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Making it: a strategies primer for African-American entrepreneurs seeking capital in Los Angeles

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Content i

Making It: A Strategies Primer for
African-American Entrepreneurs Seeking Capital in Los Angeles

Arlene Warmack Williams

______________________________________________________________

A Dissertation Presented to the
FACULTY OF THE PRICE SCHOOL OF PUBLIC POLICY
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the Requirements for the Degree
DOCTOR OF POLICY, PLANNING, AND DEVELOPMENT

May 2018

Copyright 2018 Arlene Warmack Williams

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DEDICATION

W.E.B. DuBois, "I seem to see a way of elucidating the inner meaning of life and significance of
that race problem by explaining it in terms of the one human life that I know best."
(Wideman, 1990, p. xiv)

"All that is valuable in human society depends upon
the opportunity for development accorded to the individual."
—Albert Einstein

In February 1983 I sat in the lobby of Golden Bird, Inc. in Culver City, California. My
then fiancé had asked me to accompany him to the headquarters of the company he worked for to
ink the deal that would give him the keys to the first franchise of this successful family-owned
restaurant chain. But something was going wrong in the back-office conversations. He could
sense it and so, hand held down at a right angle pointing towards me, and serious tone in his
voice, he said, "Wait here." He stepped away. I contemplated the situation.
At stake was a future that neither of us could fathom. The twists and turns and decades
that lay ahead of us to reach even the first glimmer of hope for business success were
unfathomable. Immediately before us however, were two immutable facts: the first, was the
$50,000 that had been parked at the bank for two months, patiently waiting for the trigger to be
pulled to snap up the investment opportunity; the second, the reality that if this meeting did not
result in a signed agreement, the deal would be dead.
In the end, he did persuade the owner, lawyer, and consultant to sign the agreements and
we walked out of the warehouse, beaming with excitement that in about three weeks, March 1st to
be exact, he would be in business, working for himself. Backing him was a $50,000 loan—
derived from a second mortgage his parents had taken out on their income property to finance the
purchase of the business and franchise license. What transpired after that first day in business
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included a sea of tears, a mountain of mistakes, and a big valley of external financing from non-
traditional sources that pumped life into a company continuously in code blue. Thanks be to God;
we made it through. We are still working our way out, but not without sacrifice. Not without
perseverance. Not without unconventional strategies to keep the ship of state afloat, because
everything we had was wrapped up in our business.
For 35 years we have been on a roller coaster ride, the primary thrust of which has been
fraught with trial and error and the humbling experience of having to scratch and beg for capital—
not once at the beginning as we thought, but what seemed like hundreds of times. It has been a
journey of surviving against all the odds in an unbank-able, unfinanced-able, shutout, ineligible
state of existence. But we have never reneged on our responsibility to our employees, to pay the
wages that kept their families afloat, whether we had five employees or now 21, plus thousands of
satisfied customers, a host of vendors, accountants, and attorneys, landlords and utility companies
that have benefited immensely from the fact that we stayed the course.
My journey into this territory, however, did not begin with our entrance into
entrepreneurship, nor did it end there. Before Vincent and I sat in the lobby of Golden Bird, Inc.,
hoping to finalize the deal that would give him the keys to the first franchise in their system, I was
a small business consultant providing management and technical assistance to minority-owned
firms. In fact, I wrote the business plan that Vincent showed them that day to move past their
concerns. It sufficiently countered their argument and gave them the confidence of knowing that
he had counted the costs that would impact him in business. The projections, however, showed
he had no reserves—no working capital and that trouble lay ahead. He wanted to take the leap
despite the warning signs.
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I started my career in finance while a graduate student, working for an independent small
business consultant writing business plans for loan packages. The leader of the firm was formerly
a district director with the Minority Business Development Agency in Cincinnati, Ohio. One day
I asked him why he didn't apply for a loan to support his business. His answer was a conundrum
to me. "I don't qualify," he said. Simple, end of story. This person was helping others get
funding that he could not get himself.
After graduate school, and at his recommendation, I went to work for the Business
Development Center of Southern California, a firm that held a large contract with the Minority
Business Development Agency to provide management advisory services to minority-owned
businesses in Los Angeles County. I worked with hundreds of companies, many of whom were
seeking capital. I advised them, developed their loan packages, and shopped them when they did
not have a bank or other funding source. In this capacity, I learned where the funding sources
were for minority-owned firms. It struck me that whether owners were seeking federal or state
guarantees to shore up their financial package; whether they were exploring county or city funds,
presumably the sources of last resort, or funding avenues beyond conventional bank loans, the
hoops that they had to jump through were the same. Some could make that leap, but most could
not. And the shocking reality was that the funding sources that presented themselves as less
stringent weren't. It seemed to be just as tricky, and only the strongest of the strong survived the
ordeal. Sometimes, they cleared the access to funds stage to get started, but couldn't escape the
harsh realities of operating the business over the long haul.
More than a few times, people lost their pledged collateral when the funding source
exercised their right to collect on the secondary source of repayment. As painful as it was to
secure the financing they sought, it was much more difficult to lose their homes or to sacrifice
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their hard-earned assets for a business that could not survive the many stages of growth and with
it the ever-increasing thirst for capital, in all of its many forms.
After consulting I went to work for a suburb of Los Angeles, developing loan packages for
entrepreneurs who were seeking City support to start and grow their businesses. Here the
requirements were more relaxed, but the process was slow and very political. The structure of
leveraging the seed funding from federal sources could have worked in theory, but it did not in
practice. In several evaluations, the monitor dinged the city for being too conservative in its
lending practices. This meant the same or similar criteria for conventional loans were being
applied in the local loan program. This was a decision made by the staff members administering
the program to ensure minimal loan defaults.
Eventually, I was in charge of the loan program. I was now in charge of a federally-
funded loan program that had the flexibility to support local businesses that could hire citizens
and provide needed goods and services. Here politics were the barrier—and self-serving greed.
Good, solid loans were killed in loan committee by members who were political appointees, and
weak ones were revived in Council Chambers after being denied in committee on the staff level.
And where the rules were too stringent, few loans were approved. Where they were too relaxed,
loan defaults followed.
Another role I played in the financial services landscape was serving as Dean of the
Joseph Business School of Greater Los Angeles Area at Zoe Christian Fellowship of Whittier. In
this quasi-volunteer capacity I led a team of instructors who taught a comprehensive business
planning curriculum. We met every Saturday for five and a half hours for nine months, teaching
all of the business disciplines that go into developing a comprehensive business plan, including,
marketing, recordkeeping, operations, management, and finance. The majority of the students
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were African-Americans. Some were in business already, others were preparing to launch a new
business. I served in this role for five years, during which time, I observed the challenges and
limitations of working with adult learners who had competing responsibilities, yet the need to
quickly learn then implement new disciplines into their businesses.
My latest immersion into the many dimensions of capital access in Los Angeles, came as a
business owner taking advantage of an innovative program designed to train and connect African-
American entrepreneurs to capital sources. I gained a better understanding of different approaches
to teaching business disciplines to existing business owners, by securing a spot for our company
in the Inner City Capital Connections (ICCC) program sponsored by the Initiative for a
Competitive Inner City (ICIC). This organization started in 1994 as the brainchild of Professor
Michael Porter at the Harvard Business School. The program offers excellent training over eight-
months through hour-long webinars, coaching sessions and training/networking events for
companies generating at least $2.0 million in annual sales. Although open to all small businesses
in and near inner cities, more than 60 percent of participants are minority-owned firms. One of
the program’s primary objectives is to connect participants with the individuals in organizations
that control the capital they need to succeed. Several strategies were used, including pulling all
parties together in the same room in their introductory breakfast session, and culminating
conference; setting up roundtable introductions, headed by bankers and other lenders in the area;
recruiting bankers from their partner organizations to review their funding pitches and coach the
entrepreneurs; and finally, scheduling opportunities to pitch bankers at the conclusion of the
program.
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I have seen it all—most all, and the whole experience leaves me with a thirst to understand
what can be done to ensure that the right funding goes to the right individuals, with the right
businesses?
This professional dissertation is profoundly personal. It is developed with the lives,
hearts, and well-being of other African-American entrepreneurs in mind, who will follow their
entrepreneurial journey. The goal of this project is to somehow shorten the pathway to obtaining
the necessary capital to contemplate, start, and grow a business, to understand the lay of the land
and not waste time knocking on doors that will not open, or worse than that, walking through
open doors that should have been slammed shut, because they do more harm than good, and to get
prepared when approaching the capital markets and to push through and past the inevitable
turndowns. Experience has taught us that all "no's" are not failures; all failures are not the end of
the world. They are merely markers along the way to test and strengthen your resolve to reach
your dream.
This professional dissertation is also written to inform policy-makers, financing sources,
and those who are conventional and mission-focused, that African American businesses are out
there, making noise, creating jobs, and building communities. The numbers show the immense
potential they offer, not just to develop wealth engines for themselves, but to raise up beacons of
light for the communities in which they exist or serve. The primary benefit in this process is their
ability to create jobs and their compassion to hire people along the way, who look like them. And
in more cases, than we care to admit, offering the only hope that someone will take a chance on
them.

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This dissertation is dedicated to my husband, Vincent, the best exemplar of African
American entrepreneurs I know. Vincent lives the meaning of tenacity, creativity, and sheer guts.
He took us from a safe life, through hell and high water to get to the other side, so that we might
do our part in building the experiences and expectations of others through a business that is not
afraid to take risks, with people and systems that may not be ready for our resolve. Along the way
we are building a stronger community through the people we employ who enjoy ever-increasing
wages and responsibilities with the dignity of making their imprint on something once
unimaginable, now great.
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Acknowledgements
When I was at the midpoint of completing my dissertation (or so I thought), I read several
dissertations to get a sense of how far I needed to go to finish mine. Although I can’t remember
the subject, or the author, one stood out to me in a peculiar way. I remember the
Acknowledgements. At that time I was working my research alone, envisioning what could be in
a vacuum, not really knowing where I was going or what it would take to get there. I thought a
dissertation was a private matter that one went deep inside to bring out. I could not have been
more wrong.
What struck me about this unknown dissertation was the long list of people who
contributed to it and who were named in the Acknowledgements. Eighteen months later, I now
fully understand the reason for the list as well as the deep sense of gratitude the author expressed
for their support, whether large or small. I have my own long list of special people who have
walked this amazing journey with me, all with unselfish abandonment and sacrifices that I never
would have imagined were even necessary when I started. Without each one of them, something
great would go missing in this work-- a revelation overlooked; a sense of fear, victorious over me;
the vision unrealized. I must thank the key people one by one, for my journey took me through
rough, rough patches that I could not cross by myself.
Thank you to Professor Peter Robertson, the chair of my committee and the one catalyzing
force who allowed me to proceed when I was at one of the lowest moments in this journey. Peter
knew me from my first year in the DPPD program, as he taught one of our core courses. He
accepted the request to chair my committee even though he was swamped with more students
than any other professor at the Price School. He filled a critical gap for me that allowed me to
keep moving forward when everything was stalled administratively. He offered great early advice
on how to structure my methodology, giving me important momentum when timing was of the
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essence and challenges loomed all around me. He believed in me and his belief helped propel me
to the other side. His advising style was firm and honest, but always supportive. It also kept the
communication channels open. I so appreciate his responses to my numerous questions and
requests for advice. I appreciate the way he processes lots of details rapidly and synthesizes them
with pinpoint accuracy. Peter read every word and every comma. He gave me the tough advice
to reshape the structure of my document, tie loose ends, and convey clear meaning throughout.
No wonder he is so well-loved in the Price School by Ph.D. and doctoral students. He shepherds
so many of us through the heralding finishing process with the greatest of ease. I will forever be
grateful to him for his support and guidance, and for his sensitivity which I needed more than
anything during my most fragile moments.
Professor Ann Majchrzak from the Marshall School of Business played the role of my
personal mentor in helping me to craft the analytical details of my dissertation. She was also one
of my former professors and I served as a research assistant with her on a National Science
Foundation grant. Ann helped me to analyze the data to see connections and possibilities for
amazing outcomes for this research. Her laser focus and sharp, critical mind saw things in the
data that were original and inspirational. They made me smile deep in my heart because they
added the depth that the study needed in order to accomplish its intended purpose. Her objective
view of the data carved a clear path to hidden discoveries that would not have appeared had I
worked that part of the process in isolation. My vantage point would have been much too small.
I shall forever be indebted to Ann for being my greatest champion throughout this journey.
I can say unequivocally that without her, I would not have been able to get this done. We spent
hours pouring through raw data and running statistical analyses in order to pull out the nuggets
that I believe will favorably impact the financial services landscape for African-American
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entrepreneurs. She single-handedly helped me to see that the data I collected contained so much
valuable information. She did this with the toughness that has made her one of the premier
scholars and more prolific researchers at the University of Southern California, and the
understanding that sometimes I needed the time and the space to process her feedback or to allow
my mind to catch up with her. Ann is my friend, by teacher, my mentor. I also must thank her
husband, Peter, who was kind enough to welcome me into their home during several days of long
sessions in her office. The two of them fed me lunch and Peter made me hot tea in the afternoon.
How could he have known that tea is my calming elixir when I need to center my emotions and
dive into the touch things of life. His kindness reminds me that there are so many wonderful
people in this world.
Professor Tridib Banerjee served on my dissertation committee. His sage advice and
contribution was a wonderful addition to the committee. When I learned at the last minute that I
needed a second professor from the Price School to join my committee, I remembered Tridib and
the fantastic role he had played in my academic journey. He was not only one of my professors,
but he was one of the most supportive professors I’ve met at USC. During my first year in the
DPPD program I read about a Ph.D. student who had won an international award for her
dissertation. He was her advisor. I could not shake the idea that I wanted to know what an
award-winning dissertation looked like. I reached out to him and was able to obtain a copy of the
dissertation, which I thoroughly enjoyed reading. Then a second time, while a student in his
class, he mentioned that he had chaired the dissertation committee for another award-winning
dissertation. Again, I wanted to read it. He shared his only copy with me and trusted me to treat
it with great care when I borrowed it for an afternoon to make a copy. I still had the thirst to
know about what separates the good from the great—to know where the strongest dissertations
xii

live. And he was still there offering unwavering support. These gestures may seem insignificant,
but they were anything but that to me. I learned to give my work everything I can, to shoot for
the highest spot on the continuum by reading those documents. Sometimes all you need are tiny
messages and the opportunity to walk in the presence of greatness to search out your own.
Michael Banner served on my dissertation committee as the outside professional.
Michael, is one of the stalwart leaders in the financial landscape in Los Angeles, and one of its
most respected leaders. Thus, it was a great blessing to me that he accepted the invitation to join
my dissertation committee. For decades he has headed the Los Angeles Local Development
Corporation (LALDC). But I first knew of Michael in the 1980s when he was making noise back
then. Long before I asked him to serve on my committee, Michael was aware of what I was doing.
He was the one who told me about the research of Alicia Robb and Robert Fairley. He steered me
towards the vast research conducted by the Marion Kauffman Foundation on entrepreneurship,
and invited me to a hearing by the Consumer Finance Protection Bureau (CFPB) on access to
capital for minority firms. He shared reports and data useful for framing the factors influencing
the results we see today, and told me about the Expanding Black Credit Initiative started by Black
CDFIs in January 2016. He once synthesized the current state of affairs in a simple sentence,
“Everyone is risk averse.”
I would like to acknowledge the early guidance and support from Dr. Deborah Natoli who
shared ideas on ways to approach this complex topic. As the Chair of my Qualification Exam
Committee, she helped me understand the framework of a dissertation. Her efforts helped create
an initial structure around my thinking that served as the jumping off point for a wide world of
inquiry that later evolved into the dissertation presented here.

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Professor Gary Painter played a critical role in serving on my Qualification Exam
Committee. Without his “Yes” when I needed a professor from Price to review and comment on
my research proposal, I would not have been able to get started. I had met him only once as an
advisor to a student organization and reached out to him in utter desperation, after being turned
down by three other professors. His feedback was insightful and important in helping shape my
initial thoughts. As head of the Price Social Innovation Lab, I was also tremendously enriched by
his conferences and speaker series. I had the privilege of attending three such sessions and each
one contributed to advancing my perspective. Gary’s role was huge in this process, though he
perhaps was unaware of my deep appreciation for what he did for me.
John Brown, a long-time friend and mentor, also served on my Qualification Exam
Committee as the professional member. We had many conversations about the lack of financing
options for African-American entrepreneurs on our way home from teaching at the Joseph
Business School. He often spoke about his work starting the ABACO Foundation and ABACO
investment funds. These discussions turned my attention towards this important area of inquiry
that eventually led me to my research topic. He inspired me to find a focus area where my
passions and experience run deep.
Earl “Skip” Cooper II heads the Black Business Association. Since the mid-1970s he has
dedicated his life to helping strengthen the Black business community. He was my go-to person
for connecting to business owners and key stakeholders in the financial landscape in Los Angeles
County. With him in my corner I was two degrees of separation from anyone I needed to reach in
my research and studies. He also served as an amazing historian who shared important
information about the African-American business sector in Los Angeles. Skip is an exemplar of
extraordinary commitment to helping African-American businesses thrive. He made himself
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available to me for whatever I needed to complete my dissertation and encouraged me often. He
reminds me that the dissertation is a tool to be used to further the work.
Benny Akonteh is a long-time friend from my days as an undergraduate at Stanford
University. We have kept in touch off and on over the years, consistently sharing a special
affinity for wanting to do something meaningful to help mitigate the plight of African-Americans.
Benny holds multiple Ph.Ds, and took on the task of encourager in chief when he learned I was
working on my dissertation. His persistent support and encouragement demonstrated true
friendship. I could always count on him to check in on me and to help me put things in
perspective when they got a little wacky. Two hour calls discussing ideas and his relentless
insistence that I speak with a few of the colleagues he had met along the way proved extremely
helpful. I will never forget the care and concern he showed during this journey, or the
suggestions and advice he provided.
I don’t think any difficult endeavor is accomplished without the well wishes and support
of close friends. Clotee McAfee and Alice Williams deserve warm hugs and kisses for being my
anchors through this journey. Always willing to pray with and for me, always interceding on my
behalf, their perspectives and encouragement has meant the world to me. There are no words to
express the comfort their support brought to me during difficult periods or how much I
appreciated their understanding of how important this dream has been to me.
Charles Etheridge played a critical role in my ability to complete this dissertation. Charles
transcribed all of my interviews and did so quickly and professionally, with the same sense of
urgency that the tasks required. I truly would have been lost in the forest had I not found him
online. He worked super hard to meet my timelines, even suffering through the hurricane that hit
Corpus Christi causing him to evacuate with his family. Though we never met in person, we were
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a team joined at the hit for several months as I barreled through 41 interviews. He also helped
edit the document at the end. I am truly grateful for the major role he played in helping me to
manage massive amounts of data in a short period of time. I truly could not have done this had I
transcribed more than the first interview which took me eight hours for a one hour session.
Wayne Wilmeth sat with me when I began to set up my survey in Qualtrics. Although I
was quite familiar with the software program, it had been several years since I had used it in a
research capacity. He walked me through the basics and showed me a few tricks that cleared the
snags I was facing. I appreciate his willingness to carve out a few minutes with me to send me on
my way. It invigorated my confidence.
Claudia Avendana and I started the DPPD program together and are probably the last
cohorts from our era. She was very supportive and encouraging to me throughout our respective
challenges completing our dissertations. I could always call her and share my trials and
tribulations. I knew that without a great deal of explanation she understood exactly what I was
feeling. There is a special place reserved for friends who travel the same path as you and Claudia
occupies that place for me. She helped me put things in perspective and keep moving ahead. I
treasure her friendship, drive and determination. Her example made me a better person.
Chadwick Debnam entered my circle of supporters around the time I started collecting
data for my dissertation. As the president of the Portland Black Chamber of Commerce, he was
well-familiar with the challenges African-American entrepreneurs and business owners faced in
their efforts to secure the capital needed to thrive in business. He gave me a list of people to
contact, individuals whose expertise and accomplishments he respected and who offered
considerable insights into the topic. But he did not stop with sharing the contact information with
me. He reached out to them to make sure they spoke to me. I appreciated his energy and
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resourcefulness. Sadly, Chad passed away suddenly—much too soon. I would have loved to
have sent him a copy of my dissertation and been able to discuss its contents. It would have been
particularly rewarding to hear his thoughts on how it could benefit the constituents he served so
faithfully.
Jeannie Bowman works closely with me in the Office of External Relations for the
Marshall School of Business. Jeannie is one of the most amazing persons I have met, gracious in
every way and always willing to help. Completing a dissertation while working full time and
second-chairing a growing a business is not easy. Several times during this journey it became
clear that I could not come home after work and drum up the energy to tackle a dissertation. After
falling asleep too many times after work and getting nowhere with deadlines fast approaching, I
asked to work from home, to blend in my vacation time so I could concentrate during the time I
was most alert. She agreed to support the time I spent away from the office and allowed me to
carry out my responsibilities from home during the hours that worked for me. The ability to flex
and blend my time took a lot of pressure off the process and allowed me to be significantly more
productive on both fronts. I once wrote that if I could walk into a store where you select all the
qualities of the best boss, I could not have come out any better than I did with having her as the
head of my unit. I am so appreciative of the support she gives and her professional approach to
our work at the Marshall School.
I owe much gratitude to Matt De Vecchi for his understanding and support during this
process. Matt heads the Office of External Relations at the Marshall School of Business and has
led our team to achieve and exceed our campaign fundraising goal of $400 million. Matt has
been very supportive of my time away from the office and allowed me to complete the gift
agreements and proposals that I write from home. The ability to manage the responsibilities of a
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full-time job with the demands of completing a dissertation has been major for me. I could not be
more thankful to work alongside such a professional and caring team. I am truly blessed to be a
part of a dynamic unit that mirrors the sentiments of our leader. His support made all the
difference in the world in allowing me to shoulder the heavy weight of completing a dissertation.
I am especially thankful to the men and women who took time from their busy schedules
to complete the surveys and those who allowed me to interview them for this dissertation. From
the beginning I realized that the methodology I chose was complex. But so, too, was the subject
matter. The survey was long, full of lots of requests for personal information collected in lots of
different ways. The interviews required them to think about situations and problems that they
may have wanted to forget. 69 surveys and interviews that went into this dissertation. It took a
lot to pull together lists of people to approach for the study and then pin them down to a time
when together we could sit in their stories. What was easy, and what sometimes brought tears to
my eyes, was reading the answers they provided and listening to the stories they told. They
penetrated my soul deeply. I hope they conclude that their experiences were appropriately and
respectfully reflected in the dissertation. My goal was to preserve the lessons learned for the
benefit of others.
Last, but certainly not least, I am most grateful for the support of my family. They
deserve a shout out for patiently giving me the room to pursue my dreams. For a long time I have
been weighed down with the responsibility of completing this dissertation—sometimes present in
the room but absent in the mind. At other times absorbed in my own world alone in the intangible
space between the mountains of articles and drafts of chapters mixed with the frustration of noise
interference in a recorded interview. The person most affected by this state of mind is my
husband, Vincent, whom I appreciate so much for patiently enduring it all and offering his
xviii

support. But also affected have been my mother, Emma Thomas, whom I’ve not been able to
spend much time with lately. She has been one of my most enduring supporters, encouraging me
and understanding the many huge dreams that I have pursued throughout my life. I owe so much
to her for the sacrifices she made for me and the emphasis she placed on completing my
education.
Posthumously, I must acknowledge my grandmother, Ardella Hildreth, who contributed so
much to who I am, by showering me with unconditional love and support. Though she only
finished grade school, her wisdom extended well beyond her formal schooling. She used to tell
me, “If you can’t be first, be second to none.” I did not understand what that meant, but she said
it enough times that something in me caught her meaning, latched on to it and would not let it go.
Her sister, Dr. Pernella Woods, was my role model and champion growing up, and the one who
set my true north. She saw the potential in me and pushed really hard to bring it out. A college
graduate and teacher, long before it was easy for people in the South to be educated, her stellar
example instilled in me the concept of being a life-long learner and of the importance of blazing
my own trail. It seems that my whole life I have strived to be like her, for she was truly an
amazing woman, admired and loved by all--a pioneer in the African-American community in
every sense of the word. The first and only in a wide circle to earn a Ph.D. She showed me the
way. She showed me how. She showed me possibilities.
Many thanks to my daughter, Shayla Williams, who has had to pick up some of the slack
of my being missing in action. My other children, Marques and Frances and Trenton have also
been affected by my limited availability, but their encouragement and support have been
unwavering.
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To all of the people mentioned in this acknowledgement and others who I may have
overlooked unintentionally, thank you from the bottom of my heart and soul. I love you all.
The support and understanding that you provided throughout this process have been the wind in
my sails.

