expand businesses, create jobs, and spread economic vibrancy throughout the city,” said Rapson.
Added Tabron, a native Detroit east-sider, “Detroiters are now employing other Detroiters, and that was really our vision.”