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Executive Summary
Making It: A Strategies Primer for African-American Entrepreneurs Seeking Capital in
Los Angeles started as a project to examine the effects of lack of access to capital experienced by
African-American entrepreneurs in their efforts to start and grow successful businesses. I sought
to cull data and stories from successful entrepreneurs who could then share lessons they learned
along the way with others. These would be real stories of real people making it through real
challenges, much like the ones my husband, Vincent and I experienced with our business. Soon
after starting the research I could not shake the idea that I had to capture the perspectives of bank
lenders, then of non-depository lenders, then of chambers of commerce and so on and so on. As
research tends to do, it laid out the journey for me and I simply obeyed the call and reached out to
most of the top individuals and organizations serving the financial services market in Los Angeles
with some clear and present touch point with the African-American business community. By the
time I finished I had nearly circled the full spectrum of organizations involved in serving the
financial needs of African-American entrepreneurs in this region. I had also gleaned a much
larger view of the issues and potential to change the narrative than I could have ever imagined
when I started.
Making It: A Strategies Primer addressed the following three research questions: 1) How
have African-American entrepreneurs in Los Angeles overcome the challenges they face in
accessing capital to build their companies? 2) What challenges do financial services providers
face in distributing the necessary capital to African-American entrepreneurs, and 3) What
information can be shared with African-American entrepreneurs to shorten their journey to
success by improving their potential to secure the capital they need?
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To answer these questions I followed a simultaneous mixed-methods research design
anchored by an anonymous survey administered online through Qualtrics and semi-structured
interviews that were conducted in person and by telephone. In all I completed 69 surveys and
interviews. The data were compiled, coded and analyzed through SPSS for statistical analysis
and Atlas.ti for qualitative analysis. This level of effort generated a large amount of rich data that
resulted in the 44 findings presented below (See Tables i.1 through i.3).
One surprising revelation among these findings were reports that the financial services
provider ecosystem consists of significant resources, but it is rather fragmented with organizations
operating in siloes. The opportunity exists to bridge these gaps and leverage resources. Other
interesting findings included the characteristics of the AAEs in this study. The majority of them
report being driven by a higher purpose to excel and continue through challenges. Most often that
purpose has a spiritual grounding. Another interesting finding is that the vast majority of
respondents also actively give to others and to their community.
The approach of collecting data from borrowers and lenders as well as organizations that
provide technical assistance proved extremely effective, not only in answering my research
questions, but in revealing weaknesses in the financial services provider ecosystem, that if
addressed, could result in much better performance numbers for African-American entrepreneurs.
Namely, a comprehensive, systemic approach is needed that brings together the stakeholders
around a single mission to provide greater access to capital for African-American entrepreneurs.
This approach would benchmark the current state of affairs and align resources across all
stakeholders to collectively change the dismal results currently noted in the amount of capital
African-American firms are able to secure.
xxii

The following tables describe the results of the research questions asked of the various
entrepreneurs. Each table describes the results of a separate question. Table i.1. summarizes the
findings for Research Question 1.
Table i.1.
Summary of Findings for Research Question 1
Finding #

Findings Attitudes/Perceptions
Beliefs & Behaviors
1 AAEs acknowledge the difficulty of raising
capital yet keep moving forward
Attitude/Perception
Behavior
2 AAEs expect positive growth for their businesses Attitude
3 AAEs avoid perceived unproductive/negative
efforts to secure financing
Attitude/Perception
Behavior
4 AAEs seek technical assistance, but not
necessarily in raising capital
Behavior
Attitude/Perception
5 AAEs risk personal assets for their businesses Behavior
6 AAEs use multiple capital instruments to meet
their needs
Behavior
7 AAEs use credit cards, sometimes at a
significantly higher cost
Behavior
8 AAEs rely on internal resources to support
growth, often using internal growth for capital
Behavior
9 AAEs use multiple bootstrapping strategies,
often very aggressively, beginning with personal
sacrifice
Behavior
10 AAEs face challenges raising capital at every
stage of the business life cycle with the same
resolve to succeed
Attitude/Perception
11 AAEs understand that relationships matter in
business; and banking relationships in particular
for accessing capital
Attitude/Perception
12 AAEs are resilient, expressing the view that
quitting is not an option in the face of adversity
Behavior
Attitude/Perception
Belief
13 AAEs define business success in non-financial as
well as financial terms
Attitude
14 AAEs are driven by a higher purpose to excel as
they confront challenges, barriers, and setbacks,
emphasizing a strong spiritual grounding
Belief
Behavior

xxiii

Finding #

Findings Attitude/Perception
Beliefs/Behaviors
15 AAEs acknowledge the impact of race, but do
not agree on whether being an African-
American is more positive or more negative
concerning their business
Attitude/Perception
Belief
16 AAEs list personal characteristics as strengths
almost as much as skills in business
disciplines
Attitude/Perception
17 AAEs give to others and to their community in
multiple ways
Attitude/Perception
Belief
Behavior
Note: AAE = “African-American Entrepreneur.”

.
Table i.2. summarizes the findings for Research Question 2.
Table i.2.
Summary of Findings for Research Question 2
Finding #

Findings
Attitudes/Perceptions
Beliefs & Behavior
Lenders
1 Lenders have considerable ambivalence about
lending to AAEs
Attitude/Perception
Behavior
2 Lenders balance regulatory compliance with
serving the needs of the AAE community
Behavior
3 Lenders operate in a shareholder-driven
environment where costs and profitability take
precedent over corporate responsibility
Attitude/Perception
Behavior
4 Lenders are able to meet their CRA test by
supporting/funding technical assistance
programs and non-profit lenders when they
don’t make loans to AAEs.
Behavior
5 Lenders need training on how to assess the
strengths of AAEs and communicate the
programs they offer more responsibly
Attitude/Perception
Behavior
6 Lenders confirm that building relationships
with branch managers and other key officials
in the lending landscape is still important even
in this age of centralized loan decisions
Attitude/Perception
Behavior

xxiv

Finding # Findings Attitudes/Perceptions
Beliefs & Behaviors
7 Lenders representing CDFIs or mission-
driven lenders have flexibility when
evaluating credit and collateral, but are
evaluated on performance and are just as
concerned about repayment
Behavior
8 Lenders representing CDFIs or mission-
driven lenders have flexibility to offer
smaller-sized loans.
Behavior
Facilitators
9 FSP - Facilitators assert that there are funds
available, but AAEs are not applying for
them
Attitude/Perception
Behavior
10 FSP - Facilitators express both frustration
and understanding that many AAEs do not
have their business affairs in order but fail
to take steps to correct them
Attitude/Perception
11 FSP - Facilitators observe that AAEs
sometimes ask for loan funds when they
actually need technical assistance, but the
providers must make it easier for them to
access it
Behavior
12 FSP - Facilitators have well-developed
networks of lenders and other key resources
that AAEs could tap into, but the
information is not widely publicized
Behavior
13 FSP - Facilitators operate in silos with not
enough collaboration to push banks to do
more, work together on deals, or
disseminate comprehensive information to
the AAE business community
Attitude/Perception
Behavior
14 Facilitators cite an absence of African-
American owned banks as an impediment
to more loans to AAEs as well a general
absence of AAEs in influential bank
positions
Attitudes
15 FSP – Facilitators recognize a disconnect
between the messaging banks use to
communicate their loan programs and the
expectations of AAEs
Attitude/Perception
Belief
16 FSP - Facilitators have observed evidence
of racial discrimination against AAEs even
when they do meet stated criteria.
Belief
Attitude/Perception
Note: CRA=Community Reinvestment Act CDFI=Community Development Financial
Institution FSP=Financial Service Provider
xxv

Table i.3. summarizes the findings for Research Question 3
Table 1.3.
Summary of Findings for Research Question 3

Finding #

Findings for Research Question 3
Attitudes/Perceptions
Beliefs & Behaviors
1 AAEs whose business is their first are more
likely to obtain a loan
N/A
2 The larger the geographic markets, the more
likely the AAE will obtain a loan and have
larger revenues.
N/A
3 Receiving technical assistance in raising
capital is related to unmet needs and gross
revenue
N/A
4 Number of financial sources is related to
obtaining a loan
N/A
5 Whether you apply for a loan or not is related
to having unmet capital needs
N/A
6 Receiving technical assistance in marketing is
related to having unmet capital needs
N/A
7 AAEs advise that the top priority should be
on financial matters
Behavior
8 AAEs advise that the second highest priority
should be on relationships
Behavior
9 AAEs advise that the third highest focus area
should be on management matters
Behavior
10 AAEs advise that the fourth highest focus
area should be on leadership matters
Behavior
11 AAEs advise that the fifth highest focus area
should be on resilience
Attitude/Perception
Behavior

xxvi

Table of Contents
Dedication ....................................................................................................................................... ii
Acknowledgements ........................................................................................................................ ix
Executive Summary .......................................................................................................................xx

Chapter 1. Introduction ...........................................................................................................1
Purpose of the Study ............................................................................................................5
Research Problem ................................................................................................................6
Need for the Study .............................................................................................................10
Outcomes and Contribution to Practice .............................................................................14
Glossary of Terms ..............................................................................................................14
Research Questions ............................................................................................................20
Organization of the Report.................................................................................................23

Chapter 2. Background ..........................................................................................................27
Historical Overview ...........................................................................................................30
Entrepreneurs and Small Business Owners .......................................................................31
The Context of Small Businesses ......................................................................................33
Importance to the U.S. and Local Economies........................................................34
Statistics on Small Businesses ...............................................................................34
The Context of Minority-Owned Businesses .....................................................................45
Importance to the U.S. and Local Economies........................................................45
Statistics on Minority-Owned Businesses .............................................................48
The Context of African American-Owned Businesses ......................................................55
Statistics on African-American-Owned Businesses ..............................................56
An Historical Perspective on What We See Today ...............................................57
The Status of African-American Businesses and Their Communities ..................66
National ......................................................................................................66
Los Angeles ...............................................................................................67
The Case for Strengthening African-American Businesses ....................................71

Chapter 3. The Financial Landscape ...................................................................................73
Financing Structure ...........................................................................................................73
Credit Enhancements ........................................................................................................76
Federal - U.S. Small Business Administration ......................................................77
State - Financial Development Corporations .........................................................80
Underwriting and Regulatory Constraints .............................................................83
Advocacy Organizations and Other Intermediaries ...........................................................86
Community Development Financial Institutions (CDFIs) .....................................89
Access to Financing ........................................................................................................90
Challenges of Small Businesses in Accessing Capital ......................................................90
Challenges of Minority-Owned Businesses Accessing Capital .........................................93
New Frontiers of Capital ....................................................................................................95

xxvii

Chapter 4. Methodology .........................................................................................................99
Research Design...............................................................................................................100
Survey Instrument ............................................................................................................103
Data Collection ....................................................................................................106
Sample..................................................................................................................107
Qualitative Methods .........................................................................................................116
Data Collection ....................................................................................................119
Data Coding .........................................................................................................120
African-American Entrepreneur Participants ......................................................124
Financial Services Provider Ecosystem Participants ...........................................125

Chapter 5. Findings ...............................................................................................................126
Research Question 1 ......................................................................................................126
Summary of Findings for Research Question 1 ...............................................................126
Survey Findings for Research Question 1 .......................................................................127
Qualitative Data Findings for Research Question 1 ........................................................155
Conclusions from the Findings for Research Question 1 ................................................175
Research Question 2 .....................................................................................................177
Summary of Findings for Research Question 2 ...............................................................178
Qualitative Data Findings for Research Question 2 ........................................................179
Conclusions from the Findings for Research Question 2 ................................................208
Research Question 3 ......................................................................................................210
Summary of Findings for Research Question 3 ...............................................................212
Survey Findings for Research Question 3 ........................................................................212
Qualitative Data Findings for Research Question 3 ........................................................219
Conclusions from the Findings for Research Question 3 ................................................224

Chapter 6. Discussion............................................................................................................227
Commentary .....................................................................................................................227
Contribution to Practice ...................................................................................................232
Implications and Recommendations ................................................................................235
Recommendations for Future Research ...........................................................................237
Limitations .......................................................................................................................241
Conclusion .......................................................................................................................244

References
List of Tables
List of Figures
Appendices

xxviii

List of Tables

Table i.1 Summary of Findings for Research Question One xxii
Table i.2 Summary of Findings for Research Question Two xxiii
Table i.3 Summary of Findings for Research Question Three xxv
Table 1.I Summary of Business Ownership by Race in the United States 10
Table 2.1 Metro Ranking – Kauffman Index of Startup Activity Index 37
Table 2.2 Metro Ranking - Kauffman Index of Main Street Entrepreneurship

40
Table 2.3

Estimated number of Additional Firms, Additional Jobs, and
Additional Worker Incomes if the Number of People of Color Firms
Were Proportional to White Female and White Firms, 2012
47

Table 2.4

Comparative Shares of Minority Business Ownership
and Total Population, 2012

48

Table 2.5 US Minority-Owned firms. 50
Table 2.6

Minority Group Shares of Total Business Ownership,
Sales, and Employment, 2012.

51

Table 2.7

Comparison of Minority-Owned Businesses
by Race, Sales, and Employment – U.S.

53

Table 2.8 Comparison of Minority-Owned Businesses
by Race, Sales, and Employment – California.
53
Table 2.9

Comparison of Minority-Owned Businesses
by Race, Sales, and Employment – Los Angeles County.

54

Table 2.10 Equality Index of Black America, 2016 – 2017. 67
Table 2.11 Ranking of Metro Areas from Most to Least Equal 68
Table 2.12 Black Los Angeles, More than Meets the Eye. 69
Table 2.13 Racial Equality Index 71
Table 3.1 Estimate of SBA 7(a) Loan Activity to African-American Entrepreneurs 80
xxix

Table 3.2 Average Credit Score by Race 84
Table 3.3 Credit Scores, Small Business Credit Survey, 2016 85
Table 3.4

Financial Development Corporations' Loan Production
to African-Americans 2005-2016

88

Table 3.5 Type of Financing Used by Minority-Owned Firms 94
Table 4.1 Socio-Demographic Profile of Survey Respondents 108
Table 4.2 Background and Experience of Survey Respondents 109
Table 4.3 Strengths of the Business - Mean Scores 111
Table 4.4 Strengths of the Business 111
Table 4.5 Business Focus 113
Table 4.6 Business Size and Structure 115
Table 5.1 Lending Experience 128
Table 5.2 Expected Business Growth 134
Table 5.3 Primary Business Objective 134
Table 5.4 Decided Against Applying For a Loan For Fear of Decline 1346
Table 5.5 Average Ranking of Financial Institutions by Service to African-
American Businesses
135
Table 5.6

Average Ranking of Financial Institutions by Service to African-
American Business Community
137

Table 5.7 Beneficial Technical Assistance Received 139
Table 5.8 Personal Assets Used to Obtain a Loan 142
Table 5.9 Financing Used During Your Time in Business 145
Table 5.10 Credit Card Interest Rates 147
xxx

Table 5.11 Types of Financing Used Last 12 Months 148
Table 5.12 Bootstrapping Strategies Used to Keep Business Going 151
Table 5.13 Bootstrapping Strategies 1st Reduction 152
Table 5.14 Bootstrapping Strategies 2nd Reduction 153
Table 5.15 Used Bootstrapping 154
Table 5.16 Unsuccessful Loan Attempt 157
Table 5.17 Ease of Financing as Firm Grows 157
Table 5.18 More Bankable as Firm Grows 157
Table 5.19 Considered Business Successful 158
Table 5.20 Relationship Helped Get a Loan 160
Table 5.21 Considered Quitting 163
Table 5.22 First Thought of Owning a Business 167
Table 5.23 Higher Purpose 168
Table 5.24 Treated Differently Because African-American 170
Table 5.25 Data Analysis - Three Dependent Variables 211
Table 5.26 Crosstab for First Business X Obtaining a Loan 213
Table 5.27 Group Statistics for Geo Markets 213
Table 5.28 Crosstab for Received Technical Assistance in Raising Capita 214
Table 5.29 Group Statistics for Number of Financial Sources Used 215
Table 5.30 Crosstab for Unmet Capital Needs and Not Applying 216
Table 5.31 Crosstab for Unmet Capital Needs
And Received Technical Training in Marketing
217
Table 5.32 Listing of AAEs Advice
223

xxxi

List of Figures
Figure 1.1 Where Gaps Have Widened 11
Figure 2.1 Kauffman Index: Startup Activity Index (1996 – 2016) 36
Figure 2.2 Kauffman Index: Rate of New Entrepreneurs - Los Angeles 37
Figure 2.3

Kauffman Index: Opportunity Share of New Entrepreneurs –
Los Angeles

38

Figure 2.4 Kauffman Index: Startup Density - Los Angeles 39
Figure 2.5 Kauffman Index of Main Street Entrepreneurship (1997 – 2016) 39
Figure 2.6 Kauffman Index: Survival Rate - Los Angeles 40
Figure 2.7 Kauffman Index: Rate of Business Owners – Los Angeles 41
Figure 2.8 Kauffman Index: Established Small Business Density - Los Angeles 41
Figure 2.9 Kauffman Index: Rate of Business Owners - Gender - Los Angeles 42
Figure 2.10 Kauffman Index: Rate of Business Owners - Race - Los Angeles 42
Figure 2.11 Kauffman Index: Rate of Business Owners - Nativity - Los Angeles 43
Figure 2.12 Kauffman Index: Rate of Business Owners - Age - Los Angeles 44
Figure 2.13 Kauffman Index: Rate of Business Owners - Education - Los Angeles 44
Figure 2.14 Kauffman Index of Growth Entrepreneurship (2008 – 2016) 45
Figure 2.15 Racial/Ethnic Composition: United States, 1980 - 2050 55
Figure 2.16 Timeline of Key Events in Black Los Angeles 65
Figure 3.1 SBA's FY 2014-2018 Strategic Plan 78
Figure 3.2

Percent of Bank Lending to Small Businesses
Between 1995 and 2012
93

Figure 3.3 Alternative Small Business Financing Options 98
Figure 4.1 Diagram of Research Design 103
Figure 4.2 Organizations Represented in the Financial
Services Provider Ecosystem
122
xxxii

Figure 4.3 Organizations Represented in the Financial Services
Provider Ecosystem - by Lenders and Facilitators
123
Figure 5.1 Summary of Findings for Research Question 1 126
Figure 5.2 Qualitative Data Findings - Entrepreneurs 155
Figure 5.3 Personal Strengths 173
Figure 5.4 Personal Weaknesses 173
Figure 5.5 Findings for Research Question 1 by Attitudes/Beliefs/Behaviors 177
Figure 5.6 Summary of Findings for Research Question 2 178
Figure 5.7 Summary of Findings for Research Question 2
by Attitudes/Perceptions
Beliefs & Behaviors
209
Figure 5.8 Findings from the Statistical Analysis of AAE Surveys 212
Figure 5.9 Summary of Findings for Advice from AAEs 219
Figure 5.10 Summary of Findings for Question 3 226
Figure 6.1 Commentary on Research Findings for Question 1 227
Figure 6.2 Readiness for Investment Program 237
xxxiii

Appendices
Appendix A: Quick Reference to SBA Loan Guaranty Programs ................................270

Appendix B: Making It III Survey .................................................................................273

Appendix C: Interview Questions for Entrepreneurs ....................................................301

Appendix D: Interview Questions for Financial Services Providers .............................303

Appendix E: Interview Questions for Chamber of Commerce Representatives ...........304

Appendix F: Interview Questions for Business Consultants .........................................305

Appendix G: Advice and Lessons Learned from AAEs ................................................306

1

Chapter 1. Introduction
Shark Tank is a popular reality show that features a panel of six famous and wealthy
celebrity investors who evaluate the quick pitches of people seeking financial and other types of
support. If the investors hear a concept they like, they strike a deal, committing their resources to
fuel the business' growth. In one very effective pitch, a young man, Carter Kostler, 15 years old,
presented the Define Bottle--a specialty water bottle that featured a chamber for fruit and herbs
that infuses flavors into the surrounding water. When asked how much had been invested in the
company, he said his parents had taken out a mortgage on their home and spent $300,000 in his
company. The sharks jokingly laughed that he would have to quit school to run the business.
Carter did not get a deal that day, but the exposure on Shark Tank helped catapult his business to
the next level. In an update segment two years later, the camera showed him setting up an endcap
display for the Define Bottle in Target (Barbuti, 2015). To keep up with the demands of his
business, however, he was now home-schooled.
What's telling about this story is the capital this young, Caucasian man was able to secure
through family resources—family wealth. Not even out of high school, he was given a substantial
amount of financial and professional resources by his parents to develop a prototype, complete
production runs, and prove the concept through e-commerce-- $300,000 to be exact, on an
unproven, new concept, then seized the opportunity to pitch his idea on national television. This
was a testament to the degree of wealth within his family and the degree of entrepreneurial know-
how they added to the equation.
In another Shark Tank episode, Mosiah Bridges presented Mo's Bows. This 11-year-old
young entrepreneur had thrown his hat in the fashion industry by designing and selling handmade
bow ties for professionally-dressed men. With an enduring passion for fashion, he too did not
2

receive an investment from the celebrity investors. However, he did snag something that proved
much more valuable--a commitment from Damon John to mentor him. Mo is an African-
American entrepreneur, and Damon is the only African-American shark on the show. Damon
earned his fortune by creating FUBU (the clever acronym that means For Us By Us), one of the
earliest apparel brands that targeted hip-hop/urban fashion. Damon's story of entrepreneurship
started similar to Mo's. It followed the path of many African-American entrepreneurs. It is
rumored that when he began FUBU, Damon was turned down 57 times before securing the capital
he needed to fund the company. Damon's willingness to mentor Mo offered an intangible resource
that was worth much more than a deal could have been, mainly since the infrastructure for
entrepreneurial development remains so anemic in the African-American community.
Where Carter could rely on the sage business guidance and emotional support from his parents
and their financial networks, Mo had the emotional support from his mother and grandmother but
lacked the economic heft and level of mentorship and access that Damon was able to bring to his
endeavors.
Contrast Carter's story with that of Vincent Williams. At 27, he had managed the
commissary that serviced 11 restaurants for Golden Bird, Inc. for four years, and operated three
locations in the chain (including the place he ultimately purchased) over a period of three years.
His parents also refinanced real property to secure the $50,000 needed to buy the first franchise of
this company owned by a prominent African-American family.
Carter's story, although not entirely typical, is also not an anomaly--nor is Vincent's. As a
15-year-old, white male, Carter’s access to capital resources to develop a new business were
imminently more robust than Vincent's, even though the latter brought substantial experience to
the venture in which he sought to take over an existing business with ongoing revenue. This was
3

a franchise of an established African-American business in the "high growth enterprise" category,
defined as sales of more than $500,000 by the Minority Business Development Agency (U.S.
Department of Commerce MBDA website). Vincent and Carter faced very different
entrepreneurial journeys from day one—through no fault or making of their own. They were both
born into systemic structures of wealth, networks, and histories, and touchable role models and
mentors that were, or were not, able to facilitate entrepreneurial success. The inherent inequities
in our communities and the world of business impede natural progress and have spawned and
stifled entire communities whose residents suffer from few job opportunities, although it is well
established that jobs for community residents make their communities healthy. When few
opportunities exist for residents, they become weak and dependent.
Understanding the importance of jobs and that the primary source of jobs is small
business, my focus is on the African-American segment of small business, and the entrepreneurs
who take the personal and financial risks to build successful companies. If they struggle to start
and grow their businesses, whether or not they are located within predominately African-
American communities, somewhere in the equation job creation gets severely stifled.
This project is about understanding some of the challenges faced by African-American
entrepreneurs in acquiring loans and other forms of financing for their businesses, and by default,
how the problems indirectly impede the progress of African-American communities. Without the
basic engines of job creation by the individuals most likely to lend a sympathetic ear to other
African-Americans, prospects for robust community development will continue to be severely
constrained and even dismal. A critical aspect of fixing any problem is gaining knowledge and
understanding about why and how it exists.

4

This study on access to capital is a call to action for financial inclusion. It takes an in-
depth look at the descriptive data and secondary research and combines that with information
gleaned from survey data from 28 entrepreneurs and interviews with 41 individuals, including: 21
entrepreneurs, six current and former bankers, five lending intermediaries, three Federal and State
public officials, four African-American chambers of commerce members, and three business
consultants. I analyzed the similarities and differences in their approaches, workarounds, and
outcomes to produce the findings in this dissertation. The information is helpful for African-
American entrepreneurs to understand how to think about the process of raising capital; how to
position themselves and their firms for success over the long haul; where to go to exact the
highest chances for success in raising the funds they need; and how to think about the challenges
when they occur.
I accomplish this using an online survey sent to 86 entrepreneurs and an in-depth look at
21 African-American entrepreneurs and business owners in Los Angeles County. The majority of
them faced challenges accessing capital at some point in the life cycle of their business, many at
the beginning of their entrepreneurial journey, and or as they began to grow. Their narratives
have led to a better description of the realities that exist in the financial marketplace--some
through unconscious as well as deliberate bias. The information was then aggregated to draw
some early conclusions around specific themes and thence strategies that others can use when
seeking capital in Los Angeles.
To further triangulate the study, I include research on the opposite side of the financing
equation, through interviews with bankers, community development financial institutions
(CDFIs), local government lenders, investors, the SBA, financial intermediaries and others
involved in providing capital or capital-related technical assistance to enterprises in Los Angeles
5

County. I refer to this group as the financial services provider ecosystem (FSP). Their narratives
offer a somewhat different perspective on the issues but help to uncover solutions that meet the
needs of African-American entrepreneurs and business owners and also that respects the
challenges faced by the financial community in providing the necessary capital to them. The
hoped-for outcome is a measurable increase in the number of African-American entrepreneurs
and business owners, who can secure the funds they need to strengthen their businesses, create
jobs that hire residents, and thereby develop stronger communities. Even a 10 percent increase in
funds provided to African-American entrepreneurs would be a worthy goal to favorably impact
their businesses and communities.
Los Angeles is the perfect testing ground for this research, given the high volume of
entrepreneurial activity and the density of the African-American population here. The Kauffman
Index of Startup Activity (2017) ranked the Los Angeles-Long Beach-Santa Ana metropolitan
area the third largest region for startup activity in the United States, behind Austin-Round Rock-
San Marcos in second place, and Miami-Fort Lauderdale-Pompano Beach in first place. Los
Angeles also houses a large African-American population of more than 830,000 representing 5.2
percent of the total population and 81,535 businesses with African-American owners. The
analyses and findings for African-American entrepreneurs in Los Angeles must be the beginning
of something much bigger, covering many other regions with similar issues across the United
States.
Purpose of the Study
African-American entrepreneurs encounter significant disparities in raising capital to start
and grow their businesses. The purpose of this study is to gain an understanding of how they
overcome the challenges they face, yet continue to strive for business success. What do they do
6

when they cannot get the funds they need? A further purpose is to help others by sharing the
lessons they learned on how to build successful businesses under these less than ideal conditions.
Collecting the stories of African-American entrepreneurs on the path to success should be
captured and shared, or they will be "lessons lost" to the broader collective of African-American
entrepreneurs, many of whom do not have robust networks to advise them during difficult times.
This study will enhance understanding for the African-American entrepreneurs who experience
challenges accessing capital, and for those who represent lenders and organizations that help
strengthen the financial capabilities of African-American-owned firms. Finally, the purpose is to
offer strategies helpful for both sides to produce significantly better results in funding for African-
American firms.
Research Problem
"Minority-owned firms contribute over $1.4 trillion in annual economic output to the U.S.
economy and directly account for 7.2 million U.S. jobs," according to a fact sheet provided by the
Minority Business Development Agency (MBDA), a unit of the U.S. Department of Commerce
summarizing data from the 2012 Census (MBDA website). MBDA further reports, that minority-
owned firms "are an engine of employment, with young, minority firms creating jobs at similar
rates as young non-minority firms. Greater capital access for minority-owned firms is essential to
sustain their growth, reduce national unemployment levels, and in particular the high rate of
unemployment in minority communities" (Fairlie and Robb, 2010, p. 3). In “The Color of
Entrepreneurship,” Austin (2016) estimates that if minority firms were proportionate to white
firms, there would be 1.1 million more firms, over nine million more jobs, and nearly $300 billion
in additional worker income in the U. S. economy.
7

Within the minority-owned business population, African-American entrepreneurs
encounter disparities greater than other minorities in accessing capital to start and grow their
businesses. This situation impedes their ability to survive, and ultimately, succeed (Fairlie and
Robb, 2010; Kijakazi,1996; Morelix, et al., 2016). The literature validates the existence of these
disparities, including: tighter credit requirements, higher costs, smaller loans, redlining, or
restrictions based on location (Fairlie and Robb, 2010; Kijakazi,1996; Morelix, et al., 2016).
Some of the disparities arise from what could be considered "culturally-biased underwriting
criteria." I use this term to refer to established underwriting criteria that a significant number of
African-American entrepreneurs simply cannot meet at the time they apply for external funding.
Access to capital continues to be a challenge for small businesses of all types; however, it
is particularly acute and debilitating for African-Americans because of racial discrimination
(Fairlie and Robb, 2010). Perhaps one of the most vivid studies on this topic comes from a field
experiment conducted by researchers from Utah State University, Brigham Young University, and
Rutgers University (Bone, Christiansen, and Williams, 2014). The researchers were actually
studying the impacts of systemic restricted choice on the self-concept of minority firms seeking
financing (Bone, et al., 2014). Using an approach akin to secret shopper, where an individual
goes into a business establishment posing as a customer in order to objectively evaluate the
experience, researchers selected, nine “would-be” loan applicants, three Asians, three Hispanics,
and three African-Americans, who were sent to several banks. Their research validated the
existence of racial discrimination against African-American and Hispanic loan applicants, even
though their profiles, professional appearance, and loan requests were the same. "If you are white
and set out to get financing for an entrepreneurial venture, it might be a tough journey," Glenn
Christensen, a marketing professor at Brigham Young University and one of the study's authors,
8

said in a report published by the university. "But, generally speaking, you would experience fewer
obstacles and find more help along the way than if you came from an African-American or
Hispanic background" (Harrison, 2014, p. 1). The interesting take-away here is that without the
results of the field study, the systemic differences would not have been easily perceived by the
individuals seeking loan information. Only by comparing the differences in the bankers’
responses across the groups could evidence of discrimination be uncovered. Sometimes the
nature of the disparities encountered by African-American firms is very subtle. Opportunities to
capture and examine the lived experiences of African-American entrepreneurs would add
additional understanding to the topic.
The history of African-American business in America weaves a tale of barriers and
exclusionary practices that have plagued them for more than a century—particularly when it
comes to accessing capital, the lifeblood of all commerce. Although the harsh sanctions that once
constrained African-American businesses no longer exist, the disparities are blatant, captured and
memorialized in the data. African-Americans own and operate 2.6 million businesses in the
United States according to the Minority Business Development Agency, referencing data from the
Census Bureau's 2012 Survey of Business Owners. The average gross receipts for African-
American-owned firms was $58,119. This level of revenue ranked the lowest of all minority
groups by very large margins across all examined groups. Asians registered $364,717, Hispanics,
$143,271, and American Indian & Alaskan Native, $142,306. The data includes the largest
minority groups only, therefore, the totals for these groups do not reflect the total minority
population. However, it offers a look at the largest minority groups and their relative standing
compared with all firms and with White firms. Table 1.1 Summary of Business Ownership by
Race in the United States provides the raw data and distributions. The “Analysis” lines reflect my
9

summary of the information the data tells us, by average firm and by percentage of the total. For
example, for all firms, the average sales per firm was $1,214,000. The percent of firms with paid
employees was 20 percent. The average sales per firm with employees was $5,991,000 and the
average number of employees per firms with paid employees was 21. The share of all firms
without paid employees was 80 percent and the average sales per firm without paid employees
was $46,910. Looking at African-American firms in light of all firms, as mentioned at the
beginning of this paragraph, the average sales of African-American firms was $58,119. Just four
percent of the total had paid employees, and they generated average sales of just $948,000. They
employed on average just 8.93 workers.
Given the preponderance of evidence about the disparities in access to capital for AAEs,
the research problem is the need for a meaningful understanding of the experiences of the AAEs
as they seek to operate their businesses. It is clear that they operate without appropriate capital.
We need a better understanding of the issues faced by the individuals and organizations
responsible for deploying the capital and facilitating such deployment. We also need to learn
what information could perhaps begin to change the conditions that have kept the two groups
apart.
Numerous studies have attempted to articulate the financial and non-financial factors for
success for firms in general (Barkham et al.,1996; Forsaith and Hall, 2000; Ibrahim and Goodwin,
1986; Kalleberg and Leicht, 1991; Kelmar, 1991; Gatewood et al. 1995) and for African-
American firms in particular (Nichols, 1995; Fairlie and Rob, 2008). Not much is known about
the strategies the entrepreneurs employed to keep moving forward in the face of challenges
securing external financing. This study will shed some light on their stories and canonize their
strategies for making it within a structure some may say is designed for them to fail.
10

Unfortunately, given the close relationship between the existence of African-American businesses
and unemployment rates among African-Americans, as the business community struggles to
secure the capital it needs, so go critical opportunities for jobs to help strengthen their
communities.
Table 1.1. Summary of Business Ownership by Race in the United States.

Need for the Study
Extreme wealth inequality is becoming more acute in the wake of the unprecedented
wealth destruction that occurred during the Great Recession of 2007-2009 (Kochhar, Fry, and
Taylor, 2011). In 2013 the Pew Research Center published a report that found that between 1960
and 2013, African-American household incomes grew at a faster rate than white households
(http://www.pewsocialtrends.org/2013/08/22/race-demographics/). This faster income growth,
however, did not translate into higher wealth (http://www.pewsocialtrends.org/2013/08/22/race-
demographics/). Wealth is defined merely as the difference between the assets owned and the
amount owed on these assets. Figure 1.1 graphically depicts the areas where gaps have widened
Number of
firms with or
without paid
employees
Sales, receipts, or
value of
shipments of
firms with or
without paid
employees
($1,000)
Number of
firms with
paid
employees
Sales, receipts, or
value of
shipments of
firms with paid
employees
($1,000)
Number of paid
employees for
pay period
including March
12
Annual
payroll
($1,000)
Number of
firms without
paid
employees
Sales, receipts, or
value of shipments
of firms without
paid employees
($1,000)
UNITED STATES
All Firms 27,626,360 33,536,848,821 5,424,458 32,495,262,387 115,249,007 5,236,446,058 22,201,902 1,041,586,434
Analysis 1,214 0.20 5,991 21 965.34 0.80 46.91
White Firms 21,539,858 10,950,990,565 4,438,062 10,104,625,082 50,567,816 1,929,295,400 17,101,796 846,365,483
Analysis 508 0.21 2,277 11.39 434.72 0.79 49.49
African-American Firms 2,584,403 150,203,163 109,137 103,451,510 975,052 27,689,957 2,475,266 46,751,654
Analysis 58 0.04 948 8.93 253.72 0.96 18.89
Asian Firms 1,917,902 699,492,422 481,026 627,532,399 3,572,577 110,543,615 1,436,876 71,960,023
Analysis 365 0.25 1,305 7.43 229.81 0.75 50.08
Hispanic Firms 3,305,873 473,635,944 287,501 379,994,999 2,329,553 70,855,704 3,018,371 93,640,945
Analysis 143.27 0.09 1321.7 8.10 246.45 0.91 31.02
Non-Minority Firms 18,987,918 10,482,831,537 4,156,683 9,714,345,077 48,255,649 1,856,388,208 14,831,235 768,486,460
Analysis 552.08 0.22 2337.0 11.61 446.60 0.78 51.82
Minority 7,952,386 1,380,149,132 908,800 1,161,430,713 7,165,151 219,297,701 7,043,587 218,718,418
Analysis 173.55 0.11 1278.0 7.88 241.30 0.89 31.05
Source: U.S. Census 2012 Survey of Business Owners
https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SBO_2012_00CSA01&prodType=table
11

during the study period. Of particular concern are the significant gaps between median household
income ($27,414) and median household wealth ($84,960).

Figure 1.1. Where Gaps Have Widened

Shapiro et al. (2013) completed a study of the genesis of the racial wealth gap. Their study
highlights the toll extreme wealth inequality inflicts on the entire nation. depicts the differences in
household assets held by Whites and Blacks in America. As of 2011, average White household
assets were $783,224, versus $154,285 for average Black household assets.
Homeownership accounted for the lion's share of assets for both groups. However, the
similarities end there. The data show that average percentage of household assets were skewed
much more heavily towards homeownership for Blacks than for Whites, 49 percent versus 28
percent, respectively. But even that fact requires further explanation of the difference. Their
homes are often valued at much lower levels because of where they are located (Shapiro et al.,
2013). Beyond the importance of the primary residence, business ownership accounts for a
significant share of White wealth, representing 18 percent of average household assets versus 4
percent for Blacks. The debt varied substantially between the two groups as well. Average
12

household debt for Whites in 2010 was $113,598, as opposed to $53,199 for Blacks, leaving
wealth levels of $669,626 for Whites and $101,086 for Blacks, according to this study (Shapiro et
al. 2013). Absent analysis of any other factors, this information demonstrates that Whites are able
to successfully secure debt at twice the rate of Blacks. If this debt is to purchase a home, its value
far surpasses that of property purchased by Blacks.
In general, homeownership does not provide the same financial foundation for African-
American families that it does for their White counterparts. Researchers at Brandeis University
found lower homeownership rates for African-Americans than Whites and lower appreciation
values for the homes they do own. These researchers cited "residential segregation artificially
lower[ing] demand, placing a forced ceiling on home equity for African-Americans who own
homes in non-White neighborhoods" (Shapiro et al., 2013, p. 3).
For most individuals, the foundation of their wealth is their primary residence, and the
data are showing that in this most basic of assets, home values and equity do not start at the same
levels nor do they appreciate in the same manner or at the same pace. I consider this phenomenon
an inherent, institutional disadvantage; one that is critical at the start-up phase of a business when
the only acceptable collateral for a business loan is equity in a home.
A full field of research has been conducted on the lack of access to capital for African-
American entrepreneurs over the past 10 to 15 years. The information paints a comprehensive
picture of the size, scalability, characteristics, challenges, benefits, and deficiencies of African-
American-owned firms, citing experiences with the capital markets at multiple stages of the
business lifecycle. What is missing is a closer look at the inner workings of how African-
American businesses address the disparities despite the odds against them, and thus the strength
of the entrepreneurial spirit no matter what the circumstances may be. What resources did they
13

use? What were their experiences with the financial infrastructure that exists? Where were the
bright spots? What paths to securing the capital they need now and in the future represent real
opportunities?
Using a simultaneous, or concurrent mixed methods research (MMR) approach to
uncovering these answers, this study sheds light on some of the strategies and workarounds used
by African-American entrepreneurs, with a candid, confidential look at how they faced business
success despite difficulties securing capital. The stories identified common themes that will be
useful in informing policy-makers and financial sources on how they might provide a better
overall fit for African-American entrepreneurs. The majority of the entrepreneurs interviewed
have been in business for more than five years and/or have sales of at least $500,000. These are
the firms that have the potential to create and retain the most significant number of jobs. Their
experiences will provide essential insights useful for others on the entrepreneurial journey, and
for the financial services providers and other organizations and individuals who may be moved to
make changes to disrupt the current system.
This subject sits at the heart of community development successes and failures and of
poverty among African-American citizens. This topic is also gaining increased interest among a
broad swath of stakeholders, including policy-makers, foundation and governmental entities and
the organizations they support. Congress, through the Senate Committee on Small Business and
Entrepreneurship, held a hearing in April 2010 titled "Assessing Access: Obstacles and
Opportunities for Minority Small Businesses Owners in Today's Capital Markets." In May 2017,
the Consumer Financial Protection Bureau (CFPB) held a public hearing to identify the financing
needs of traditionally underserved small businesses and published a report on their findings about
access to capital for minority firms. They also released a report on their analysis of the current
14

sitation (Consumer Financial Protection Bureau, 2017). And in September 2017, the Milken
Institute published the results of a study informed by a high-level task force called the Partnership
for Lending in Underserved Markets (Karo and Mueller, 2017).
Outcomes and Contribution to Practice
Besides providing beneficial information for individual African-American entrepreneurs
and business owners, the information in this study is useful for strengthening African-American
communities in Los Angeles County and beyond. These areas suffer from high unemployment
and low business formation rates. The intended outcomes of this study are to provide additional
insights on the role and importance of capital access for African-American entrepreneurs and to
provide some insight into the lived-experiences of others who have taken the journey before them.
I hope that the information contained here will contribute to the ongoing conversation that leads
to more open doors for capital, more jobs for African Americans, and ultimately, stronger
communities. Even a 10 percent increase in African-American loan activity and approvals will be
a worthy goal and significant start.
The results from the research will lead to recommendations on how financial institutions
can provide greater access to capital for African American entrepreneurs and how they and the
communities they represent (through location or affiliation) can benefit from this increased
access.
Glossary of Terms
Some terms are used in this dissertation that may have the standard meaning or a
particular meaning that relates to the focus of this study. To assure the proper interpretation of
these terms, I have included this Glossary of Terms.
15

African-American Entrepreneurs (AAEs) – This reference includes, but is not limited to
the individuals who completed anonymous surveys as part of this research, or who completed
confidential interviews.
Business development – "In the simplest terms, business development can be summarized
as the ideas, initiatives, and activities aimed towards making business better. This includes
increasing revenues, growth in terms of business expansion, increasing profitability by building
strategic partnerships, and making strategic business decisions. But it's challenging to boil down
the definition of business development" (Investopedia, Sept. 8, 2015). For purposes of this
discussion, business development will focus on two critical areas: capital and technical
assistance.
California iBank – California Infrastructure and Economic Development Bank oversees
California’s financing programs, including, but not only the state’s loan guarantee program for
small businesses.
Community development – "a general term that can refer to a variety of different
approaches for improving the quality of life in a neighborhood or community, whether urban or
rural. The commonalities among these diverse approaches include a focus on generating changes
at the level of the community as a whole and primary reliance on the organizations and
institutions embedded in the community to carry out the activities needed to achieve desired
improvements” (Robertson, et al., 2012, pp. 187-188).
Community Development Financial Institutions (CDFIs) – These are mission-driven
organizations that may or may not be structured as non-profit entities. CDFIs are certified by the
U.S Department of the Treasury Community Development Financial Institutions Fund (CDFI
Fund) to provide resources that help strengthen economically distressed communities. For
16

purposes of the study, they provide commercial loan with more flexible underwriting criteria than
traditional banks. This is a federal program.
Credit-card advance loans – These are tied to the level of activity a business is generating
through credit card sales. Lenders in this category charge a fee for the use of funds rather than an
interest rate, but these costs can be 30% or more of the loan's value. The payback comes directly
from the processing company each time a batch is submitted for payment. These are short-term
loans that may be for nine months.
Credit rationing – "From a theoretical point of view, credit rationing occurs if, in
equilibrium, the demand for loans exceeds the supply at the ruling price of loans (interest rates)"
(Steijvers and Voordeckers 2009, p. 925).
Discrimination – Two types of discrimination exist. “An ability to discern differences in
the qualities of people and things, and choosing accordingly can be called Discrimination I,
making fact-based distinctions. The narrower, but more commonly used meaning—treating
people negatively, based on arbitrary assumptions or assertions concerning individuals of a
particular race or sex, for example—can be called Discrimination II, the kind of discrimination
that has led to anti-discrimination laws and policies” (Sowell, 2018, p. 21).
Economic inclusion – A term used to describe the ability of all people to fully participate
in the economic life of their community or country. It also refers to public and private efforts to
bring underserved consumers into the financial mainstream (also known as financial inclusion).
Financial bootstrapping – "Refers to the use of methods for meeting the need for resources
without relying on long-term external finance from debt holders and/or new owners" (Winborg
and Landström 2001, 235-236).
17

Financial Development Corporation (FDC) – FDCs are the state’s delivery system for its
Small Business Loan Guarantee Program (SBLGP). There are seven partner organizations
throughout the state.
Financial institution – A private or public sector institution that deals with financial
transactions such as investments, deposits or loans. Depository institutions, such as banks and
credit unions, pay interest on deposits and use deposits to make loans. Non-depository
institutions, such as insurance companies, brokerage firms, and mutual fund companies, make
money by selling financial products.
Financial Services Providers (FSPs) – Includes the individuals representing organizations
that deliver financial services to African-American entrepreneurs, e.g. banks, Community
Development Financial Institutions (CDFIs), organizations under contract with public agencies to
provide free and low-cost technical assistance to small and minority-owned businesses, chambers
of commerce and similar business associations, public agencies that provide credit enhancements,
and private, for-profit business consultants.
FinTech – "Stands for Financial Technologies, and in its broadest definition, that's exactly
what it is: technologies used and applied in the financial services sector, chiefly used by financial
institutions themselves on the back end of their businesses. But more and more, FinTech is
coming to represent technologies that are disrupting traditional financial services, including
mobile payments, money transfers, loans, fundraising, and asset management” (Investopedia
website).
Great recession – A term used by the media and the general public to refer to the severe
economic downturn that began in 2007 and was considered the largest downturn since the Great
Depression.
18

Income gap – The difference in income between one group and another. The income gap
is often stated as a comparison between the income of people in one quintile to another—for
example, comparing the top quintile (wealthiest 20%) to the bottom quintile (poorest 20%).
Income inequality – A measure of the uneven distribution of income among various
groups in a society/economy. Income inequality is often measured as the percentage of overall
income that accrues to a particular quintile (a quintile is one fifth, or 20%, of a whole).
Intermediaries are organizations that receive or raise capital that is then loaned to
underserved populations. These organizations provide an additional layer of technical assistance
and oversite to their borrowers that enhance their success.
Micro-finance – A subset of lending that focuses on small loans of between $500 and
$5,000. These loans are typically made to individuals who are accountable to a group of others
who then pay back the loan weekly.
Minority-owned business enterprise – A business that is at least 51 percent owned,
operated and controlled by a member of a minority group within the U.S., including but not
limited to African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans
and Subcontinent Asian Americans.
Mission-driven financial institution – Refers to a lending and investing institution that has
expressed a commitment to focus its funding activities on strengthening business in underserved
communities for community development.
Predatory lending – Unfair, deceptive, unscrupulous and fraudulent practices whereby a
borrower is persuaded to accept a loan that they don't need or can't afford to pay back.
Primer – “A primer gets you ready for what comes next. You could use one kind of primer
when you are learning to read, or another kind when you are preparing to paint a room. ... In the
19

14th century, a primer was a prayer book. This word comes from primus, the Latin word for first”
(Dictionary Definition: Vocabulary.com). In this case, this primer provides a compendium of
information useful for understanding the state of affairs to help understand what should come next
in terms of preparation and mental fortitude.
Racial wealth gap – The difference in wealth (assets minus debt) between White
households and households of color. According to Demos, the typical Black household owns just
6% of the wealth of the typical White households and the typical Latino household only 8%.
(http://www.demos.org/publication/racial-wealth-gap-why-policy-matters).
Recession – A period of economic decline in which a country's Gross Domestic Product
(GDP) declines for two consecutive quarters.
Redlining – The practice of systematically denying access to services in a targeted
geographical area by banks, insurance companies, and other financial institutions. The term refers
to the once-used practice of drawing a red around certain areas – typically inner-city
neighborhoods of color – on a map.
Relationship lending – "Relationship lending depends on the accumulation over time by
the loan officer of `soft' information. Because the loan officer is the repository of this soft
information, agency problems are created throughout the organization that may best be resolved
by structuring the bank as a small, closely-held organisation with few managerial layers" (Berger
and Udell, 2002. p. F32). "Relationship lending focuses on improving the banks' revenues by
maximizing the profitability of the entire relationship with the firm throughout time" (Steijvers
and Voordeckers, 2009, p. 935).
Small business – A privately-owned sole proprietorship, partnership or corporation that
the U.S. Small Business Administration (SBA) defines as having fewer than 500 employees.
20

Startup density – The measurement of a region as the number of new employer businesses,
normalized by population.
Small Business Finance Center (SBFC) – “The SBFC helps businesses create and retain
jobs, and encourages investment in low- to moderate-income communities. The SBFC has a Jump
Start Loan Program, a Small Business Loan Guarantee Program, and a Farm Loan Program.”
These programs are state-sponsored, with state guarantees accessible through one of seven
financial development corporations. http://www.ibank.ca.gov/ibank/programs/what-is-the-sbfc
Wealth – The market value of a household's assets – such as cash savings, stocks, and
bonds, as well as home, business or real estate equity – minus their debt. Wealth is a measure of a
household's "store" of financial resources, as opposed to income, the "inflow" of resources.
Wealth – or assets – enables families to sustain themselves during periods of financial hardship
and/or invest in their future.
Wealth gap – A term often used interchangeably with "wealth inequality," referring to the
unequal distribution of assets within a population. Recent research by the Pew Research Center
shows the gap between the richest Americans and everyone else is the largest it's been since the
Federal Reserve began collecting wealth data.
Wealth inequality – The unequal distribution of assets within a population (see also
"wealth gap").
Research Questions
We know a great deal about the challenges and the causes of the disparities concerning
loans to African-American entrepreneurs (AAEs). Several researchers have even explored the
attributes and factors of success among African-American entrepreneurs, creating a solid base
upon which to build (Owens and Pazornik, 2003; Nichols, 1995). The lacunae exist in
21

understanding how the lack of access to capital, in particular, affected the entrepreneurs and how
they navigated the landscape to achieve success. What structural issues within the financial
services ecosystem contribute to the dismal results in loans to African-Americans? What useful
information can be gained on behalf of AAEs by querying the many actors in Los Angeles
involved in this issue? And last what information can be shared to help other African-American
entrepreneurs?
To address these questions, and understand the complex issues surrounding them, I
approached the topic from several different angles. The first of these is to define what "lack of
access to capital" means for purposes of this research. I chose to define it as "the inability to
obtain the external financing needed in sufficient amounts, with reasonable terms, and at
affordable rates to address the requisite need or opportunity." Implicit in this definition is the idea
of "in comparison" to what is available to others in the marketplace. The comparison could be
based on similar or unique characteristics. My research questions are as follows:
1. How have African-American entrepreneurs overcome the challenges they faced in
accessing capital to build their companies?
2. What challenges do financial services providers face in distributing the necessary
capital to African-American entrepreneurs?
3. What information can be shared with African-American entrepreneurs to shorten
their journey to success by improving their potential to secure the capital they need?
A multitude of financial resources exist for entrepreneurs in the greater Los Angeles area,
but the fact that they exist does not translate into equal access for all players—particularly for
African-Americans who have historically faced racial discrimination in lending practices as they
seek to grow their firms (Fairlie and Robb, 2010).
22

A number of different conundrums exist. For example, one might think that as an African-
American firm matures and increases its revenue and profitability, raising funds to expand should
be much easier than raising start-up capital. To be sure, this is indeed the time in a company's
history when it is in the best position to truly make an impact on its community by providing jobs
for their residents. Or that once a firm has reached revenue of $40 million, and proved itself as a
successful government contractor, securing a line of credit to fund a large state contract, backed
by an 80 percent SBA-guarantee, would be a piece of cake. Not so for one entrepreneur who had
graduated from the US Small Business Administration's (SBA) 8(a) set-aside contracting program
for disadvantaged business owners. Thus the entrepreneurs faced challenges on both ends of the
spectrum, from start-up to significant maturity.
Analysis of this topic would be incomplete without speaking with the stalwarts within the
Los Angeles environment who have grappled with the issue for many decades, some in the
lending position and others as technical assistance providers, leaders of chambers of commerce,
investors or consultants. The challenges that best them include trying to make loans to African-
Americans when the underwriting criteria and complex regulatory environment make it difficult
for them to qualify; but so, too, does the pressure to focus on the largest profits to satisfy
shareholders. Understanding their challenges are will go a long way in shaping solutions that
work well for them as well as for the entrepreneurs themselves.
Finally, the end of this strategies primer is a compilation of the lessons learned by the
African-American entrepreneurs who have weathered the trials and tribulations of business
ownership and lived to tell it, mixed with the sometimes equally difficult path of those who may
have the potential to fund them, but perhaps not the wherewithal or institutional mandate to do so.
23

These three questions were queried in the literature, in the responses to survey questions
by African-American entrepreneurs, and by the numerous interviews conducted with
entrepreneurs and members of the broad financial services provider ecosystem.
Organization of the Report
This dissertation is organized into six chapters, beginning with Chapter 1 – Introduction
which provides an introduction to the research, including the purpose of the study, research
problem, need for the study, a glossary of key terms used, the three research questions, and
organization of the report.
The Literature Review is divided into two chapters that cover background information
essential to understanding the context within which African-American entrepreneurs operate and
the financial landscape, including its structure, access, and new frontiers of capital.
Specifically, Chapter 2 – Background, begins with a definition of entrepreneurs and
business owners who are the primary subjects of the research. This chapter covers the context of
small businesses, including their importance to the United States and local economies, statistics
on small businesses and challenges small businesses face in accessing capital. I move from the
broader context of small businesses to minority-owned businesses where I provide the same level
of information. This includes their importance to the United States and local economies, statistics
on minority-owned businesses, and challenges they face in accessing capital. The next section
drills down to African-American-owned businesses. I provide statistics on the number and nature
of African-American-owned businesses; an historical perspective on what we see today; the status
of African-American businesses and their communities; first nationally and then in the Los
Angeles area. Throughout this part of the chapter I provide data that compares African-American
businesses to other groups.
24

Next, I look at the role of business development in community development. I then follow
this section with the case for supporting African-American businesses, as articulated by
researchers. As a result of disparities in capital access, there are clear and present impacts that
are written about in the literature. I then explore the idea of what success looks like now and in
the foreseeable future.
Chapter 3 – The Financial Landscape provides a walk through the literature on the
structure of financial markets and how they operate to establish a context for the experiences of
African-American entrepreneurs. The chapter is organized into three sections that break down the
literature and statistics on the financial realities that African-American entrepreneurs must
navigate to secure external capital. This chapter shifts the focus from the entrepreneur and the
shape of things in the dynamic world of American enterprise, to the structure of the financial
landscape, as it pertains to the types and sources of financial products available, organized by debt
and equity. For each of these sections I provide information on the regulatory environment and its
influence on the flow of capital to firms. I provide information on the availability of capital to
African-American firms.
The section on access uncovers the economic idiosyncrasies and dysfluencies that dictate
access, such as the economic concept of credit rationing. I examine the literature and statistics on
traditional requirements and how various races stack up or align with these needs. I also examine
the customary underwriting criteria, and share studies on how well multiple cultures fit with these
requirements. I then look at the disparities in access and their causes. The next sections present
the history of past efforts to address disparities in access to capital. A financial services provider
ecosystem exists of advocacy organizations and intermediaries specifically established to help
under-represented groups obtain the capital and supportive services they need to start and grow
25

their businesses. I describe these types of entities and the literature on their efforts. The chapter
concludes with ongoing efforts to confront the barriers to access, the use of advocacy
organizations and intermediaries and workaround strategies that have been studied by researchers.
The third section, New Frontiers of Capital, shifts the focus from traditional approaches
and constraints to several new opportunities made possible by technology and a focus on
technical assistance. These new horizons of capital are changing the financial landscape across
the nation and the globe. Among this group are organizations that are shattering old ways of
looking at this pervasive issue of lack of access to capital for small business in general, and
African-American firms in particular. The section concludes with an overview of the challenges
and opportunities of the rapidly expanding FinTech industry.
Chapter 4 – Methodology turns the attention to the research. It presents the methodology
used to conduct the research, and covers the research design, sample selection, development of
the survey and interview instruments, and data analysis. A section on participants presents
detailed descriptions of the study sample.
Chapter 5 – Findings presents the results of the research, organized by Research Question.
I draw the conclusions presented in this chapter from analyzing quantitative and qualitative data.
It consists largely of information the African-American respondents shared about their
experiences seeking capital and comments from the financial services provider ecosystem who
worked with them to obtain capital in Los Angeles County. This includes analyses of the
quantitative and qualitative data collected from African-American entrepreneurs and financial
services providers.

26

Chapter 6 – Discussion covers commentaries on the findings as well as implications and
recommendations for policy-makers, lenders, technical assistance providers, associations and
entrepreneurs. It also outlines contribution to practice. A conclusion summarizes the key
takeaways of the dissertation.

27

Chapter 2. Background

African-American businesses have pierced an important veil in recent years, rising to
achieve notable milestones. For the first time in history the number of firms grew at the fastest
rate of any segment of the population, led by African-American women. They grew an
astonishing 322% between 1997 and 2014 according to a 2015 article in Fortune magazine
(Haimerl, 2015). This is certainly good news for the many companies that are experiencing
positive change in their businesses, but challenges still loom with respect to access to capital to
fuel and sustain this growth. In a separate analysis of the 2012 Survey of Business Owners, the
U.S. Women’s Chamber of Commerce found that, although African-American women
represented 15.4 percent of the women-owned businesses, they generated on average $27,753 in
annual revenue, the lowest of any racial or ethnic group. Combined, the revenue of African-
American women accounted for less than three percent of receipts from women-owned businesses
(Wake Up Call, 2016).
This literature review begins with the history of opportunities available to African-
American business owners/entrepreneurs to start, stabilize and grow their businesses. I looked at
the historical sensitivities, including political and economic climates that facilitated the
opportunities. I looked at the types of capital available and the limitations they pose on business
development. From there I examined why capital for African-American businesses is needed, the
ebbs and flows of that capital over time matched with historic events. I also examined attitudes
about the availability of capital and strategies that have been employed to address the gaps, such
as the Community Reinvestment Act (CRA) and guaranteed loan programs. I then looked at what
the present and future hold in terms of new products and finally, where the gaps exist that create
the jumping off point for this study.
28

This chapter examines the literature on the background of the research problem, providing
an understanding of the definitions of entrepreneurs and business owners used in this study; an
overview of what a small business is according to the official definition of the U.S. Small
Business Administration; an overview of the definition of African-American businesses;
statistical data on the business categories; and the status of African-Americans and their
communities.
It is a well-documented fact that African-American entrepreneurs and business owners
encounter greater difficulty obtaining capital to start and grow their businesses than their non-
minority counterparts, and even more so than other minority groups (Fairlie and Robb, 2010;
Kijakazi, 1996); Morelix, et. al., 2016). The literature contains study after study that describes
these disparities (Coleman, 2000; Coleman, 2004; Robb and Fairlie, 2007). “Racial disparities in
start-up capital contribute to higher failure rates, lower sales and profits, less employment among
black-owned businesses, and less survivability of the business." (Robb and Fairlie, 2007, p. 47).
Several researchers attempt to explain the reasons these disparities exist. Fairlie and
Krashinsky (2008) point to liquidity constraints as a critical factor, but Fairlie and Robb (2008), in
another study also focused on racial barriers; while Feagin and Imani (1994), in exploratory
research, pointed out the impact of racial discrimination on financing contractors in the south who
could not compete with their white counterparts because they could not get the financing they
needed from banks. Robb and Fairlie (2007) also validate a vast difference in the wealth of
African-American entrepreneurs, as much as 1/11 of their white counterparts. This difference
triggers a slippery slope that never entirely stabilizes as it goes from a significantly lower number
of business starts and business owners to more mature enterprises that still cannot attract the
capital required to meet pressing business needs and opportunities.
29

To be fair, not all of the issues pertinent to difficulty accessing capital are unique to
African-American entrepreneurs and business owners. Access to capital, in general, is more
difficult for most small businesses than for big businesses (Carbajo, 2016). Wood (2016)
attributes the post-recession difficulties in obtaining small business financing to three factors:
risk avoidance in the midst of increased regulation and bank scrutiny; fewer community banks in
the wake of bank mergers and consolidation; and lower profits on the smaller loans that small
businesses typically require.
Some researchers attribute this chasm between the financial needs of small businesses and
the willingness of banks to lend to them to informational opaqueness (Berger and Udell 2002), or
the inability of small businesses to "credibly convey their quality" (Berger and Udell 2002, p.
616) to lenders or outside investors to the same degree of information transparency available from
large corporations. Others point to idiosyncratic forces related to the entrepreneur (Bates, 1991;
Haynes and Haynes, 1999; Coleman, 2000) that can influence decisions. The same level of
personal scrutiny does not occur when banks evaluate large firms for capital. Other reasons relate
to the fact that smaller-sized loans cost as much to process as million dollar loans and generate
substantially lower profits for banks. This cost differential makes them less desirable, mainly
since banks must be responsive to shareholders (Wood, 2016).
Absent sufficient capital, small businesses find it more difficult to compete in the
marketplace, as they cannot develop new products and services to the same degree as sufficiently
capitalized firms, or expand when demand outpaces current capacity. Insufficient liquidity is a
frequently cited cause of small business failure. Unlike larger, publicly held firms, small firms
typically cannot access the traditional capital markets (Ang, 1991). Instead, small firms are
heavily dependent on bank loans, trade credit, and "informal" sources of financing such as
30

personal savings, credit cards, home equity loans, and loans from family and friends (Ang, 1992;
Ang, Lin, and Tyler 1995; Berger and Udell 1995; Binks and Ennew, 1996; Cole and Wolken,
1996; Petersen and Rajan, 1994)" (cited in Coleman, 2000, p.37).
The difficulties all small businesses face are decidedly more debilitating for African-
American entrepreneurs who shoulder the triple barriers of being small, with limited financial
assets, and black. Minority-owned firms, in general, "receive lower loan amounts"; "pay higher
interest rates" for the loans they do receive; are more likely to be denied loans; and more likely to
avoid applying for loans for fear of rejection, than non-minority firms (Fairlie and Robb, 2010, p.
3). African-American entrepreneurs consistently register the lowest numbers of loans approved,
smallest loan values, tiniest average revenues, and lowest employment figures of any group. This
situation, left unchecked or viewed as a low priority, will not change on its own.
Further, theories of credit rationing, which occurs when a financial institution denies
additional funds to a borrower based on creditworthiness, even if the borrower is willing to pay a
higher interest rate (Stiglitz and Weiss 1981), also negatively affect African-American
entrepreneurs.
Historical Overview
Many of the challenges African-American entrepreneurs face have their roots in historical
injustices spawned during and after slavery. This history includes some of the origins of mistrust
of banking institutions, starting with the example of the Freedmen's Bank, which was created to
protect the deposits of Black soldiers and freed slaves and their descendants. It ultimately failed
due to fraud and mismanagement mainly by White board members who used the bank's deposits
for personal gain. For a time, new laws opened the door for freed slaves to purchase property that
they lived on as slaves. But the laws that were created to help emancipated slaves own property
31

were reversed, and the land they purchased returned to their old masters who concocted
sharecropping schemes that transitioned the former slaves into financial bondage. Jim Crow laws
followed, with their doctrine of "separate but equal," which kept segregation alive and well in the
south and some northern cities. Up until that point, enterprising Black entrepreneurs were selling
to White customers outside of their communities. Then turning inward with a focus on providing
goods and services to other Blacks, a growing resentment of their success by vigilante Whites
gave way to violent attacks, looting and burning, even murder, to recapture any progress they had
struggled to achieve. History continued to deal a heavy blow to Blacks and their communities
with restrictive voting laws that kept them from participating in the democratic process,
benefitting from a quality education, purchasing a home, or renting an apartment in the best
neighborhoods--even when they could afford to do so. "Policies concerning home finance, public
housing, and urban renewal led to the creation of large, segregated, impoverished and poorly
serviced black ghettos in American cities” (Massey and Denton 1993, cited by Gold 2016, p.
1708). The Federal Housing Administration (FHA), created initially to finance more housing
development, expanded its program of low-cost housing finance. The policy kick-started the
construction and related industries, as intended, but also "subsidized and hastened the movement
of the white population away from urban centers, while confining racial minorities in
economically declining central cities" (Gold 2016, p. 1709).
Entrepreneurs and Business Owners
In this study I use the words entrepreneurs and business owners interchangeably. The
literature cites the earliest use of the word “entrepreneur” as sometime around 1700 by Cantillion
(Carland, Hoy, Boulton & Carland, 1984) who defined an entrepreneur as rational, comfortable
taking risks and able to manage the enterprise (Kilby, 1971). Schumpeter (1934) credits the use of
32

the word “entrepreneur” and its broadened appeal and general use to J. S. Mill in 1848. Mill’s
contribution to the definition encompassed risk bearing, which separated entrepreneurs from
traditional managers (Kilby, 1971). Schumpeter considered an entrepreneur as one who was the
bearer of what he called a mechanism for change, and espoused that anyone could fit this
definition by carrying out new combinations (Schumpeter, 1934).
Peter Drucker (1985) focused on innovation, defining an entrepreneur as “one who
endows resources with new wealth-producing capacity” (Carland, et. al., 1989, p. 23).
Entrepreneurs are traditionally thought of as risk-takers and innovators, creating disruptive
products and systems, or totally changing the way things have been done in the past. They are the
drivers of creative destruction, or the individuals on the front lines who push new ideas forward
despite certain resistance. They routinely replace one thing for a better thing, often with
significantly lower transaction costs, such that the former thing cannot compete. A case in point
would be cell phones (invented by Martin Cooper in 1973) taking out land line phones, or
Automatic Teller Machines (ATM) (invented by Scottish inventor John Shepherd –Barron in
1967) reducing the number of tellers needed at the local bank or extending the hours a bank can
service its customers without paying overtime.
In their article, “In search of the meaning of entrepreneurship,” Hébert and Link define an
entrepreneur as “someone who specializes in taking responsibility for and making judgmental
decisions that affect the location, the form, and the use of goods, resources, or institutions”
(Hébert and Link, 1989, p. 39). To be sure, there are certain characteristics and personality traits
that people typically ascribe to true entrepreneurs. Included among these is the concept of “need
to achieve,” whose greatest proponent was David McClelland (1961). Carland et. al. (1984)
added a degree of granularity to the discussion that divides the types of small business owners
33

into two categories based on behavior patterns. In their view, “entrepreneurs” are a different class
than small business owners, with distinguishable characteristics. Entrepreneurs apply strategic
management principles to innovate in their companies. The small business owner does not.
In this study, I recognize and respect that differences between the two groups do exist, but
the distinctions are not relevant to the research questions, consequently I use the terms
interchangeably. Although only one is used in the title of my dissertation, I believe distinct
differences exist between the two (Stewart, Watson, Carland and Carland, 1998).
The Context of Small Businesses
Small businesses in the United States employ over 70 percent of the national private-
sector employment, and are responsible for two out of every three new jobs, according to the U.S
Small Business Administration (2016). In order to understand the complexity of this gargantuan
component of the economy we start with the definition of what a small business is.
Although the category includes the neighborhood ma/pa establishment around the corner,
it encompasses a much broader mix of businesses. Several definitions exist for a small business,
but the simplest one is provided by the Small Business Administration’s Office of Advocacy,
which “defines a small business as an independent business having fewer than 500 employees”
(SBA Fact Sheet, p.1). There are also other clear guidelines as to what types of entities are
considered part of the group of small businesses that pertain to eligibility for government
contracts and financing programs. This definition of small business varies by industry.
Depending on the industry and North American Industry Classification System (NAICS) Code,
whether or not an enterprise can be considered a small business is measured by number of
employees or average annual receipts. The U.S Small Business Administration has established
size standards that determine the largest size a business may be in order to qualify as a small
34

business for federal loan and contracting programs (U.S. Small Business Administration, 2012).
For those industries where size is determined by the number of employees, the range is from 100
for wholesalers of nondurable goods to 1,500 in mostly manufacturing and mining classifications.
Industries that are measured by average annual receipts range from $750,000 for agricultural
classifications to $38.5 million for construction and durable goods retail, for example (NAICS,
2012).
Importance to the U.S. and local economies. In June 2016, the SBA reported that 28.8
million small businesses were operating in 2013. Twenty (20) percent or 5.8 million of these had
paid employees. This same document pegged the share of these businesses in the U.S. as:
 99.9 percent of all firms (only 18,600 large businesses)
 99.7 percent of firms with paid employees
 48.0 percent of private sector employees (57 million out of 118 million employees)
 Two-thirds of new jobs in the private sector (63.3 percent) (SBA Frequently Asked
Questions, 2016, p. 1).
This overview demonstrates the significance of small businesses to the U.S. economy.
Almost all of the businesses are considered small, less than one percent are large businesses.
Small businesses represent the major hiring entities in the country, with almost 100 percent of the
firms with paid employees and nearly half of the private sector employees and the lion’s share of
new private sector jobs.
Statistics on small businesses. In the following pages I provide a snapshot of small
business activity in the United States and in the Los Angeles area using data provided by the
Ewing Marion Kauffman Foundation, an organization whose mission is: “to help individuals
attain economic independence by advancing educational achievement and entrepreneurial success,
35

consistent with the aspirations of our founder, Ewing Marion Kauffman” (Kauffman Foundation
website). The foundation conducts three annual surveys to assess the small business climate in the
United States. This three-part series includes in-depth studies on: 1) start-up activity, 2) main
street entrepreneurship, and 3) growth entrepreneurship. “The Kauffman Index of Start-up
Activity is an early indicator of the beginnings of entrepreneurship in the United States, focusing
on new business creation, market opportunity, and startup density. The Kauffman Index of Main
Street Entrepreneurship measures business ownership, survival rates, and density of established,
local small businesses. The Kauffman Index of Growth Entrepreneurship focuses on the growth
of entrepreneurial businesses, as measured by growth in both revenue and employment” (Morelix,
et. al 2016b, p. 4).
The Index of Start-up Activity provides a composite indicator of startup activity in the
United States and in major metropolitan areas of the country. This information is useful in
understanding the external economic conditions that effect all small businesses in the United
States, and specifically in the Los Angeles metropolitan area. The 2016 Index of Start-Up
Activity saw a two-year increase in new business formations, on the heels of the lowest rate in
two decades, and a near recovery to pre-Great Recession levels, as seen by Figure 2.1 below from
the Kauffman Startup Activity Index.
36

Figure 2.1 Kauffman Index: Startup Activity Index (1996 – 2016)
The robust activity noted in 2016 was the result of an increase in the number of female
entrepreneurs and opportunity entrepreneurship. California, Colorado and Texas were leading
states in the startup surge, with particular stellar results in the cities of Austin, Miami, Los
Angeles, San Francisco, and Las Vegas (Reedy, 2016).
Los Angeles ranked #3 among the top 10 metropolitan areas in terms of startup activity,
according to the 2016 Kauffman Index of Start-up Activity. Table 2.1 below from the Kauffman
Metro Rankings Startup Activity Index, provides a table of the rankings. Los Angeles’ 2017 rank
remained unchanged from its 2016 rank. The data show that Los Angeles is consistently fertile
territory for start-up activity. In 2017 its start-up index was 3.92 (up from 2.59 in 2016), with a
.56% rate of new entrepreneurs (up from .51% in 2016), 80.03 % of the new businesses started
their companies to pursue a business opportunity (up from 75.2% in 2016), versus a replacement
37

job, and startup density of 92.3 (up from 91.5 in 2016). Startup density represents the number of
startup firms per 1,000 employer firms.
Table 2.1

Figure 2.2 shows that Los Angeles is generating new businesses at a robust pace bested
by only the Miami and Austin metropolitan areas. The data in Figure 2.2 suggest that in the
month that new business ownership was examined, .56 percent of the adult population had started
a business.

Figure 2.2. Kauffman Index: Rate of New Entrepreneurs - Los Angeles

38

Figure 2.3 below provides data on the type of motivation for starting a business. The
majority of new starts in Los Angeles were created by individuals who were pursuing a business
opportunity rather than starting a business when they were unemployed. This is a positive
indication that they would also create new jobs. The number of new entrepreneurs pursuing a
business opportunity actually increased by 4.21 percent between 2015 and 2016.

Figure 2.3 Kauffman Index: Opportunity Share of New Entrepreneurs - Los Angeles.
According to the Kauffman Index, startup density in the Los Angeles area ranked third,
with 91.5 firms per 1000 firms with employees. Figure 2.4 shows a constant level of 91.9 and
91.5 between 2015 and 2016.

39

Figure 2.4. Kauffman Index: Startup Density – Los Angeles.
The Kauffman Index of Main Street Entrepreneurship for 2016 (Figure 2.5) was
extremely encouraging for the U.S. Following the lowest dip since 1997, the data depicted in the
following series of charts shows that the number of businesses, survival rates, and density of
established small businesses registered the highest level in 20 years, surpassing that of 1997, with
an index approaching .8 percent.

Figure 2.5. Kauffman Index of Main Street Entrepreneurship (1997 – 2016)

40

In 2016, the Los Angeles-Long Beach-Santa Ana metropolitan area lost position from
2015, when it fell to seventh from sixth place among the top 10 areas behind: Minneapolis,
Washington, D.C., San Francisco, Portland, Boston, and Pittsburgh (Table 2.2).
Table 2.2

The ability for its businesses to survive represents an important factor in the strength of a
community. In 2016, the survival rate across the nation was 47.40%, as shown in Figure 2.6.
This rate was 2.5 points better than the previous year, indicating improvements in the nation’s
businesses to survive the most challenging years.

Figure 2.6. Kauffman Index: Survival Rate – Los Angeles
41

The 2016 rankings for rate of business owners in the Los Angeles area has been relatively
flat over the past seven years, as shown by Figure 2.7. It now stands at seventh among the top 10
metropolitan areas, with 7.83 percent of adults operating a business full time.

Figure 2.7. Kauffman Index: Rate of Business Owners – Los Angeles
Figure 2.8 shows that the number of established small businesses per 1000 firms over five
years of age with at least one employee, dropped slightly from 630.5 in 2015 to 627.2 in 2016.
The past two years have registered one of the highest densities in 28 years.

Figure 2.8. Kauffman Index: Established Small Business Density - Los Angeles
42

Figures 2.9 through 2.11 provide glimpses of the demographic make-up of entrepreneurs
in the Los Angeles-Long Beach-Santa Ana metropolitan area. Figure 2.9 shows that males out-
pace females, representing just under 13 percent of the adult population and females at slightly
under six percent. Figure 2.10 shows the ethnic composition of the area. About 12 percent of the
White adult population are business owners, along with eight percent of Asians, six percent of
Latinos, and four percent of African-Americans.

Figure 2.9. Kauffman Index: Rate of Business Owners - Gender - Los Angeles

Figure 2.10. Kauffman Index: Rate of Business Owners – Race – Los Angeles
43

Other sociodemographic characteristics of the Los Angeles market include a larger
percentage of immigrants owning businesses than of native-born adults (Figure 2.11) at roughly
8.9 percent versus 7.1 percent.

Figure 2.11 Kauffman Index: Rate of Business Owners – Nativity – Los Angeles

Regarding age, adults between 45 and 54, have the highest percentage of entrepreneurs
(11.5 percent), followed by the 55 to 64 year olds (10 percent) (Figure 2.12). Just four percent of
individuals aged 20 to 34 in the region are business owners.

44

Figure 2.12. Rate of Business Owners – Age – Los Angeles
About 12 percent of the adult population who are college graduates are business owners.
About eight percent of those with lower education levels are entrepreneurs (Figure 2.13).

Figure 2.13. Kauffman Index: Rate of Business Owners - Education - Los Angeles

Finally, the Entrepreneurial Growth Index (Figure 2.14) depicts the difficulties
experienced by small businesses in the U.S. between 2013 and 2016. The deepest dip in growth
occurred in 2013. By 2016 the index witnessed a huge jump up from -1.10 to .30, a return to the
level registered in 2011.
45

Figure 2.14 Kauffman Index of Growth Entrepreneurship (2008 – 2016)
All of this suggests that African-American entrepreneurs in Los Angeles face a context
that is volatile for all small businesses across the nation. In circumstances such as this, tightened
credit access means banks and other financing sources double down on risk aversion. Already
difficult prospects for financing for African-American firms become even more challenging. The
data aligns with this new, dismal state of affairs.
The Context of Minority-Owned Businesses
Minority-owned businesses have been growing at a much faster pace than non-minority-
owned firms, although they still represent a smaller share relative to their proportionate share of
the population.
Importance to the U.S. and local economies. “Although the number of minority-owned
businesses is increasing dramatically, America is currently forgoing an estimated 1.1 million
businesses owned by people of color because of past and present discrimination in American
society. These missing businesses could produce an estimated 9 million more jobs and boost our
national income by $300 billion. Thus, expanding entrepreneurship among people of color is an
46

essential strategy for moving the country toward full employment for all” (Austin, 2016, p. 3).
Table 2.3 below provides Austin’s (2016) calculation of the number of additional companies
needed by gender.
Austib’s quote from “The Color of Entrepreneurship: Why the Racial Gap Among Firms
Costs the U.S. Billions,” published by the Center for Global Policy, sums up one of the key
reasons minority-owned firms are important to the U.S. and local economies. The report analyzed
the data from the 2012 Survey of Business Owners and offered the following insight into the lost
potential we face as a nation because the tools for success are often discriminately withheld from
minority firms:
Businesses owned by people of color are playing an important part in restoring the health
of the American economy after the Great Recession (December 2007 through June 2009).
Between 2007 and 2012, privately held minority businesses contributed 1.3 million jobs to the
American economy. In a more inclusive society, one where there was truly equal opportunity for
all, there would be more minority-owned businesses contributing even more to America’s
recovery (Austin, 2016, p. 2). This analysis assumes that the number of Asian-American-owned
firms and their performance has already reached parity with the Asian-American percentage of
the population.

47

Table 2.3.

As the population of the United States becomes increasingly diverse, adjustments will be
needed to accommodate the demand for jobs and business ownership by citizens now considered
minorities. Businesses owned by minorities will become more prevalent, as will their
contribution to the United States economy, particularly if they are able to access the resources
they need to thrive. Already roughly 37 percent of residents consider themselves members of at
least one minority group. Further, the U.S. Small Business Administration reports, “the
populations of five states, including the two largest, California and Texas, are now over 50
percent minorities. Many other states, counties, and cities are approaching this threshold, thus
understanding minority business ownership is increasingly important” (SBA Issue Brief, 2016, p.
1). Table 2.5 below compares the population and business ownership data. This table highlights
the number of establishments by racial group and the relative percentages. As of the 2012 Census
of Business Owners, taken five years ago, the percentage of African-American and Hispanic
48

establishments fell below their percentages of the population (9.5 versus 12.6 and 12.2 versus
16.9, respectively). The combined minority group also fell short of their share of the U.S.
population (29.3 versus 37.2). The number of Asian and non-minority, White-owned
establishments exceeded their share of the population (7.1 versus 5.0 and 70.9 versus 62.8,
respectively).
Table 2.4.
Comparative Shares of Minority Business Ownership and Total Population, 2012

Source: Michael McManus, “Minority Business Ownership: Data for the 2012 Survey of
Business Owners. Issue Brief Number 12. Office of Advocacy, U.S. Small Business
Administration. September 14, 2016, p. 2.

Statistics on minority-owned businesses. Minority-owned businesses accounted for 8
million businesses as of the 2012 Survey of Business Owners, according to an Issue Brief
published by the U.S. Small Business Administration’s Office of Advocacy, representing an
important share of the U.S. economy. Together they generated $1.3 trillion in revenue and
supported 7.2 million jobs. Between 2007 and 2012 when the U.S. experienced a major economic
disruption, with the Great Recession, minority-owned businesses achieved notable progress,
including: a net increase of 2 million new businesses as compared to a net decrease of one
million closed businesses for non-minority-owned businesses; a seven point increase in the
49

percentage of total U.S. minority-owned businesses, from 22 percent to 29 percent; a $335 billion
increase in sales, and 1.35 million new jobs (McManus, 2016).
Despite the notable progress in the number of establishments, a closer look at the
performance data reveals relatively anemic sales. While the number of establishments has
increased, the average annual revenue registers a small fraction of the revenue generated by Asian
establishments and nonminority, White establishments. Table 2.5 below from the Minority
Business Development Agency’s Fact Sheet on U.S. Minority-Owned Firms (2016, January),
drills home this fact. The average gross receipts for minority-owned firms was $173,552. For
non-minority firms the average was more than three times greater at $552,079, a difference of
$378,527. The differences continue across major indicators such as the percent of firms with paid
employees and the number of paid employees. An estimated 908,800 minority firms had paid
employees (11.4 percent), compared with 4,156,683 non-minority firms (21.9 percent). Minority
firms support an average of 7.88 employees, compared to 11.6 for non-minority firms. If the
minority firms were able to realize levels comparable to their non-minority counterparts, the
numbers would paint a different picture. The number of firms with paid employees would be
close to 1,741,573, applying the percentage of firms with paid employees to the number of
minority firms. This would result in 832,773 more firms with paid employees. The number of
jobs would be 20,202,247 rather than 7,721,623 (a difference of 13,037,096).

50

Table 2.5.
U.S. Minority-Owned Firms

The SBA considers the discrepancy between the number of businesses and the sales
performance of those businesses as a “disparity.” In their report on Minority Business Ownership:
Data from the 2012 Survey of Business Owners,” they use the following example. “While
Hispanic-owned firms represent over 12 percent of all businesses, they only account for four
percent of all sales and employment. This gap between the share of businesses and
sales/employment can be described as a ‘disparity,’ it is expressed as a ratio between a minority
group’s share of sales or employment and its share of businesses. For example, Hispanic-owned
businesses have a 33 percent sales disparity ratio (.04/.12), meaning their share of sales is only
one third of their share of businesses. All minority businesses have sales and employment
disparity ratios under 100 percent, and therefore have larger shares of businesses than of sales or
employment” (McManus, 2016, p. 2). Table 2.6 below provides the disparity ratios for the largest
minority groups.

51

Table 2.6.
Minority Group Shares of Total Business Ownership, Sales, and Employment, 2012

Source: Michael McManus, “Minority Business Ownership: Data for the 2012 Survey of
Business Owners. Issue Brief Number 12. Office of Advocacy, U.S. Small Business
Administration. September 14, 2016, p. 3.

In Tables 2.7 through 2.9 I provide a deeper dive into the data on minority-owned
businesses to understand how performance in the Los Angeles market squares with the results
across the United States and within California. Please note that the data was taken from the U.S.
Census 2012 Survey of Business Owners. I selected key categories from among the many line
items. The totals do not add up even though the data was checked several times. Its usefulness,
however, is in providing a rough look at the scale of African-American owned businesses
compared with other minority groups and non-minorities in the United States, California and Los
Angeles County.
Minority-owned firms accounted for 7.9 million businesses in the United States, according
to data from the 2012 Survey of Business Owners. These firms generated $1.4 billion in sales
revenue, and employed 7.2 million people. An estimated 11 percent of the total number of
minority-owned firms had paid employees, compared with 20 percent of all firms and 21 percent
for non-minority White firms. On average, the minority-owned firms with paid employees
52

employed 7.88 individuals, compared with 11.39 for non-minority-owned firms and 21
employees for all firms.
In California, minority-owned firms stood at 1.6 million in 2012, representing 46 percent
of the firms. They generated $216,940 in average annual revenue and those with employees hired
an average of 7.83 workers, consistent with the number across the United States. A slightly
higher percentage of the firms reported having paid employees than the U.S. as a whole (13
percent versus 11 percent, respectively). Average sales for the firms with paid employees were
substantially higher than the amount for all firms ($1.4 million versus $216,940, respectively),
and higher still than the $1.3 million for minority-owned firms in the U.S.
Los Angeles County registered 631,218 minority-owned firms, representing a whopping
55 percent of the total number of businesses. These firms generated average revenue of $219,120,
on par with California’s figure. Roughly 12 percent of the Los Angeles County firms have paid
employees. These companies generate revenues of $1.5 million and employ 7.71 individuals, on
average—higher sales than for the United States and California, but fewer average number of
employees per establishment.

53

Table 2.7.
Comparison of Minority-Owned Businesses by Race, Sales, and Employment – U.S.

Table 2.8.

Comparison of Minority-Owned Businesses by Race, Sales, and Employment – California.

Number of
firms with or
without paid
employees
Sales, receipts, or
value of
shipments of
firms with or
without paid
employees
($1,000)
Number of
firms with
paid
employees
Sales, receipts, or
value of
shipments of
firms with paid
employees
($1,000)
Number of paid
employees for
pay period
including March
12
Annual
payroll
($1,000)
Number of
firms without
paid
employees
Sales, receipts, or
value of shipments
of firms without
paid employees
($1,000)
UNITED STATES
All Firms 27,626,360 33,536,848,821 5,424,458 32,495,262,387 115,249,007 5,236,446,058 22,201,902 1,041,586,434
Analysis 1,214 0.20 5,991 21 965.34 0.80 46.91
White Firms 21,539,858 10,950,990,565 4,438,062 10,104,625,082 50,567,816 1,929,295,400 17,101,796 846,365,483
Analysis 508 0.21 2,277 11.39 434.72 0.79 49.49
African-American Firms 2,584,403 150,203,163 109,137 103,451,510 975,052 27,689,957 2,475,266 46,751,654
Analysis 58 0.04 948 8.93 253.72 0.96 18.89
Asian Firms 1,917,902 699,492,422 481,026 627,532,399 3,572,577 110,543,615 1,436,876 71,960,023
Analysis 365 0.25 1,305 7.43 229.81 0.75 50.08
Hispanic Firms 3,305,873 473,635,944 287,501 379,994,999 2,329,553 70,855,704 3,018,371 93,640,945
Analysis 143.27 0.09 1321.7 8.10 246.45 0.91 31.02
Non-Minority Firms 18,987,918 10,482,831,537 4,156,683 9,714,345,077 48,255,649 1,856,388,208 14,831,235 768,486,460
Analysis 552.08 0.22 2337.0 11.61 446.60 0.78 51.82
Minority 7,952,386 1,380,149,132 908,800 1,161,430,713 7,165,151 219,297,701 7,043,587 218,718,418
Analysis 173.55 0.11 1278.0 7.88 241.30 0.89 31.05
Source: U.S. Census 2012 Survey of Business Owners
https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SBO_2012_00CSA01&prodType=table
Number of
firms with or
without paid
employees
Sales, receipts, or
value of
shipments of
firms with or
without paid
employees
($1,000)
Number of
firms with
paid
employees
Sales, receipts, or
value of
shipments of
firms with paid
employees
($1,000)
Number of paid
employees for
pay period
including March
12
Annual
payroll
($1,000)
Number of
firms without
paid
employees
Sales, receipts, or
value of shipments
of firms without
paid employees
($1,000)
CALIFORNIA
All Firms 3,548,449 3,917,367,474 679,042 3,765,656,960 12,858,633 685,054,404 2,869,407 151,710,515
Analysis 1,104 0.19 5545.54 18.94 1,008.85 0.81 52.87
White Firms 2,343,439 1,219,025,418 469,114 1,114,978,952 5,134,422 233,526,899 1,874,325 104,046,467
Analysis 520 0.20 2376.78 10.94 497.80 0.80 55.51
African-American Firms 177,302 14,924,763 9,572 10,802,107 94,201 3,167,457 167,731 4,122,655
Analysis 84 0.05 1128.51 9.84 330.91 0.95 24.58
Asian Firms 604,870 229,512,016 134,607 204,745,516 1,016,937 33,923,770 470,263 24,766,500
Analysis 379 0.22 1521.06 7.55 252.02 0.78 52.67
Hispanic Firms 815,304 98,901,378 64,463 75,448,598 517,054 16,103,571 750,841 23,452,780
Analysis 121.31 0.08 1170.42 8.02 249.81 0.92 31.24
Non-Minority Firms 1,819,107 1,131,645,330 413,003 1,044,025,829 4,664,384 218,139,728 1,406,105 87,619,501
Analysis 622.09 0.23 2527.89 11.29 528.18 0.77 62.31
Minority 1,619,857 351,416,670 212,938 297,829,950 1,668,302 54,819,709 1,406,919 53,586,720
Analysis 216.94 0.13 1398.67 7.83 257.44 0.87 38.09
Source: U.S. Census 2012 Survey of Business Owners
https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SBO_2012_00CSA01&prodType=table
54

Table 2.9.

Comparison of Minority-Owned Businesses by Race, Sales, and Employment – Los Angeles
County.

Other factors also indicate that improvements in the performance of minority-owned
businesses is good for the U.S. as well as for local communities. PolicyLink and FSG published a
report titled, “The Competitive Advantage of Racial Equity,” in which they identify, “rising
diversity amidst persistent racial economic exclusion,” as a compelling reason to rethink the
present course of action (Blackwell, Kramer, Vaidyanathan, Iyer, and Kirschenbaum, 2017, p. 3).
Figure 2.15 shows the breakdown of the U.S. population between 1980 and 2050. The
image depicts a dramatically decreasing share of White residents and an increasing share of
minority residents. “The United States is undergoing a dramatic transformation in which people
of color will become the majority by 2044. As people of color continue to grow as a share of the
workforce and population, their social and economic well-being will determine the country's
success and prosperity” (National Equity Atlas website).

Number of
firms with or
without paid
employees
Sales, receipts, or
value of
shipments of
firms with or
without paid
employees
($1,000)
Number of
firms with
paid
employees
Sales, receipts, or
value of
shipments of
firms with paid
employees
($1,000)
Number of paid
employees for
pay period
including March
12
Annual
payroll
($1,000)
Number of
firms without
paid
employees
Sales, receipts, or
value of shipments
of firms without
paid employees
($1,000)
LOS ANGELES COUNTY
All Firms 1,146,701 1,203,877,022 209,077 1,156,070,801 3,821,263 187,354,196 937,624 47,806,222
Analysis 1,049.86 0.18 5,529 18 896.10 0.82 50.99
White Firms 680,290 345,306,533 133,862 313,852,178 1,388,290 62,758,546 546,428 31,454,356
Analysis 508 0.20 2,345 10 468.83 0.80 57.56
African-American Firms 81,563 6,250,612 4,179 4,527,244 39,784 1,398,442 77,384 1,723,368
Analysis 77 0.05 1,083 10 334.64 0.95 22.27
Asian Firms 213,203 97,584,399 50,069 88,818,143 374,355 11,707,105 163,134 8,766,257
Analysis 458 0.23 1,774 7 233.82 0.77 53.74
Hispanic 332,967 32,801,864 20,894 23,938,937 160,944 4,956,606 312,072 8,862,927
Analysis 98.51 0.06 1,145.73 7.70 237.23 0.94 28.40
Non-Minority Firms 481,643 316,774,295 116,619 291,156,265 1,242,366 57,959,948 365,025 25,618,029
Analysis 657.70 0.24 2,496.65 10.65 497.00 0.76 70.18
Minority 631,218 138,312,335 76,114 118,727,517 587,135 18,400,626 555,105 19,584,818
Analysis 219.12 0.12 1,559.86 7.71 241.75 0.88 35.28
Source: U.S. Census 2012 Survey of Business Owners
https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=SBO_2012_00CSA01&prodType=table
55

Figure 2.15 Racial/Ethnic Composition: United States, 1980 - 2050

The Context of African-American-Owned Businesses

African-American businesses comprise a subset of the minority-owned business category
of small businesses. For the first time in history, the number of African-American owned
establishments grew at the fastest rate of any segment of the population—by a lot. This is
certainly good news for the many companies that are experiencing positive change in their
businesses, but challenges still loom with respect to access to capital to fuel and sustain this
growth and achieve parity with non-minority-owned firms. The following section lays out the
data on how African-American-owned businesses compare with other minority-owned and non-
minority-owned businesses.
56

Statistics on African-American-owned businesses. Tables 2.7 through 2.9 presented
above highlight the statistics for African-American firms compared to all firms, White firms,
Asian firms, Hispanic firms and minority firms, looking at data for the United States as a whole,
California, and Los Angeles County. The data, once again, presents a troubling picture. Across
the U.S., African-American firms represent nine percent of the total number of businesses (2.6
million), but only generate average annual sales per business of $58,000. This is by far the lowest
of the groups presented in the tables and shockingly, only one tenth of the average sales of the
white firms. The low sales numbers, of course positively correlate with the percentage of firms
with paid employees. Only four percent of African-American firms have paid employees, as
compared to 20, 21, 25, 9, and 11 percent for all firms, White firms, Asian firms, Hispanic firms,
and minority firms, respectively. The four percent means other groups report percentages that are
at least double and as high as six times the percentages experienced by African-American firms.
And the reverse means that 96 percent of the African-American firms have no employees!
In the state of California, 177,302 African-American firms were operating in 2012, with
average sales per firm of $84,000. In California, as in the United States, African-American firms
register the lowest number of firms with paid employees (5 percent versus 19, 20, 23, 8 and 13
percent, respectively, for all firms, white firms, Asian firms, Hispanic firms, and minority firms).
Of the firms with paid employees, African-American firms, on average, employ an estimated nine
people. This number exceeds all of the other minority classes, and trails the number for all firms
and White firms, by three and twelve, respectively.
In Los Angeles County there were 81,563 African-American firms. Their average sales of
$77,000 per business again fell well below the number for other groups. Five percent of African-
57

American firms had paid employees. This was significantly less than 18, 20, 23, and 12 percent
witnessed by all firms, White firms, Asian firms, and minority firms, respectively. However, in
Los Angeles County, Hispanic firms also saw low numbers of firms with paid employees.
African-American firms with paid employees had revenues that were comparable to White firms,
and actually exceeded the average number of employees hired by Asian, Hispanic and minority
entrepreneurs.
The question of why there is such a huge difference in the business results of African-
American firms can be addressed by a lengthy history of unequal policies and opportunities that
continue to constrain progress. The following section highlights key elements of this history.
An historical perspective on what we see today. To fully embrace the current state of
access to financial resources by African Americans, we must travel back in history to the earliest
forms of financial support and challenges in making it financially. It appears that the initial
encounters with financial services came on the heels of emancipation in 1865 when freed slaves
found themselves having to navigate the essential elements of finance in a vast, unfamiliar world.
Suddenly they had to find and subsequently pay for housing, food, transportation, and education.
Extreme pressure from northern abolitionists and Union soldiers familiar with the predicament of
the newly freed slaves pushed Congress to create the Freedman's Savings and Trust Company
along with the Bureau of Refugees, Freedmen and Abandoned Lands, known colloquially as the
Freedmen's Bank and the Freedmen's Bureau (Nieman, 1979). Both were the result of policies
designed to help facilitate the problematic transition from slavery to freedom.
The Freedmen's Bureau assisted the former slaves and poor whites displaced by the
ravages of war, with food, medical care, and legal services. It tried unsuccessfully to distribute
abandoned and ex-Confederate lands to the freed slaves, however, in the end, land ownership
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proved to be an elusive goal. Even though they legally purchased the property, the government
enacted laws that later returned them to the former slaveholders. The freedmen instead became
tenants of their old masters who took advantage of them and denied them wages earned (Nieman,
1979).
During the Civil War, many slaves tasted freedom on the fringes of border states by
joining the Union Army, where they received compensation for their services. Numerous small
banks sprung up to accept their deposits. However, widespread mismanagement of these funds
made it difficult to impossible for them to withdraw their funds, or for their next of kin to retrieve
them in the event the account holder died. The Freedmen's Bank and Trust was created to address
the numerous problems in the South's informal banking network that serviced African-American
soldiers in the Union Army. By decree of President Lincoln, Freedmen's Bank could only accept
deposits from or on behalf of former slaves in the United States or the descendants of former
slaves. Part of its charter also prohibited the bank from making loans. Three years after its
incorporation, the bank moved its headquarters to Washington, D.C. and later planted branches
across 17 states.
By 1874, the bank was rife with fraud and abuse by upper management, most notably
Henry Cooke, a powerful white man with political ties to the Republican political machine in
Washington, D.C. Cooke also had his hand in multiple other endeavors, as a railroad executive,
and journalist. He commandeered an unsecured loan from Freedmen's Bank for Seneca Quarry,
where he also served as a board member. The default on this loan, along with the expensive new
headquarters it built in the District of Columbia, contributed to the bank's failure. But the bank
also misrepresented that it was federally insured and encouraged customers to be thrifty and save
59

while making risky investments. The board also initially denied African-American involvement
in the bank's governance.
In 1874, shortly after being hand-picked to head the bank and lead efforts to restore
confidence in its future, Fredrick Douglass recommended shutting its doors. Tens of thousands of
individuals, churches, societies and other groups were financially devastated by this decision.
"The bank's demise left bitter feelings of betrayal, abandonment, and distrust of the American
banking system that would remain in the African-American community for many years. While
half of the depositors eventually received about three-fifths of the value of their accounts, others
received nothing" (Washington, 1997, par. 9).
The Freedmen's Bank fiasco caused deep resentments and a distrust of institutional
systems within the African-American community. On the heels of the failures of both the
Freedmen's Bank and Freedmen's Bureau to carry out their intended missions, the political
climate of support for the financial well-being of the former slaves was changing. In 1876, states
that were the former States of the Confederacy enacted new Jim Crow laws that legally forced
restrictions on what Blacks could do in the Southern states, and specifically enforced racial
segregation, in the doctrine of "separate but equal." California had its own Jim Crow laws on the
books between 1866 and 1947 covering miscegenation (making it unlawful to marry a negro,
mulatto, Indian or Mongolian); separate public schools; and employment alongside white co-
workers. These early laws laid the foundation for many of the disadvantages and exclusions that
exist today, though in more subtle forms.

60

Gold (2016) traced the early evidence of, as well as efforts to create and sustain, an
unequal playing field for African-American entrepreneurs in the United States through the 1990s
in his article, "A critical race theory approach to black American entrepreneurship." The
following paragraphs summarize his chronology of the history.
As many as 650,000 slaves were brought to the United States from Africa beginning in
1619. Those who survived the "middle passage" (the treacherous shipboard journey from Africa
to the U.S.) met with harsh treatment on the shores of Jamestown, Virginia. There, they were
sold, mistreated, and branded, as the sole property of slaveholders.
After the civil war, many of the emancipated slaves sought entrepreneurship as a means of
survival. They created businesses in a variety of areas. Many of them achieved significant
success by leveraging the skills acquired while they were slaves (Harris, 1936; Butler, 1991;
Woodard, 1997 cited by Gold, 2016). During the period from the antebellum era through the
Great Depression, their businesses served Black and White customers without restriction.
The success of this up-and-coming African-American business class spurred great
resentment among Whites who took action to eliminate them and to squash their ability to
compete along with any advantages they may have enjoyed (Myrdal, 1964, 312 cited by Gold,
2016). A significant part of their strategy involved using laws to inhibit fair trade. The result
included ‘segregation laws that restricted blacks from competing against any other entrepreneur in
an open market' by restricting the location of black-owned businesses to black neighborhoods.
‘On the other hand, Chinese, Mexican, Jewish and Native Americans could operate a business in
the open market, drink at public fountains, eat in restaurants and sleep in hotels.' (Woodard, 1997,
p. 16 cited by Gold, 2016).
61

The changing laws worked against the African-American entrepreneurs in some important
but not so obvious ways. While the African-American entrepreneurs could only compete in their
neighborhoods, restricted by race to ghettos, other immigrants began to compete with them for
jobs and business opportunities in these restricted areas. “During the first decade of the twentieth
century, the United States received an average of 879,539 immigrants each year…a migration
unprecedented in world history” (Fuchs, 1990, 294-295 cited by Gold 2016).
To make matters worse, they suffered through violent attacks inflicted against them by
Whites. Several prosperous African-American communities and business districts in 1906 Atlanta
were pillaged and plummeted by angry White mobs that murdered innocent people and destroyed
businesses (Gibson, 1906, 1457ad-1459ac cited by Gold 2016). When the dust settled, the
unsuspecting African-American companies shouldered the blame, the result of severe sanctions
against them, with widespread forced closures of barber shops and restaurants and other profitable
establishments.
Perhaps the most egregious violence was directed at the community of Greenwood in
Tulsa, Oklahoma in 1921. Widely recognized as the ‘Black Wall Street,' jealous Whites attacked
Greenwood, killing 400 people, and destroying 1,400 homes and businesses (Light and Gold 2000
cited by Gold 2016). The violence came through the hands of White vigilantes who sadly were
aided and abetted by police and national guards.
The violent, anti-black attacks precipitated massive migration from the south to the north,
but also ushered in an era where Black entrepreneurs were the only ones who would service the
needs of their people. Businesses such as restaurants, beauty and barber shops, grocery stores,
dress shops, and mortuaries began to thrive again. During this era, the restrictive laws gave
ambitious Blacks no choice but to find business opportunities within their communities, which
62

were growing in the south and in the north. The strategy proved useful. It gave rise to many
Black millionaires. “While important advancements did occur, it was also during this era that
policies concerning home finance, public housing and urban renewal led to the creation of large,
segregated, impoverished and poorly serviced Black ghettos in American cities” (Massey and
Denton, 1993 cited by Gold, 2016, p. 1708).
During the Civil Rights era, policy-makers expanded the role of the Federal Housing
Administration (FHA), originally created in 1934, to finance home loans and thereby stimulate
construction, creating much-needed housing. More low-cost mortgage financing did result in
increased home building, but it also “subsidized and hastened the movement of the White
population away from urban centres, while confining racial minorities in economically declining
central cities” (Gold, 2016, p. 1709). As the White population flocked to suburbs, the resulting
government-created ghettos registered high concentrations of poor residents and wastelands for
new or thriving commerce. Other policies created “urban renewal programmes [which] often
destroyed existing Black-owned enterprises by levelling neighborhoods and failing to provide the
resources necessary to reopen in a new location. During the same era, freeways, which were
constructed with federal funds but little input from local residents, displaced minority
communities and businesses, while simultaneously providing easy access to residents who wished
to live and/or shop in the suburbs. While urban renewal and interstate highway programmes
generally included some funding to compensate persons forced to relocate, only property owners
were eligible. Accordingly, slumlords received payments, but Black entrepreneurs who rented
their store buildings did not” (Gold, 2016, p. 1709).
Fast forward to 2004 and evidence of illegal business practices within the largest banks in
the United States again engendered mistrust among the African-American community. Wells
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Fargo settled lawsuits for racial discrimination arising from predatory lending practices against
Blacks and Latinos who were charged higher rates for home loans than their White counterparts
with comparable or lower credit scores. These predatory practices caused hundreds of African-
Americans and Latinos to lose their homes through foreclosure. Wells Fargo also faced severe
sanctions and loss of credibility for illegally opening over two million fake bank accounts in the
names of Blacks and Latinos. In 2012, the company settled a Justice Department suit against
them for discriminatory practices, in which they agreed to pay $175 million (Egan, 2017, May
15).
Other equally egregious actions were perpetrated by JP Morgan Chase against Blacks and
Latinos who were charged higher loan costs and interest rates by independent loan brokers.
Between 2006 and 2009 actions by loan brokers violated the Fair Housing Act and Equal Credit
Opportunity Act, resulting in 53,000 Blacks and Latinos paying millions more than their White
counterparts with similar credit profiles (White, 2017, January 18). The bank settled for $55
million. These examples illustrate some of the root causes of the pessimism that exists between
African-Americans and large banking institutions.
The beginning of financial support for African-American businesses in the City of Los
Angeles/Los Angeles County was explained by Earl "Skip" Cooper, founder and long-time
President of the Black Business Association. According to his oral history, the first African-
American-owned financial institution, Broadway Federal Savings and Loan, opened in 1946 by
founder Claude Hudson. Claude grew up in Shreveport, Louisiana, where he practiced dentistry
and served as the head of the National Association for the Advancement of Colored People
(NAACP) there. His work with the NAACP became so controversial that the whites in power ran
him out of town in the 1940s. At that time restrictive covenants were written into the real estate
64

contracts in neighborhoods throughout Los Angeles County. African-Americans also were
prohibited from securing financing from White banks to purchase a home. Black churches then
created loan programs to help members buy property.
The second financial institution, Family Savings, and Loan, came next, followed by
Founders Savings and Loan and later, in 1964, the Bank of Finance opened the first and only
California state-chartered Black-owned bank in California and west of Kansas City, Missouri
(Jackson-Fossett, 2017). Onie Granville was the driving force behind establishing the bank on
26th and Western in Los Angeles, where it operated for 20 years before Wilshire State Bank, a
Korean-owned company, purchased it in 1984.
In 2011 the Los Angeles Urban League completed a comprehensive study on the state of
Blacks in Los Angeles, with funding from the California Endowment under their Healthy
Communities Initiative. They developed a timeline of critical events in the history of African-
Americans in Los Angeles a significant portion of which is presented below in Figure 2.16, along
with other facts pertinent to African-American entrepreneurs in Los Angeles.

65

Figure 2.16 Timeline of Key Events in Black Los Angles

mes’:
1972 • Martin Luther King, Jr. General Hospital (King/Drew Medical Center) opens.
1972 • President Richard Nixon established the Minority Business Development Agency to
help strengthen businesses, particularly Black Businesses.
Mid 1970s The Business Development Center of Southern California received a multi-million
dollar contract from the Minority Business Development Agency to assist firms in
securing capital, contracts, bidding and bonding for contractors, marketing and business
planning.
1973 • Tom Bradley became the first African-American mayor of major U.S. city.
1977 • Pacific Coast Regional Development Corporation was established as a regional
financial development corporation.
1984 • Los Angeles was host to the XXIII Summer Olympics where Black women -- who
account for only 6% of the U.S. population— won 75% of all the track and field medals
won by American women.
1991 • The Greater Los Angeles African American Chamber of Commerce was established.
1992 • Civil unrest resulted in 55 deaths and $785 million in damages following the acquittal
of White police officers charged in beating of Rodney King.
2002 • Foundation Giving to Minority Non-Profits study by Greenlining Institute found that
only 3.6% of grant funds from the top 24 private foundations went to minority-led
organizations.
2005 • Antonio Villaraigosa became the first Latino mayor of Los Angeles in more than a
century.
2008 • Barack Obama was elected the first African-American president of the United States.
of Mexican Americans have hypertension. (Center for Disease Control’s National
Center for Health Statistics)
Source: 2011 State of Black Los Angeles. Los Angeles Urban League
1781 • El Pueblo de Nuestra Señora de la Reina de Los Angeles — the Spanish town that
would eventually become the city of Los Angeles — was established by 46 settlers, 6 of
whom were of African ancestry.
1781 • Juan Francisco Reyes, a mulatto settler, served three terms as mayor of Los Angeles.
1848 • California handed over to the United States. With this came the first legal
discrimination.
People from the South came to California drawn by the “gold rush.”
1913 • The Los Angeles branch of the NAACP was established
1921 • The Los Angeles Urban League was established to remedy employment, health services
and housing inequalities for Blacks and other minorities.
1963 • On the steps of the Lincoln Memorial during the March on Washington, Dr. Martin
Luther King, Jr. delivers his “I Have a Dream” speech, calling for racial equality and an
end to discrimination.
1964 • ACLU files de facto school segregation suit against L.A. Board of Education.
1965 • The Watts Rebellion leaves 34 deaths, and widespread damage.
1968 • Dr. Martin Luther King, Jr. was assassinated on the balcony of the Lorraine Motel in
Memphis, TN.
1970 • Black Business Association was established to advocate for and advance the
development and growth of African-American Businesses.

66

The status of African-American businesses and their communities. The most recent
and relevant analyses of how well African-Americans are doing relative to Whites, are found in
two reports issued by the Urban League. The reports benchmark how African-Americans fare on
number of factors when compared to the performance of Whites. In their words, “because the
history of race in America has created advantages for Whites that continue to persist in many of
the outcomes being measured” (Lee, 2017, p. 5). The National Urban League published “Protect
Our Progress: State of Black America in 2017 (Lee, 2017) that provided a comprehensive view of
the state of the African-American community across the United States. Five years earlier, the Los
Angeles Urban League had published a similar report that outlined the critical issues facing
African-American residents of Los Angeles. Both studies utilized a Racial Equality Index that
examined census and other data to create a means of comparing results by racial group across key
quality of life indicators pertaining to: education, economics, health, criminal justice, housing,
and civic engagement. Of importance to this dissertation are the metrics most directly involved in
decisions related to access to capital, namely: education, economics, and housing.
The key findings of both Urban League reports are presented in tables below, beginning
with the 2016-2017 national index. The data on Los Angeles are presented from the 2017 and
2011 reports. The 2011 report delves more deeply into the situation in Los Angeles and is
presented in addition to the 2017 results for that reason.
National. The Equality Index of Black America in Table 2.10 summarizes the findings
from “Protect Our Progress: The State of Black America 2017.” The overall index remained
unchanged between 2016 and 2017 at 72.3 percent in 2017 versus 72.2 percent in 2016. This
index means that African-American communities across the United States experience just under
three fourths of the combined economic, health, education, social justice and civic engagement of
67

Whites in America. When the data are disaggregated, the equality index on economics registers
as the lowest metric with roughly half the economic strength achieved by Whites (56.5 percent).
Table 2.10

Source: “Protect our Progress: The State of Black America 2017,” National Urban League.

These data shine light on the fact that African-Americans must manage their lives with
approximately half the financial resources as their White counterparts. Unfortunately, this
situation creates hardships that permeate in every aspect of their lives, including the ability to
purchase a home or secure capital to start or expand a business.
Los Angeles. The National Urban League report includes information on how the
metropolitan areas stack up against one another on income. The top metropolitan areas report
data indicating that their Black population’s index is close to 1. In essence, this means that they
register the smallest gap in the critical areas of analysis between their experiences and those of
their White counterparts. In 2017, Los Angeles ranked a dismal 38
th
in the metropolitan rankings,
up considerably from 47
th
place in 2016. The improvement is good news and suggests progress is
being made, however, the $36,397 difference in income represents a huge gap relevant to wealth,
opportunities and quality of life. Table 2.11 presents a slice of the ranking of metro areas.

68

Table 2.11
Ranking of Metro Areas From Most to Least Equal

Source: “Protect our Progress: The State of Black America 2017,” National Urban League.

The 2000 census identified the Los Angeles metropolitan area as home to the seventh
largest population of African-Americans in the United States. Ten years later this rank had
dropped to ninth place, following a large migration of African-Americans to the south. Even with
these shifts, however, the size of the population in 2010 exceeded 850,000 people, representing
8.4 percent of the area’s population, down from 9.7 percent in 2000. In California, African-
Americans represented 6.6 percent of the population in 2000, and 5.9 percent in 2010. Los
Angeles County saw similar declines over the 10-year period, 41 percent in 2000 and 38 percent
by 2010.
Concentrations of African-Americans can be found in the city of Los Angeles, followed
by Long Beach, Inglewood, Compton and Hawthorne. “During the period between 2000 and
2011 Lancaster and Palmdale replaced Carson and Pasadena as the cities with the sixth and
seventh largest African-American populations in the Los Angeles metro area” (Urban League
2011, p.7).
Table 2.12 provides additional insights into the predominant household types. This study
and breakdown by the Nielson Company in conjunction with the Los Angeles Urban League
identified seven household types within the African-American population in Los Angeles. Four
of these could have members who own-businesses or aspire to own a business, including: the
69

Cosmopolitan Achievers (28 percent), the Family Focused Middle (15 percent), Urban
Professionals (nine percent), and Up and Coming Climbers (eight percent). This would mean
roughly 60 percent of the African-American adult population in Los Angeles could be candidates
for entrepreneurship based on the educational and lifestyle profiles presented in the Nielsen study.
Table 2.12. Black Los Angeles—More Than Meets the Eye
Household Type Household Income % of Black L.A.
Home-based Elders longtime homeowners on tightly
fixed incomes, are at or nearing retirement. Given their home-
centered lifestyles, they are big television viewers. They also
frequent local veterans clubs, play bingo or keep in touch on
their prepaid cell phones.
$22,900 16%
Struggling Strivers are among the nation’s most
economically challenged. These young to middle-aged parents
and singles live modest lifestyles. Hampered by low education
levels and uncertain employment in service industries, fewer
than 5% own real estate. They enjoy movies, TV and
parenting magazines.
$21,600 24%
Cosmopolitan Achievers are educated, active,
adventurous upper-middle class professionals who pursue
activities from health clubs to kayaking. These early adopters
are on top of technology trends from the Internet to the newest
smart phones. With many single friends, this group likes
dancing, clubbing and movies.
$53,650 28%
Family-Focused Middle, tend to have child-centered
households. Many own their homes despite modest incomes,
spending their money on activities such as camping,
gardening, and buying toys for their children. Pets, children’s
videos and Parenting Magazine are frequently found in their
homes.
$39,070 15%
Urban Professionals enjoy high incomes, advanced
degrees and sophisticated tastes. Their neighborhoods include
million-dollar homes, high-end cars and upscale shopping.
Multiple computers, flat-screen TVs and impressive wine
collections enhance the lives of these couples and families,
whose activities range from theater to international travel.
$156,300 9%
Up and Coming Climbers are suburban, white-collar
couples. College-educated professionals, they fill their new or
renovated homes with exercise equipment, home theaters, and
pets. Focused on their children, they are a ready market for
computers, action figures, dolls, board games, bicycles, and
camping equipment.
$98,800 8%

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Household Type Household Income % of Black L.A.
Hard-Working Rurals are younger families with high
school educations and blue-collar jobs, empty nest couples,
and even a few exclusive families escaping urban congestion.
Active campers and RV enthusiasts, they also enjoy outdoor
sports like basketball, baseball, skiing, boating, backpacking
and mountain biking. Country lifestyle and home decor
magazines are popular reading.
$78,300 0.4%
Source: 2011 State of Black Los Angeles Report, Los Angeles Urban League.
Table 2.13 provides an analysis of how well African-American communities fare when
compared to their counterparts in other racial communities. The data describes a dire situation on
all of the key metrics. According to the Racial Equality Index, in terms of education, economics,
health, criminal justice, housing, and civic engagement, African-Americans achieved only 71
percent of the levels enjoyed by those of White residents. This number was up slightly from the
2005 score of 68 percent, six years earlier. This showing was comparable to that of Latino
residents in Los Angeles who also scored low compared to their white counterparts. Looking at
the three indicators most directly linked to their potential access to capital separately, Blacks
scored 20 percent below the level of Whites on education. For economics, the index was 59,
indicating slightly more than half the level of Whites. Finally, for housing, the African-American
index was 68. In all of these indicators, the African-American population in Los Angeles is not
competing with Whites on a level playing field.

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Table 2.13 Racial Equality Index

Source: 2011 State of Black Los Angeles Report, Los Angeles Urban League

Sadly, the 2011 Urban League report concludes that “unless we accelerate the rate at
which the Black-White equality gap is narrowing, it could take nearly 100 years to close it
completely. Given the 29-point gap that exists, the three-point rate of gain achieved over the past
decade simply will not accomplish the task” (Urban League, 2011, p.11).
The case for strengthening African-American businesses. The fact that young and
innovative entrepreneurial firms are essential to community development is widely supported in
the literature. They represent the engines that drive job growth and create more opportunities for
local residents than their larger, multi-national counterparts (Megginson, 2004). A critical input
to their success is the need for considerable capital of various forms, over time, as they navigate
the natural cycles of business. Chief among the reasons for strengthening African-American
businesses is the critical role they play in supporting jobs.
Fitzgerald and Muske (2016) highlighted the importance of family-owned businesses in
developing strong, stable communities. They analyzed ten years of data from the National Family
Business Survey (USA) where they verified differences between entrepreneurial, small and family
businesses and the value they bring to their communities. They found that the main benefit of
family-owned businesses, whether small or large, was in stabilizing the business core. Results
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indicate the importance of supporting family business owners, whether entrepreneurs or small
business owners, in economic development because each group makes important contributions to
the long-term sustainability of its community’s economic sector. “While entrepreneurs achieve
greater gross income and number of employees, small business owners offer stability during
economic downturns” (Fitzgerald and Muske, 2016, p. 1).

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Chapter 3. The Financial Landscape

In this chapter I examine the structure of small business finance by reviewing the
information and the literature on the viable methods of securing capital for small business. This
information provides the basic avenues, or sources of financing that exist, irrespective of whether
or not they can be accessed by small, minority, or African-American-owned entrepreneurs. In
general, the financial landscape includes two primary sources, debt and equity. Each is
characterized by its own rules of engagement, regulatory parameters, and requirements. For
purposes of this dissertation, the structure of the financial landscape is deliberately focused on
small business and skewed more heavily towards pathways to debt. That is because the data and
the research point to a preponderance of debt financing from banks supporting the needs of small
business.
Financing Structure
I use the word structure in this dissertation to describe the infrastructure of financing
options for small businesses. In general, certain avenues of financing exist on a national and
international level and others are local funding available in Los Angeles County. Both are critical
in this age of interconnectedness, made possible by technology. In fact, entrepreneurs who look
exclusively to the local sources of finance overlook a vast field of opportunity that they could
potentially access. Structure here refers to the foundational elements of the infrastructure,
namely: the available options; the parameters that shape choice by the borrower; and the capacity
as well as the will to deliver the necessary financing in the amounts needed and at rates that help
entrepreneurs and business owners achieve their goals.
Berger and Udell (1998) identify informational opacity as the most important
characteristic defining small business finance (p. 616). Absent the transparency that governs
74

publicly traded companies through the Securities Exchange Commission (SEC), they assert that
“small firms cannot credibly convey their quality. Moreover, small firms may have difficulty
building reputations to signal high quality or non-exploitative behavior to overcome informational
opacity” (Berger & Udell, 1998, p.616).
Debt represents borrowed funds that must be repaid at some point in time at a certain rate
of interest. Debt is reflected as a liability on the firm’s balance sheet, and can cover short term or
long term payback periods. Equity represents funds that are invested in the firm in exchange for
an ownership interest, with the promise of a return on investment, cash flow, and an exit strategy
at some point in time. The equity shows up on the firm’s balance sheet as paid in capital. On the
micro-level, the way in which an entrepreneur capitalizes his/her business, including the types,
sources, amounts, and negotiated terms of the financing, refers to the firm’s financial structure,
with specific emphasis on the mix of debt and equity. Beyond the micro-level, a financial
landscape or infrastructure also exists on a macro-level. The infrastructure consists of the
financial services providers operating within that landscape. They comprise a comprehensive,
inter-related ecosystem that the entrepreneur must navigate in order to design the most effective
financial or capital structure for his/her business.
The types of financing avenues an entrepreneur or small business owner chooses for
his/her company comprises their capital structure. A firm’s capital structure may include a
combination of financing types that change as the enterprise matures and its needs evolve. The
firm’s cost of capital can influence its profitability, competitiveness, value, and ability to survive.
Studies on the capital structure of small businesses focus on a wide range of factors
including, the characteristics of the business, characteristics of the owner, the industry and the
terms of the capital. The Meyers Pecking Order Hypothesis is one important theory on how
75

capital structure decisions are made. This hypothesis asserts that a step order exists about when
and how a firm secures capital, beginning with the easiest and least costly to the more difficult
and costly.
In this view, firms finance their needs in hierarchical fashion, first using internal equity,
followed by debt, and finally external equity. This ordering is caused by the effects of
asymmetric information and agency problems on the returns required by providers
of various sources of funds [19, 26]. For small businesses, asymmetry of information
and agency problems between management and outside investors are more acute
than for large firms, making differences in costs between internal equity, debt, and
external equity consequently greater. Therefore, the hierarchical approach should have
even more appeal to small firms than to large. (Scherr et al, 1993, p. 21)
Scherr’s hypothesis about the Myer’s Pecking Order Hierarchy, might be one explanation
of why small businesses rely more heavily on loans to capitalize their businesses than external
equity. The cost of borrowing funds is significantly lower because banks and other institutional
lenders typically require a lower risk/return ratio for the funds they commit. The cost of capital
for debt financing includes the interest rate and fees charged for the funds, as well as the term of
the loan which may be short-term (one year or less) or long-term (more than one year). Included
in the debt category are: lines of credit, which help smooth cash flow challenges when money
must be spent to provide a good or service, before they are paid for; and equipment financing,
where funds are borrowed to purchase equipment, which also serves as the collateral for the
borrowed funds.

76

In a subsequent study, Scherr and Hulburt (2001) conducted research on the determinants
of debt financing for small businesses. Building on the prior work of Pettit and Singer who
identified the “interaction of the owner's risk-return preferences, the characteristics of the firm,
and the costs of various types of financing as the primary factors” (Pettit and Singer 1985 cited by
Scherr 1993, p. 17).
A decidedly different set of rules and motivations shape equity sources of finance for
small businesses. The literature on equity financing most often focuses on large corporations,
generally defined as having assets of $10 million plus. At this level, businesses support in-house
accounting and finance departments that follow Generally Accepted Accounting Principals
(GAAP) in their record-keeping and financial reporting. One particular difference between large
and small businesses is often the quality of financial information available about the business.
Public equity is equity generated by the sale of publicly-traded stock. Besides clearing the
very expensive process of completing an Initial Public Offering (IPO), one of the key
requirements of accessing public equity involves meeting the financial information reporting
requirements mandated by the Securities Exchange Commission (SEC).
Credit enhancements. According to the data on financing for small businesses and
studies performed by a number of researchers, commercial banks represent the largest source of
exterior financing for the nation’s small businesses (Meyer, 1998). For minority-owned and small
businesses, credit enhancements offer the most likely pathway to these often elusive funds.
Credit enhancements include loan guarantees designed to reduce the perceived and actual risk a
third party (whether bank or other financial intermediary) might incur when issuing credit to
small and minority-owned businesses. The guarantee helps to minimize the risk of loss to the
lending entity by providing assurance that in the event of default, the guarantee will be available.
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The strategy of using the Federal government to back up loans to small businesses began in 1953
when it created the U.S. Small Business Administration (SBA), a successor department to
programs created earlier to mitigate challenges during the Great Depression and World War II
(SBA website - History).
Federal - U.S. Small Business Administration. One of the most active financial services
providers for small businesses is the U.S. Small Business Administration (SBA). Many people
misunderstand the role and function of the SBA. First and foremost, the SBA does not directly
lend to small businesses, therefore, it does not drive the initial lending decision. SBA’s products
are outlined in Appendix A: Quick Reference to SBA Loan Guaranty Programs. Its primary
tool for encouraging the flow of capital to the nation’s small businesses is through credit
enhancements. This model places SBA in a role similar to that of an insurance company. The
lender funds the loan and the borrower agrees to pay the note. If the borrower runs into
difficulties servicing the debt that cannot be rectified, the guarantee ensures them that the SBA
will cover up to 85 percent of the loan balance. The credit enhancement reduces the lender’s
potential exposure to just 15 percent. The SBA charges a floating interest rate on its guaranteed
loans, ranging from 1.5 to 3.75 over prime, or roughly 6.0 to 8.25 percent. In addition, the SBA
charges fees of 2 percent to 3.75 percent of the guaranteed portion for loans of $126,000 or more.
SBA’s mission and strategic plan includes three goals, as seen below. Figure 3.1
summarizes SBA’s strategic focus. Goal 1 “Growing businesses and creating jobs” frames their
activity in the lending space. Of primary concern for purposes of this dissertation is the activity
in its 7(a) Loan Program. According to the SBA’s website, the 7(a) program provides loan
guarantees, or credit enhancements, to banks, community development organizations and micro-
lenders. The guarantee program covers up to 85 percent of the loan amount, which can go as high
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as $5.0 million. The SBA also offers a second program that facilitates economic development
through direct loans, unlike the 7(a) program which guarantees approved loans from lenders. The
504 program exists to fund fixed assets, including land acquisition, building construction, and
equipment. In a typical deal, a private lender contributes 50 percent of the total project cost, SBA
40 percent, and the borrower 10 percent. This support makes the project financially feasible for
the entrepreneur and viable for the other financial sources.

Source: SBA website
Figure 3.1. SBA’s FY 2014-2018 Strategic Plan
I requested information from the SBA on the 7(a) program under the Freedom of
Information Act and received data on all 7(a) loans approved in the United States. The
information included loan amounts, guarantee amounts, interest rates, and lending institutions. It
did not include the race or ethnicity of the borrowers. It appears that the system includes
incomplete information on the race of individuals receiving SBA guaranteed loans, as banks have
not consistently reported on loan activity by race. The Dodd-Frank Wall Street Reform and
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Consumer Protection Act signed by President Obama on July 15, 2010 enacted laws designed to
protect consumers from unfair banking practices. Dodd-Frank attempted to address this missing
information on loan activity by race and to bring more transparency to the banking industry.
Between 2010 and June 30, 2017, the SBA approved 16,617 7(a) loans for businesses
based in Los Angeles County. These loans totaled $8,556,530,937 and included guarantees of
$6,486,326,143. A small fraction of these loans went to African-American entrepreneurs, through
SBA’s list of certified lenders, including hundreds of banks, Community Development Financial
Institution (CDFIs), and others. I requested information from the Small Business Administration
on the number and value of loans to African-Americans, but did not receive this information. To
offer a rough estimate of SBA’s performance I used an estimate from the State of California
iBank on the percentage of loans and loan guarantees made to African-American firms between
2005 and 2016 (4.43 percent in number and 2.23 percent in loan value). Table 3.1 below presents
the results of this estimate of the loan activity for African-Americans in Los Angeles County. If
SBA’s performance compares with the activity witnessed in California’s state guarantee program,
African-Americans would have received just 731 loans over the past six years, valued at $190.8
million, backed by $144.6 million in federal loan guarantees. Incidentally, although I was not
able to receive direct information from the SBA on loan production to African-American firms, in
one of my interviews a subject mentioned that 2.2 percent was quoted by an SBA representative
as the African-American share of loans in the Los Angeles district. His comment was
independent of this analysis, but it suggests that the figure is a reasonable guesstimate.

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Table 3.1.

Estimate of SBA 7(a) Loan Activity to African-American Entrepreneurs

SBA Loans
Estimate of % of
Loans to AA*
Est. Total
Loans
Number 16,617 0.044 731
$ Value $8,556,530,937 0.0223 $190,810,640
SBA Guarantees
Estimate of % of
Guarantees to AA *
Est. Total
Guarantees
Number 16,617 0.044 731
$ Value $6,486,326,143 0.0223 $144,645,073
Source: SBA Website * Based on State Guarantee Percentages

Data published by the Los Angeles County Economic Development Corporation (LAEDC) placed
the value of SBA 7(a) loans to African-Americans at $42.9 million for the two year period
between 2014 and 2016 (LAEDC, 2016).
State: Financial Development Corporations (FDCs). Seven organizations within
California currently administer California’s Small Business Loan Guarantee Program (SBLGP),
as approved Financial Development Corporations (FDCs). These organizations are not subject to
the same restrictions imposed on examined banks. They do, however, answer to boards of
directors and oversight from the California Infrastructure Development Bank (iBank) which
provides the funding for the loan guarantees they use to strengthen the applications of small
businesses seeking bank financing. Although recent guidelines make it possible for each of the
organizations to do business anywhere in California, they tend to primarily service the business
community in their geographic regions. FDCs derive their funding from the iBank, which issues
the state loan guarantees.
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I contacted the Small Business Finance Center, the iBank division that oversees the state
guarantee loan program to obtain the loan performance of the FDCs from 2005 through 2016. I
summarized the data in Table 3.4 below to create a detailed snapshot of the amount and type of
loans approved with a particular emphasis on the loans issued to African-Americans. Over the
11-year period, nine organizations participated in the program. Most of the organizations fell
within a tight range of 0 to 4.26 percent of their total number of loans, and 0 to 4.99 percent of the
amount of loans approved. Across the combined portfolios of these nine organizations, 4.43
percent (363) of the loans went to African-American firms, but they received only 2.23 percent
($32,410,540) of the total value of the loans over the twelve years. This equates to an average of
33 loans per year over the nine organizations, although two of them made no loans to African-
Americans. The average loan amounts to African-Americans were $2,946,412 million per year,
over nine organizations for 11 years, or $327,379, per year per organization. The average loan
size across all of the organizations was $177,840, but it was only $89,285 for the African-
American borrowers, a difference of $88,555, or just below half the statewide average.
Three organizations operate within Southern California: the Small Business Development
Corporation of Orange County, based in Santa Ana; California Southern Small Business
Development Corporation, based in San Diego; and Pacific Coast Regional Small Business
Development Corporation (PCR), based in Los Angeles. PCR supported 22 loans to African-
Americans, the fourth largest number of loan guarantees in the state, behind Nor-Cal Financial
Development Corporation (246); California Southern Small Business Development Corporation
(38); and California Capital Financial Development Corporation (31). In terms of the total value
of the loans to African-Americans, Pacific Coast Regional Small Business Development
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Corporation ranked second behind Nor-Cal Financial Development Corporation ($4.7 million
versus $13.9 million).
Nor-Cal Financial Development Corporation, based in Oakland, California, outperformed
all of the other organizations combined on loans to African-American firms. They accounted for
66.8 percent of the total, indicating that at least one of their organizational strengths is the ability
to deploy loan funds to African-American businesses. Nearly 65 percent of these loans went to
African-American women, and they were also ranked as the lowest average loan size at $56,389
We do not know why they received smaller loans. Was it because their needs were lower than the
average for all firms? Was their collateral insufficient to cover the higher loan amount? Did they
request more to accomplish a specific goal, but settled for less?
These loan performance data are consistent with the findings of Fairlie and Robb (2010) in
their study on disparities in capital access. Among the disparities they found were smaller loan
sizes for African-American entrepreneurs when they do receive loans.
Several FDCs also exceeded the statewide average loan size in their loans to African-
American entrepreneurs. Among these were: California Coastal Rural Development Corporation
($216,000); California Small Business Development Corporation ($98,457); Inland Empire Small
Business Development Corporation ($108,750); Pacific Coast Regional Small Business
Development Corporation ($213,745); Safe BIDCO ($160,447); Small Business Development
Corporation of Orange County ($513,305); and Valley Small Business Development Corporation
($671,667).
It appears from studying the loan data that some organizations bring particular skills,
distinctive competencies, and lender networks to the marketplace that meet the specific financing
needs of African-American entrepreneurs. Some excel at making smaller loans; some larger
83

loans; some in supporting lines of credit; and some in leveraging the state guarantee for loan sizes
well above the typical loan to guarantee ratio. These skills represent best practices that could be
shared with others. They could also create opportunities for organizations to work together on
specific deals.
Underwriting and regulatory constraints. Underwriting is a more detailed review of
loan applicant information by professionals who study the credit report, key ratios and the quality
of the pledged collateral to determine whether or not the loan should be approved. Underwriting
for loan decisions often includes evaluation of the credit scores of the applicants. I researched the
average credit scores of individuals by race to determine if there were predictable structures in
place that would automatically exclude or include one group over the other. Data from Value
Penguin, which tracks average homebuyer scores, is provided in Table 3.2 below. Because
homebuyer credit scores are readily available by racial group, I used this data as a proxy for
comparing the credit scores by group. The data shows that Asians and Non-Hispanic Whites
register the highest scores at 745 and 734, respectively. These groups also have the lowest
percentage of individuals with credit scores below 620, 2.6 percent and 5.4 percent, respectively.
African-Americans, unfortunately, register the worst scores of the four groups listed, with the
lowest average credit scores (677) and the largest percentage of borrowers with scores of less than
620 (21.3 percent).

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Table 3.2.
Average Credit Scores by Race

Group Avg. Score
Homebuyer
% Borrowers
with score
<620
Asian 745 2.60%
Black/African-American 677 21.30%
Hispanic White 701 11.20%
Non-Hispanic White 734 5.40%
Source: Average Credit Scores in America: 2017 Facts & Figures - Value
Penguin.
https://www.valuepenguin.com/averagecredit-score

The banking industry views credit scores as one important factor in determining the level
of risk in evaluating a loan application. From their perspective, credit scores provide an
indication of how applicants treat their financial obligations. The Federal Reserve (one source of
borrowed funds for banks and one of several bank regulators) is the central bank for the United
States. Established by Congress in 1913, the Federal Reserve includes 12 regional banks that
process checks, hold bank deposits, and help set monetary policy for the United States
government. The Fed, as it is referred to, conducts a Small Business Credit Survey each year
with respondents across the United States. One question asks about credit score. They categorize
respondents’ answers into three groups according to level of risk. See Table 3.3. Personal credit
scores in the low risk category, start at 720 and up. In 2016, 65 percent of the respondents fell
into this category. The average credit scores for Asians and Non-Hispanic Whites easily clear the
minimum threshold for low risk loans. These groups also demonstrate the lowest percentage of
individuals with credit scores of less than 620, or those classified in the high risk category
according to the Federal Reserve Bank’s definition. By contrast, African-Americans and
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Hispanics, register average scores of below 720 and higher percentages of individuals in the high
risk category.
Table 3.3.
Credit Scores. Small Business Credit Survey, 2016
Survey Respondents
Level of Risk Business Score Personal Score Number Percent
Low 80-100 720+ 4643 65
Medium 50-79 620-719 1561 27
High 1-49 <620 378 8
Source: Federal Reserve Bank, Small Business Credit Survey, 2016.

The regulatory environment imposes constraints on the banking industry that protects
consumer deposits and insures the bank’s solvency, but it can also restrict flexibility to lend to a
broad swath of borrowers. Banks operate under complicated, intense regulation from the Federal
Deposit Insurance Company, Office of the Comptroller of the Currency, or the Federal Reserve
Board, depending on the location and type of charter. Banks in California are also regulated by
the Department of Financial Institutions.
Of particular challenge to small business lending are regulations pertaining to Tier 1
capital requirements which dictate how much core capital a bank can put at risk. Bank regulators
monitor Tier 1 (core capital) and Tier 2 (supplemental capital) available to banks to make sure
there is sufficient coverage to protect depositors and to meet their obligations. In doing so, they
track the bank’s ratio of Tier 1 to Tier 2 capital, an important measure of the bank’s financial
health. A standard rule of thumb is that banks can generally borrow up to 10 times their
shareholder’s equity as long as they maintain a minimum capital adequacy ratio of six percent. In
any loan decision, banks take into consideration the possible impact on their capital adequacy
ratio (CAR). These considerations contribute to the banking environment being particularly
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sensitive to potential loan defaults. They also relate to the bank’s responsibilities to its
shareholders in demonstrating profitable operations.
Advocacy organizations and other intermediaries
A number of organizations exist to provide advocacy support to small businesses. Some
also specifically target the unique needs of African-American entrepreneurs in their efforts to
secure capital. They do this by helping them develop their loan packages, assisting them in
identifying banks that are more likely to approve their applications, and advocating on their behalf
in loan committee meetings. They assist in other ways also, such as providing technical
assistance to strengthen their business plans, helping them get certified as minority-owned firms
or working with them to secure the bonding they need to bid on a large construction project.
They address weaknesses that may hinder the firm’s ability to secure funding. It may be as
simple as helping the entrepreneurs recast a positive view of the firm’s history and future
prospects from a lender’s point of view. Some of them also make direct loans and have the
flexibility to apply somewhat more lenient underwriting criteria, such as lower credit scores,
higher loan to value ratios, and lower collateral coverage. This list includes financial
intermediaries, such as Pacific Coast Regional Small Business Development Corporation (PCR),
Valley Economic Development Corporation (VEDC), Goldman Sachs 10,000, the U.S. Small
Business Administration (SBA), the Minority Business Development Agency (MDBA) of the
U.S. Department of Commerce, and the Greenlining Institute.
Berger and Udell (1998) point out the critical role played by financial intermediaries in
evaluating the credit worthiness of small, private firms. They “screen potential customers by
conducting due diligence, including the collection of information about the business, the market
in which it operates, and collateral that may be pledged, and the entrepreneur or start-up team”
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(Berger and Udell, 1998, p. 614). The financial intermediaries bring together borrowers and
lenders to complete a financial transaction. They could be banks or insurance companies, but
their role is to create a match between the ones who need cash and the ones who have cash that
they are willing to offer as debt or equity. For each transaction, financing terms and structure are
developed after evaluating the business. Depending on the degree of risk and the amount and
quality of available collateral, the firm may be able to secure external equity. Those with high-
risk, high-growth potential and intangible assets are likely candidates for external equity. Those
with low-risk, low-growth potential and tangible assets are prime candidates for external debt
(Berger and Udell, 1998).
Financial intermediaries also serve as monitors after the capital has been released to the
business, focusing on compliance, financial condition, managerial advice, as needed, and any
adjustments of terms or additional capital that may be required to address situations where
repayment becomes difficult.
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Table 3.4. Financial Development Corporations’ Loan Production to African-Americans 2005-2016

Source: Data analyzed and table created from data file obtained from the iBank Small Business Finance Center under the Freedom of Information Act.

Financial Development Corporation
Loan Types
to AAs
Total #
of
Loans
Total #
to AAs
AA
Share
of Total
# of
Loans
Total $ Loan
Value
Total $ Loan
Value
to AAs
AA
Share
of
Total $
Loan
Value
Total $ Value of
Guarantees
Total $
Value of
Guarantees
to AAs
AA Share
of Total
Guaratees
%
Female
of Loans
to AAs
Avg Loan
Size
in Portfolio
Avg AA
Loan Size
Avg Loan
Guarantee
Avg. AA
Loan
Guarantee
California Capital Financial
Development Corporation
3 - Term Loans
28 - Line of Credit 1,399 31 2.22 118,312,520 $ 1,516,500 $ 1.28 75,400,180 $ 844,902 $ 1.12 29 84,569.35 $ 48,919.35 $ 53,895.77 $ 27,254.90 $
California Coastal Rural Development
Corporation
Term Loans 981 2 0.00 230,371,970 $ 432,000 $ 0.19 84,731,526 $ 345,600 $ 0.41 0 234,833.81 $ 216,000.00 $ 86,372.61 $ 172,800.00 $
California Southern Small Business
Development Corporation
7 - Line of Credit
31 - Term Loans 996 38 3.82 158,930,121 $ 3,741,358 $ 2.35 98,027,472 $ 2,521,350 $ 2.57 47.4 159,568.39 $ 98,456.79 $ 98,421.16 $ 66,351.32 $
Hancock Small Business Financial
Development Corporation 642 0 0.00 136,934,035 $ - $ 0.00 39,369,845 $ - $ 0.00 213,292.89 $ - $ 61,323.75 $ - $
Inland Empire Small Business
Financial Development Corporation
2 - Line of Credit
6 - Term Loans 188 8 4.26 36,935,400 $ 870,000 $ 2.36 22,021,133 $ 669,500 $ 3.0 25 196,464.89 $ 108,750.00 $ 117,133.69 $ 83,687.50 $
Nor-Cal Financial Development
Corporation
234 - Term Loans
12 - Line of Credit 1,227 246 20.05 133,826,309 $ 13,871,749 $ 10.37 84,502,543.00 $ 9,391,305 $ 11.11 64.5 109,067.90 $ 56,389.22 $ 68,869.23 $ 38,176.04 $
Pacific Coast Regional Small Business
Development Corporation
11 - Term Loans
11 - Line of Credit 1,032 22 2.13 149,239,837 $ 4,702,394 $ 3.15 78,744,597 $ 2,421,889 $ 3.08 40.9 144,612.25 $ 213,745.16 $ 76,302.90 $ 110,085.84 $
SAFE BIDCO 4 - Term Loans 186 4 2.15 78,717,954 $ 641,790 $ 0.82 48,657,547 $ 500,895 $ 1.03 50 423,214.81 $ 160,447.50 $ 261,599.71 $ 125,223.75 $
San Fernando Valley Small Business
Financial Development Corp 228 40,376,181 $ 20,798,199 $ 177,088.51 $ - $ 91,220.17 $ - $
Small Business Development
Corporation of Orange County
8 - Term Loans
1 - Line of Credit 385 9 2.34 195,997,574 $ 4,619,750 $ 2.36 132,235,067 $ 2,600,300 $ 1.97 33.3 509,084.61 $ 513,305.56 $ 343,467.71 $ 288,922.22 $
Valley Small Business Development
Corporation
1- Term Loan
2 - Line of Credit 926 3 0.32 176,871,140 $ 2,015,000 $ 1.14 128,407,723 $ 509,000 $ 0.40 33.3 191,005.55 $ 671,666.67 $ 138,669.25 $ 169,666.67 $
Total 8,190 363 4.43 1,456,513,039 $ 32,410,540 $ 2.23 812,895,832 $ 19,804,741 $ 2.44 177,840.42 $ 89,285.24 $ 99,254.68 $ 54,558.51 $
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Community Development Financial Institutions (CDFIs). The history of Community
Development Financial Institutions (CDFIs) is captured in “CDFI Futures: An Industry at a
Crossroads,” published by the Opportunity Finance Network (Nowak, 2016). This section
summarizes key points from this publication and the CDFI Fund website to provide a context for
the financial and technical assistance services they provide to low and moderate income
communities. CDFIs entered the financial services landscape in the 1970s, spawned by the
increasingly difficult to non-existent path to financial services for low and moderate income
community residents and businesses through traditional banks. The US Department of the
Treasury, CDFI Fund certifies CDFIs. Once certified, they become eligible to apply for grant
funds through a competitive process. If they succeed, they receive grant funds to provide loans
to small businesses and/or deliver technical assistance services to them. CDFIs may be
organized as a for-profit or non-profit entity, bank, credit union, or organization that offers
venture capital, micro loans, and loans. As of February 2018 there were 1,054 CDFIs certified
nationwide. California registers the largest number of CDFIs with 95, followed by New York
(82), Mississippi (81), and Louisiana (63). Twenty three (23) CDFIs operate within Los Angeles
County, including eleven banks, seven loan funds, three credit unions and two depository
institution holding companies (CDFI Fund website).
CDFIs are mission-driven organizations that exist to support community development in
underserved areas with a particular focus on the business owners who create the jobs there. As
intermediaries, they bring a variety of financial services to areas and individuals that would
otherwise face little to no access because of discriminatory practices such as redlining, “CDFIs
therefore connect the marginalised with the mainstream” (Appleyard, 2011, p. 251). They
represent an important financing avenue for African-American firms, as they fulfill financing
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gaps left open by major banks pulling out of low and moderate income communities to generate
more profitable business in terms of loan size and borrower profile.
Many CDFIs have developed skills in blending financial support from foundations, and
state and federal grants, with multiple forms of assistance from banks. The ability to raise funds
from several sources increases the amount of funds available to lend and to operate. It also
makes it more complicated to manage. Bank support to CDFIs has become increasingly
sophisticated, and may involve investments, loans, and/or grants through their foundations or
Community Reinvestment Act (CRA) departments. Managing the complex operations of a
CDFI on this level thus requires a deep knowledge of finance, regulations and business
operations. Many of the individuals who head CDFIs come from the banking industry and apply
similar mindsets to the lending process in their organizations. As a result, some critics accuse
CDFIs of being too much like banks in their approach to financing small businesses.
Access to Financing
Challenges of small businesses in accessing capital. Small businesses of all types
experience difficulties in securing finance, particularly during the start-up or entrepreneurial
phase. Debt financing is constrained by a firm’s ability to produce a stellar track-record backed
by assets that can be offered as secondary sources of repayment in the event the entity cannot
service its debt obligations. Many researchers have studied the issues related to the difficulty of
obtaining capital by members of the small businesses community. Data on the state and
conditions of small business comes from a wide variety of avenues, including but not limited to
the following sources monitored by the Federal Reserve: the National Survey of Small Business
Finance and the Survey of Consumer Finances, the Survey of Terms of Bank Lending to
Business, and Community Reinvestment Act reports. Across the sea of information and analysis,
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commercial banks emerge as “the single most important source of external credit to small firms,”
according to Federal Reserve Bank official, Laurence Meyer, in testimony at New York
University’s Conference on Small Business Finance (Meyer, 1998, p. 1110).
In a recent study of the performance of the Small Business Administration lending,
researchers found that even though nearly 65 percent of the business owners indicated that they
view banks as their first source of funding, their success at receiving the funding they sought was
a low 27 percent (Carbajo, 2016). Regardless of the sample size and the period examined, there
is widespread agreement that credit access is more difficult for small businesses than for large
businesses, even when credit scores are high (Carbajo, 2016). Access to capital, in general, is
more difficult for most small businesses than for big businesses (Carbajo, 2016). Difficulty
gaining access to capital reigns as the largest impediment to business growth, and with it the
ability to expand capacity through new employees, increased inventory, expanded marketing
efforts, and up-to-date equipment. All of this points to an inability to compete effectively in the
marketplace.
What this suggests is that all small businesses experience a fairly robust set of challenges
seeking capital. And the situation is not always a factor of supply and demand. Meredith Wood
(2016), in an article written in BPlan for Fundera, a Fintech lender, attributes the post-recession
difficulties in obtaining small business financing to three important factors: risk avoidance in the
midst of increased regulation and bank scrutiny; fewer community banks in the wake of bank
mergers and consolidation; and lower profits on the smaller loans that small businesses typically
require. Eighty (80) percent of small businesses require loans of less than $500,000, “but it
doesn’t make financial sense for banks to provide these smaller loans. Why? It costs banks just
as much to underwrite a $100,000 loan as it does a $1 million loan. Therefore, they can make
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way more money focusing on larger loans. At the end of the day, banks are businesses too”
(Wood, 2016, p. 37). Some researchers attribute this chasm to informational opaqueness (Berger
and Udell 2002), or the inability of small businesses to “credibly convey their quality” (Berger
and Udell 2002, p. 616) to lenders or outside investors to the same degree of information
transparency available from large corporations.
Securing financing for small businesses has been particularly challenging as “banks have
been exiting the small business loan market for decades,” resulting in “a decline in the share of
small business loans in banks’ portfolios” (Harrison, 2013, p. 1). Figure 3.2 below shows that
loans to small businesses dropped precipitously from just over 50 percent of bank lending in
1995 to just under 30 percent in 2012. Banks’ level of small business funding continues to
remain low, today weighing in at roughly 29 percent of their lending activity. This downward
trend started in 1996 and continued through 2012. Absent a disruptive event, such as a policy
change or major shift in perspective about the economic value of the small business market, I
believe that the banking industry will continue to chip away at small business’ share of their loan
dollars, making it much more difficult to start and grow financially healthy businesses,
particularly those owned by African-Americans.

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Figure 3.2. Percent of Bank Lending to Small Businesses Between 1995 and 2012
Challenges of minority-owned businesses in accessing capital. Minority-owned
businesses utilize a variety of methods to secure the capital they need for their businesses. In
Table 3.5 below, the SBA outlines the primary sources of financing for minority-owned and
non-minority-owned businesses. Personal savings, or internally-generated resources were by far
the major source of financing for all of the companies, however, higher numbers in this category
were registered for Asian and non-minority-owned firms.

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Table 3.5.
Type of Financing Used by Minority-Owned Firms

The data on minority-owned firms and their access to capital depicts two realities: the
results garnered by Asian-owned firms and non-minority-owned firms and the results garnered
by African-American and Hispanic-owned firms. Consistently, Asian-owned firms compare
favorably with the results seen by non-minority-owned firms. In some cases they exceed the
performance of their white counterparts. In contrast, African-American and Hispanic
entrepreneurs and business owners face a more difficult path to securing external capital.
Several researchers have tackled the issue of why the two ends of the spectrum exist by
exploring key factors that contribute to the overall success of a small business. Fairlie and Robb
(2008) found that the amount of start-up capital significantly influences the success or failure of
a business. Their study was published in the book, Race and Entrepreneurial Success: Black-,
Asian-, and White-Owned Businesses in the United States, where they found that lower levels of
start-up capital by African-American businesses relative to White-owned businesses, and higher
levels of start-up capital among Asian-American businesses compared to White-owned
businesses contributed to major differences in outcomes. The research further pinpointed the
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effect of racial differences in wealth. Asian-Americans controlled 80 percent of the median
wealth of whites but African-American and Hispanic-American entrepreneurs, just 10 percent.
This starting point permeates the entire entrepreneurial journey, according to their research,
impacting the amount of capital accessible at every stage of the firm’s development.
Austin (2016) puts the gap in perspective, characterizing the differences as “a result of
past and current discriminatory practices. Wealth can be easily transferred inter-generationally.
Wealthy parents and grandparents can pass on their wealth to children and grandchildren through
in vivo transfers and inheritances. Also, wealthier parents have access to better communities,
better schools, and richer social networks which can lead in turn to their children building more
wealth than children lacking these advantages. Because past wealth affects present wealth,
America’s history of inhibiting wealth-creation among people of color matters in understanding
wealth inequality today” (Austin, 2016, p. 18).
Other factors of entrepreneurial success include the experience of having worked in a
family business and or grown up in a home where the family business and its key issues were
integrated into their everyday lives—discussed at the dinner table, referenced at family
gatherings, and dispersed intermittently in normal conversations. The Fairlie and Robb research
validated the fact that business ownership, much like wealth, also transfers inter-generationally,
so that business ownership begets business ownership. Formal education and immigrant status
also increase the likelihood of success according to the Fairlie and Robb study (2008).
Appleyard (2011) studied financial inclusion and exclusion in the U.S. and United
Kingdom, focusing on the important role CDFIs played in creating financial inclusion for
geographic areas and groups who were excluded from financial services. His work described the
exodus of mainstream banks from low and moderate income locations to areas containing higher
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income profiles, much the same way retail establishments moved from central cities to the
suburbs.
New Frontiers of Capital
Past sources of capital to start and expand businesses focused on debt and equity
categories, primarily through bank financing, venture capital and angel financing. The
introduction of powerful information databases and new algorithms for rapidly processing large
amounts of data has changed the financial landscape. Technology now paves the way for
entirely new emerging avenues of capital (Bruton et al. 2015). Among these are “accelerators
and incubators, proof-of-concept centers, university-based-seed funds, crowdfunding platforms,
and IP-backed financial instruments” (Bellavitis, et.al. 2017, p. 2). Included in this mix of often
overlooked funding sources are bootstrapping and bricolage (Baker and Nelson 2005; Winborg
and Landström 2001) and international capital (Devigne et al. 2013; Mäkelä and Maula 2005).
Not much study has been done about the impact of these new capital and under-studied forms of
entrepreneurial and small business capital sources on businesses (Fraser, Bhaumuk, and Wright
2015), leaving many unanswered questions to be explored, particularly as it relates to greater
access to funds by African American entrepreneurs.
The Kauffman Foundation has launched the Zero Barriers Movement along with the
Kauffman Inclusion Open grant program of $7 million. “The Inclusion Open program is a facet
of the Kauffman Foundation’s Zero Barriers movement, which is based on the belief that
everyone has a fundamental right to turn an idea into an economic reality, regardless of who they
are or where they live.” (Kauffman Foundation website)
As the amount of small business lending by commercial banks continues to shrink, new
sources of capital moves in to meet the unmet, pent up demand. Most notably is the FinTech
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industry made possible by rapidly changing digital innovation and the merging of finance and
technology. FinTech represents a new method of analyzing and deploying capital with the
potential to severely disrupt traditional lending and investing approaches. This new industry is
estimated to generate $8 billion in loans in 2017 according to CBInsights.
Investopedia defines FinTech as “any technological innovation in the financial sector,
including innovations in financial literacy and education, retail banking, investments and even
crypto-currencies like bitcoin” (Investopedia website). This category of financial products
includes crowdfunding, robo-advisors, digital payments, peer -to-peer (P2P) or social lending,
and insurance telematics.
FinTech brings advantages and disadvantages to the small business financial marketplace
that may prove attractive to African-American entrepreneurs, especially if they continue to face a
myriad of obstacles in securing capital the traditional way. The FinTech industry is primarily
funded by investors. The returns they receive can be astronomical, ranging from 40 to 100+
percent annual percentage rate (APR) for cash advances on the high side for the highest risk
borrowers to 10 to 30 percent APR for the lowest risk borrowers (Figure 3.3). Some aspects of
the FinTech industry are effective for addressing the demand for small business financing.
Among these are the following:
 Universal acceptance criteria that provide sufficient comfort level – rather than credit
score based;
 Removal of geographic boundaries;
 Recognition that a huge market of people exists who need financing that cannot
access traditional sources;
 Simplified application;
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 Speed of approval process;
 No need for face-to-face interaction.
Figure 3.3 below provides an overview of the various types of loan products currently
available on the Fintech platform with their costs and structure. There are advantages and
disadvantages of these new products which must be carefully weighed before they are accessed.

Source: “Notes from the Frontlines in the Small Business Finance Revolution: A Microlender’s
View.” Community Investments, Winter 2014/2015 – Volume 26, Number 3.

Figure 3.3. Alternative Small Business Financing Options
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Chapter 4. Methodology

The underlying philosophy of this study follows the tenets of a transformative worldview,
as defined by John Creswell in Research Design (2014). My purpose specifically is to focus on
the issues of disparities for a marginalized group with the intended purpose of effecting change.
It fits with Creswell’s description of the types of researchers who are drawn to this approach,
including participatory action researchers, racial and ethnic minorities, and others. Those
descriptions fit my orientation towards this work.
The other theory that is relevant is grounded theory (Glasser and Strauss, 1967).
Grounded theory takes an inductive view of the data rather than a deductive view of it. This
qualitative approach combines systematic methods of data gathering that help explain
phenomena.
The methodology followed a simultaneous mixed methods research design that combined
the results of quantitative data collected from 28 entrepreneurs through an online survey, with
qualitative data collected through semi-structured interviews of 21 entrepreneurs and 20 others
considered to be a part of the financial services provider ecosystem, that includes individuals in
organizations on the lending side as well as those who provide services and resources.
Specifically this includes: banks, Community Development Financial Institutions (CDFIs),
chambers of commerce, small business development corporations, the U. S. Small Business
Administration, the California Infrastructure and Economic Development Bank, and the
California Small Business Finance Center. Among this list, some are direct lenders, some
provide credit enhancements in the form of loan guarantees, some support the financial services
continuum through various forms of technical assistance, under contract with state and federal
agencies, including loan packaging services, business plan workshops, and assistance finding
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lenders. All told, I gathered primary data from 69 individuals, in what I have come to refer to as
a 360-degree view of the issue.
Research Design
This study featured a concurrent, or simultaneous mixed methods research design that
employed both quantitative and qualitative data collection methods. Many definitions of mixed
methods research exist, however, this study follows Creswell and Plano’s comprehensive
definition. “In mixed methods, the researcher
 collects and analyzes persuasively and rigorously both qualitative and quantitative
data (based on research questions);
 mixes (or integrates or links) the two forms of data concurrently by combining them
(or merging them), sequentially by having one build on the other, or embedding one
within the other;
 gives priority to one or to both forms of data (in terms of what the research
emphasizes);
 uses these procedures in a single study or in multiple phases of a program of study;
 frames these procedures within philosophical worldviews and theoretical lenses; and
 combines the procedures into specific research designs that direct the plan for
conducting the study” (Creswell and Plano, 2003, p. 5).
A word about the philosophical underpinning of the types and methods of data collection
used in the research is useful. The qualitative method used in this study incorporates an
ontological view which assumes that multiple realities exist in examining the disparities in
capital access for African-American entrepreneurs (Creswell, 2003). Therefore, data collection
methods attempted to identify what some of these realities are, from the perspective of individual
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African-American entrepreneurs and business owners, and the spectrum of financial services
providers, technical assistance and credit enhancement providers, and the public agencies that
support the work of these intermediate organizations, to name a few. As much as possible, I
have included these perspectives in the data collected through semi-structured interviews.
The research specifically followed a simultaneous qualitatively-driven, quantitative plus
qualitative research design (Creswell et al., 2003). Phase 1 focused on entrepreneurs. Phase 2
focused on everyone else in the continuum: bankers, consultants, black chambers of commerce,
Community Development Financial Institutions (CDFI’s), and state and federal officials charged
with overseeing or funding entities in the financial infrastructure. The model is based on
Creswell’s Exploratory Design: Qualitative Results with Quantitative Data (Creswell and Clark,
2007). The rationale for a mixed methods approach is that the qualitative data taps the richness
of individual and group experiences that may be intuitive, but untested. The stories of
entrepreneurs who have sought capital provide an in-depth look at experiences that would be lost
in a purely quantitative research design (Seidman, 1990).
Quantitative methods are typically queries of a representative sample of individuals to
identify new theories or to validate existing ones. John Creswell in his book, Research Design
(2014), describes the philosophical thinking behind the use of quantitative methods. Quantitative
questions are typically closed-ended, objective measurements that can be easily analyzed through
statistical methods.
The quantitative data includes responses to primarily closed-ended questions that
provided a closer look at the measureable experiences of respondents, some of whom have
sought capital and some have not. To my knowledge, although the survey questions have been
used in previous studies, none of these studies have focused specifically on the African-
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American business cohort. Other studies have provided a snapshot of access to capital across the
United States and in Europe with a particular focus on small business.
The methods used in this study provide a comprehensive look at the impact of lack of
access to capital and how certain firms achieved a measure of success despite the challenges.
The methodology employed included quantitative closed-ended questions, social network
analysis questions, and a parallel track of qualitative questions. The quantitative questions were
conducted online. The semi-structured interview questions were conducted in-person or by
telephone. I recorded each of these interviews.
This study focused on the experiences of African-American entrepreneurs and business
owners based in Los Angeles County. These are entrepreneurs who have overcome the
challenges of gaining access to capital to achieve a measure of success in their businesses. The
purposeful sampling technique followed a maximum variation approach. This allowed inclusion
of men and women of all ages, heading companies in all industries, within all locations in Los
Angeles County that meet or exceed $500,000 in annual revenue. Given a relatively small
number of companies fitting the basic criteria, the objective was “to sample the widest variation
of people within the limits of the study” (Siedman, 1990, pp. 1306-1307). The research design
draws upon the strengths of quantitative and qualitative methods. I initially wanted to include a
small social network analysis component to map the individual people and organizations who
were providing support and help to the entrepreneurs in the survey, however, not enough of the
respondents answered these questions to pursue this component. I have left Figure 4.1 intact, as
it represents the original model for the study, however, the information needed to conduct a
social network analysis was incomplete. The research focused on collecting data to uncover
information useful for informing both the African-American entrepreneurial community and the
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financial services ecosystem in Los Angeles County—ultimately with the goal of achieving
significantly better performance results for African-American entrepreneurs seeking capital.

Figure 4.1. Diagram of Research Design
Survey instrument. The survey instrument consisted of seventy-two (72) questions that
asked respondents to share descriptive information on their backgrounds, family business
experiences, business type, experiences seeking capital, and how they bootstrapped their
businesses if they did not receive the external financing they sought. They were also asked about
beneficial technical assistance received, and who in their financial networks were supportive at
the beginning of their journey and as their businesses matured. They were asked if they belonged
to any trade or business associations such as the Chamber of Commerce.
The survey questions were adapted from two previously administered surveys. Both sets
of questions were included because they provide special insight into the background and
demographic profile of entrepreneurs and their experiences. The first was from the National
Association of Small Business, which surveys members on issues that impact small businesses in
the United States. I modified the "Small Business Access to Capital Survey" conducted in 2012
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(NASB, 2012). The second portion of the survey contained questions that were adapted from a
survey administered biennially by the Federation of Small Business in the United Kingdom. I
used items from the 2004 survey, "Lifting the Barriers to Growth of UK Small Businesses"
(Federation of Small Business, 2004). This survey was included because the questions were
relevant to my research. I eliminated duplicate questions that appeared in similar ways in both
surveys. Finally, I included a table that offered a comprehensive listing of bootstrapping
strategies, drawn from Fatoki (2014), and survey respondents were asked which of these they
had employed. I inserted a question on bootstrapping, taken from Table 1 in “The Financial
Bootstrapping Methods Employed by New Micro Enterprises in the Retail Sector in South
Africa” by Olawale Fatoki (2014). I adapted these questions by: eliminating the questions that
were not relevant to the study; changing pronouns; removing references to international locations
and replacing international terminology with terms familiar to citizens in the United States. In
addition to questions from these three sources, I also inserted questions that were my own, such
as, “Do you have strong financial statement? Compared to when you started in business, today is
your personal credit score better, worse, or about the same? I also included seven questions at
the end of the survey designed to uncover information about key support and financial networks.
These questions were included to identify common names, relatives, positions and organizations
that were helpful or unhelpful in the entrepreneurs’ efforts to obtain the capital they needed.
I included original questions intended to get information on: the highest educational
level prior to going into business; technical training and experience prior to going into business;
whether they had a family member or close friend who was a business owner when they were
growing up, and if so, whether or not they worked in that business; if the business was their first
business or if they had other businesses; how much capital they started with, and the sources of
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that initial capital; how they began in business; number of part time employees; if they had taken
a second mortgage on their house or refinanced it and the impact of that decision. Taken
together, these questions covered the key issues discussed by scholars in diversity and inclusion,
finance, and banking, concerning disparities in access to capital for African-American
entrepreneurs and small business owners.
Next, I typed the questions in Qualtrics and developed a naming convention for each of
the questions. Qualtrics is a powerful software tool for distributing and managing surveys, as
well as collecting and analyzing data frequencies. The first survey included a skip logic that took
respondents to the end of the survey if they responded that their sales were less than $500,000. I
decided that it would be useful to capture data from respondents with sales of less than $500,000
if they had been in business for at least five years. Making It II then included the full set the
questions from Making It except the skip logic that removed the option for these respondents to
skip the questions. Finally, my committee suggested that I pare down the number of questions in
an effort to increase both the completion rate and the number of respondents taking the survey.
Making It III thus eliminated many of the open-ended questions at the end of the survey. This
change corresponded with the point at which many of the previous respondents had stopped
answering questions, perhaps due to survey fatigue. These questions had been included in the
survey because my original intent was to conduct several social network analyses on the relevant
financial networks supporting the entrepreneurs. I wanted to diagram the relationships within the
financial services provider ecosystem, however, this thought was too ambitious for one survey
and in the end, proved unattainable. Appendix B: Making It III Survey provides a copy of the
survey and the version containing all of the questions analyzed in this study.
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Data collection. I began by conducting three pilot tests of the survey, including the
information sheet, to ensure that each participant was aware of the purpose of the study, the
voluntary nature of their participation, privacy and confidentiality matters, etc. The pilot test
revealed that a few of the questions required reworking for greater clarity.
The sample of prospective survey participants consisted of approximately 100 African-
American entrepreneurs in various industries and at various stages in the business
development/life cycle. This included the 86 individuals on the initial list I culled from the SBA
database and 14 additional entrepreneurs who came from referrals and contacts made at multiple
events attended to identify African-American entrepreneurs who appeared to fit the desired
participant profile described below. I attended four events where I actively recruited participants
for my research: The Public Utilities Commission Procurement Workshop and Expo held May
3, 2017 at the Skirball Auditorium; the 40
th
anniversary of Pacific Coast Regional Small
Business Development Corporation, also held May 3, 2017; the California Black Chamber of
Commerce Awards Program, honoring elected officials, held May 25, 2017; and the Inner City
Capital Connections Los Angeles opening session for the class of 2017, held August 2, 2017.
Surveys were then sent to individuals in the database who fit the sample selection criteria.
Individual business owners participated in the online survey after receiving several emails
beginning in late April and early May 2017, after the Internal Review Board (IRB) approved the
research as exempt from formal review. In addition to a total of five rounds of email requests, I
also made cold calls to follow-up on the emails. These calls proved to be effective when I was
able to reach the entrepreneurs and explain my research. I piloted the survey with three
individuals who were business owners to test the survey and receive feedback on the
information. Forty-seven (47) entrepreneurs started surveys which resulted in 28 useful
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responses. The responses to the survey were entered in an Excel spreadsheet, then cleaned up for
analysis.
Two types of data were collected, grouped according to how the data had to be coded and
analyzed. First is descriptive data about the individual companies. The combination of these
two surveys covered demographic information and characteristics of the participating businesses.
Specific types of questions included: When did the business start? How many employees does
the company have? What is its annual revenue? Other questions asked about initial capitalization
of the business and the types of customers the company services. The second type of
information was primarily relationship-driven, where the participants were asked to provide lists
that were intended to be examined through the lens of social network analysis. To begin to
examine more details about their financial networks and support, several questions asked
participants to list their own strengths and weaknesses, the agencies, banks, etc. that were most
helpful, members of their support networks, and the business and trade associations they have
joined. This category yielded the fewest responses and was not included in the analysis.
Ten of the respondents generated annual sales of less than $500,000. Only two of the ten
were nascent enterprises with less than five years in business. I decided the information they
provided would be useful in the study and chose to include their responses in the results.
Sample. The quantitative data included 28 responses from 28 AAEs. Each of the
survey respondents indicated that their business was at least 51 percent owned by African-
Americans. All except one was based in Los Angeles County. Additionally, all of the
respondents experienced challenges seeking or obtaining capital for their businesses. Twice as
many males as females headed the companies in the survey (17 versus 8), and both a male and a
female headed three of the companies. Females fully or partially headed 11 companies (48
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percent). See Table 4.1. Respondents also tended to be relatively mature. Twenty-four (24) out
of 28 (85.7 percent) were at least 45 years of age. The distribution ranged from 22-34 years of
age to older than 65 years of age.
The entrepreneurs in the sample were highly educated. Sixty two (62) percent had earned
one or more college degrees, primarily Associate of Arts, Bachelors, and Masters degrees. One
respondent had earned a doctorate degree and one a high school diploma. Of the ten who had not
earned college degrees, nine (35 percent) had some college in their background.
Twenty-two (22) of the 28 entrepreneurs in the study had been in business for more than
five years (78.5 percent), indicating that the group as a whole had significant tenure in business,
and staying power. In fact, 20 (71 percent) were in business for more than 10 years. The many
years in business provided assurance that the survey participants brought enough depth of
experience to have faced and overcome challenges in securing capital for their firms.
Table 4.1.
Socio Demographic Profile of Survey Respondents
Questions Frequency Percent
Gender - n=28

Male 17 74%
Female 8 35%
Male and Female 3 13%
Owner's Age - n=28
22-34 2 7%
35-44 2 7%
45-54 12 43%
55-64 8 29%
65+ 4 14%
Education n=26

College Degree 13 50%
No College Degree 10 38%
Some College 9 35%
Age of Business n=28

0 to 3 2 7%
Questions Frequency Percent
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4 to 5 4 14%
6 to 10 2 7%
11 to 20 10 36%
21 to 30 4 14%
31+ 6 21%

Twenty (20) of the respondents answered the question about whether or not they had any
technical training prior to starting their businesses. Refer to Table 4.2. Ninety (90) percent
indicated that they did have technical training, including direct experience in the business they
later started, and extensive experience in the key business disciplines of management, business
administration, marketing and/or finance. Fourteen of 21 respondents (67 percent) indicated that
they grew up in a home where the family or close family friend owned a business. Of this
number, nine (64 percent) worked in the business, five (36 percent) did not. Although an
entrepreneur can begin in business by starting or buying a business, almost all of the participants
took the riskier path of starting their firms (93 percent). Only two of them purchased an existing
enterprise, which could likely have required substantial upfront capital. The lion’s share of the
survey participants (70 percent) indicated that this was their first business. It was also the only
business for 79 percent of them. The majority of these entrepreneurs (61 percent) had never
operated a business prior to starting their current business. On the other hand, 39 percent
brought significant experience, having operated between one and four prior businesses.
Table 4.2.
Background and Experience of Survey Respondents

Questions Frequency Percent
Technical Training Prior to Starting n=20
Technical Training 18 90%
No Technical Training 2 10%
From a Family Business - n=21

Family Business
No Family Business
14 67%
7 33%
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Family business experience - n=14

Worked in Family Business 9 64%
Did not Work in the Family Business 5 36%
How started in business - n=28

Started It 26 93%
Purchased it 2 7%
First Business - n=27
Yes 19 70%
No 8 30%
Only Business - n=28
Yes 22 79%
No 6 21%
# of businesses before this one - n=28

0 17 61%
1 6 21%
3 3 11%
4 2 7%

Most of the respondents answered the question on the strengths of their businesses (see
Table 4.3). As a group, they rated seven areas of excellence: 1) product or service quality, 2)
specialized expertise, 3) creativity, 4) quality of staff, 5) reputation, 6) customer service, and 7)
environmental friendliness. The areas that were most often identified as good included: 1)
selling price, 2) distribution channels, 3) customer service, 4) costs, 5) reputation, and 6)
environmental friendliness. The mean scores ranged from 3.63 for selling price to 4.48 for
customer service, where 1 equaled very poor and 5 equaled excellent. This analysis revealed the
strongest and the weakest focus areas for the companies. Table 4.4 aggregates the responses by
three categories: excellent, excellent/good, and moderate/poor/very poor. When examining the
data in this manner “excellent” ratings can be viewed as competitive advantages for the firms.
Only product/service quality and specialized expertise had 50 percent or more excellent scores.
Other close contenders were quality of staff and reputation which both scored 48 percent. When
a rating of “excellent” was paired with “good” all of the areas scored high marks.
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Table 4.3.

Strengths of the Business – Mean Scores

Mean
Scores
Selling price - n=27 3.63
Product or service Quality - n=28 4.36
Specialized Expertise - n=27 4.37
Creativity - n=27 4.26
Distribution Channels - n=25 3.72
Customer Service - n=27 4.48
Costs - n=27 3.93
Quality of Staff - n=27 4.22
Reputation - n=27 4.44

Table 4.4 illustrates the strongest and weakest focus areas of the companies:
Table 4.4.

Strengths of the Business
Strength Responses %
Selling Price - n=27

Excellent 3 11%
Excellent/Good 17 63%
Moderate/Not Good/Very Poor 10 37%
Product/Service Quality - n=28

Excellent 14 50%
Excellent/Good 25 89%
Moderate/Not Good/Very Poor 3 11%
Specialized Expertise - n=27

Excellent 14 52%
Excellent/Good 23 85%
Moderate/Not Good/Very Poor 4 15%
Creativity - n=27

Excellent 12 44%
Excellent/Good 22 81%
Moderate/Not Good/Very Poor 5 19%

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Strength Responses %
Distribution Channels - n=25

Excellent 5 20%
Excellent/Good 15 60%
Moderate/Not Good/Very Poor 10 40%
Customer Service - n=27

Excellent 12 44%
Excellent/Good 25 93%
Moderate/Not Good/Very Poor 2 7%
Costs - n=27

Excellent 4 15%
Excellent/Good 21 78%
Moderate/Not Good/Very Poor 6 22%
Quality of Staff – n=27
Excellent
Excellent/Good
Moderate/Not Good/Very Poor
13
21
6
48%
78%
22%
Reputation - n=27
Excellent 13 48%
Excellent/Good 26 96%
Moderate/Not Good/Very Poor 1 4%
Environmental Friendliness - n=26
Excellent 10 38%
Excellent/Good 20 77%
Moderate/Not Good/Very Poor 6 23%

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As per Table 4.5, the industries represented in the survey are dominated by construction
(24 percent) and professional services (20 percent). Others include retail (12 percent), and
technology (12 percent). The largest percentage of entrepreneurs (36 percent) service the public
as their main customers. The federal government (25 percent) and local government (18 percent)
followed. However, when I combine the two customer categories into a single category called
the public sector, it represents the largest customer base at forty three (43) percent. AAEs
providing goods and services to the public sector have cleared a different level of scrutiny in
their business affairs, beyond consumer acceptance of their products and services. Forty-eight
(48) percent of the respondents primarily serve local markets; 30 percent regional markets; and
44 percent national markets. When asked about their five-year business objectives, 56 percent of
the respondents indicated they planned to grow moderately or rapidly, while 31 percent planned
to sell the business, close it down or hand it to someone else.
Table 4.5.
Business Focus

Questions Frequency Percent
Industry - n=25

Construction 6 24%
Professional Services 5 20%
Transportation 2 8%
Retail 3 12%
Distribution 2 8%
Technology 3 12%
Real Estate 1 4%
Food Service 2 8%
Chemicals 1 4%
Main Customers - n=28

Direct to the public/consumers 10 36%
Federal government 7 25%
Local government 5 18%
Retailers and wholesalers 1 4%

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Questions Frequency Percent
Manufacturers 2 7%
Other 3 11%
Geographic Markets Served - n=27

Local markets 13 48%
Regional markets 8 30%
National markets 12 44%
5 year Business Objective - n=23

To expand moderately 7 30%
To grow rapidly 6 26%
To sell the business 3 13%
To close it down 2 9%
To hand on the business/succession 2 9%
To remain about the same size 1 4%
Other 2 9%

As per Table 4.6, the gross annual revenue of the companies ranged from less than
$99,999 to over $5.0 million. The largest single group in the study generated sales of $1 million
to $4.9 million, however, overall, the sample included 16 firms that were generating gross
revenue of greater than $500,000. The size of the respondents’ payroll ranged from less than
$99,999 per year to over $1 million. Nine of the entrepreneurs (35 percent) reported an annual
payroll of less than $99,999. Nineteen (19) percent run an annual payroll of $100,000 -
$249,000, and 35 percent have an annual payroll of $250,000 - $499,999. Two companies
generated payroll of $1 million to $4,999,999. Most of the companies employ between one and
five full-time employees (56 percent). Companies employing zero; six to nine; and 10 to 19
employees tallied at three, four and four, for 11 percent, 15 percent, and 15 percent, respectively.
Several of the companies in the survey also employ part-time employees. Thirty-seven (37)
percent support 1 to 5 employees; 30 percent have zero employees; seven percent have 10 to 19
employees, and four percent have 20 to 99 part-time employees. Twenty-six (26) entrepreneurs
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(93 percent) operate businesses that are structured as an S corporation, corporation or limited
liability company. Only two firms were structured as sole proprietorships.
Table 4.6.
Business Size

Questions Frequency Percent
Gross Annual Revenue - n=26

Less than $99,999 3 12%
$100,000 - $249,999 6 23%
$250,000 - $499,999 1 4%
$500,000 - $999,999 6 23%
$1 Million - $4,999,999 7 27%
$5 Million - $24,999,999 3 12%
Payroll - n=26

Less than $99,999 9 35%
$100,000 - $249,999 5 19%
$250,000 - $499,999 9 35%
$500,000 - $999,999 1 4%
$1 Million - $4,999,999 2 8%
FTEs - n=27

None 3 11%
1 to 5 15 56%
6 to 9 4 15%
10 to 19 4 15%
20 to 99 1 4%
PTEs - n=27

None 8 30%
1 to 5 10 37%
6 to 9 4 15%
10 to 19 2 7%
20 to 99 1 4%
Business Structure - n=28

Sole proprietorship 2 7%
Limited liability company 7 25%
S corporation 12 43%
Corporation 7 25%

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In sum, the sample population for the anonymous, online survey reflects a strong,
representative group of seasoned business owners from a range of industries, generating
significant revenue and enough tenure in business to provide important insights into the
challenges and workarounds that have kept them in business, most for over 10 years. The next
section describes the AAEs who participated in semi-structured interviews, and helped to
triangulate the data collected.
Qualitative Methods
Qualitative methods of research focus on the individual experiences of the subjects
studied. Creswell (2014) describes the philosophical thinking behind this method as providing
information that can be used to build theories. The small number of subjects that may be
interviewed in a qualitative study makes it useful not so much for its ability to generalize results,
but to identify themes that may be consistent across the experiences of others and later validated
through a larger quantitative sample.
Sarasvathy (2003) conducted research that explored the strategies that entrepreneurs face
when confronting challenges. Sarasvathy focused on “who they are—their traits, tastes and
abilities; what they know – their education, training, expertise and experience; and who they
know – their social and professional networks as the means of marshalling resources in the face
of constraints” (Sarasvathy, 2003, p. 5). I used this basic thinking to help decide the best way to
group some of the questions and how to think about the questions that would be meaningful in
my research.

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Using Sarasvathy’s basic framework I organized the questions to combine similar concepts
and ideas into categories that would facilitate a smooth flow of ideas during the interviews.
These categories included:
A. Personal Characteristics/Traits
B. Background and Experiences
C. The Beginning of the Journey
D. Company Information
E. Capital
F. Success/Failure
G. Financial and Support Networks
The qualitative portion of the research involved semi-structured interviews. The sample
consisted of individuals who agreed to participate in the study after being contacted by email or
telephone starting on April 26, 2017 and continuing through June 20, 2017. The respondents
were part of a list culled from several sources, including the database of the U.S. Small Business
Administration’s Dynamic Small Business Search, and a list of entrepreneurs provided through
the efforts and assistance of the Black Business Association of Los Angeles, the Gardena
Chamber of Commerce, he Greater Los Angeles African American Chamber of Commerce, and
the Portland African-American Chamber of Commerce. The majority of entrepreneurs in the
sample were from the SBA database which is available to the general public. This database is
comprised of small businesses across the United States. It is used by federal contracting officers
to identify small businesses as well as disadvantaged businesses interested in doing business with
the government. The database is extensive. Several filters were applied to the database, which
returned a list of 986 active companies in Los Angeles County.
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The database filters included the following: other minorities (other than Native
American); location in Los Angeles County; and revenue of at least $500,000. Of the 986
profiles that matched the specified criteria, I examined the records of 744 companies manually in
order to identify those companies that were owned by African-Americans. I conducted this
sorting process between March 3, 2017 and March 5, 2017, and again on March 20, 2017 in
order to recruit a significant number of potential entrepreneurs for my research. I continued this
process until I had 86 names on the master list of potential survey participants and
interview/focus group subjects. My objective was to create a list that would ultimately result in
the largest number of respondents to the online survey and at least 20 individuals who would
agree to more in-depth questioning. Another important objective was to produce a list sufficient
to cover the range of experiences of people likely to be in the population. This was my
“maximum variation” strategy.
In order to create a confidential process from the beginning of the study, the 86 names
were input into a matrix which included: name of owner, company name, address, telephone
number, and email address. For purposes of creating anonymity, each company was given a five
digit code ranging from 10220 to 10305. The matrix also served as the control sheet for
recruiting companies to participate in the study and consequently scheduling interviews. Thus
the matrix also included columns for date interview was scheduled, and date interview was
completed. If the owner declined to participate, the two columns were left blank.
This approach offered its own degree of confidentiality. First, the companies in the SBA
database were not presented in alphabetical order, but randomized. Second, the names were
input into the Confidential Interviewee Coding System sheet in sequential order. I then reached
out to the individuals on my list by sending multiple emails to all of them describing my research
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and asking them to click on the link to take the anonymous survey. I received only a few
responses through this effort. I then began calling the people on the list. I asked the individuals
I spoke with to take the survey and if they would allow me to interview them. Ultimately, 21
people agreed to be interviewed. Not all survey respondents completed an interview and not all
interview participants completed an anonymous survey, although several did. Because the
surveys were administered online anonymously I was not able to determine which of the
individuals interviewed also completed the survey.
The quantitative data was captured in four segments beginning in April 2017 and
concluding in January 2018, with the majority of responses collected by August 2017.The
qualitative sample consisted of individuals who volunteered to continue with the study after
completing the anonymous online questionnaire, and others who were contacted and asked to
participate. The President of the Black Business Association sent a letter initially, asking active
lenders to recommend entrepreneurs who fit the profile. This effort yielded a list of eight pre-
qualified entrepreneurs to interview.
Data collection. The 21 participants were then interviewed, with the expectation that if
the information began to be redundant with no new information being reported, I had reached the
saturation point (Douglas, 1976; Glaser and Strauss, 1967; Lincoln and Guba, 1995; Weiss,
1994). By the time I interviewed 20 participants the information was starting to overlap so I
stopped after 21. I collected qualitative data through individual interviews conducted face-to-face
and by telephone. Each interview was recorded and transcribed. The data were treated as
confidential and referenced without using the person’s name or company in order to provide the
highest level of trust. This approach encouraged the respondents to be open and honest with
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their answers. No potentially sensitive personal and company information was anticipated,
however I wanted to eliminate any latent concerns that might hinder the responses.
Semi-structured interview questions covered in-depth information about the
entrepreneurs, what they know, and who they know (Sarasvathy, 2003). The questions asked
about their motivation for going into business, how much capital they started with, how they
define success, and what unconventional and creative ways they employed to address financial
gaps when capital could not be accessed. I also asked open-ended questions of individuals in the
Financial Services Provider Ecosystem.
Data coding. For the qualitative data, all interviews were recorded. The interviews were
transcribed and then uploaded into Atlas.ti 7, a Computer Assisted Qualitative Analysis Software
(CAQAS) program. It was later upgraded to Atlas.ti 8. This program allowed me to code
passages in the transcripts to identify recurring themes and patterns that helped to shed light on
the research questions. Some of the responses were coded by answers to interview questions that
allowed me to examine similarities and differences in their responses. For example, a search for
the term “challenges,” highlighted 45 quotes from across the 21 African-American entrepreneurs
who were interviewed. All of the challenges identified in the responses, however, did not relate
to difficulties accessing capital. I was able to see this and identify the relevant quotes. I also
used other codes that were more specific, such as “banking relationship.” This query report for
this code included 35 quotations from the 21 African-American entrepreneurs. I created a total
of 85 different codes in order to examine the data in multiple ways.
Entrepreneurs. I conducted 21 semi-structured interviews with African-American
entrepreneurs. Appendix C: Interview Questions for Entrepreneurs provides the list of
questions that framed these conversations. However, because the survey was anonymous, I do
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not know how much overlap exists between the two data collection methods. For this reason, I
am treating the two data sets separately, particularly since the questions asked for different
information of the respondents. All of the AAEs interviewed in the study were promised
confidential treatment of their answers, such that no information is traceable back to the
individual entrepreneur or to his or her company.
Most of the AAEs in this group were males, and most had received some form of
financing in their businesses. Seventy-one (71) percent of the entrepreneurs interviewed were
males, 29 percent females. Seventy-six (76) percent of those surveyed indicated that they had
received some form of financing. The primary information collected from their answers are
provided in the findings for Research Question 1, provided in Chapter 5.
Financial services providers. I conducted 20 interviews with key members of the
financial services provider ecosystem, which included a broad range of representative
organizations providing some form of financial assistance to the entrepreneurs. Because the
nature of their involvement varied so greatly, I modified the questions depending on the type of
organization the interviewees represented. Appendix D: Interview Questions for Financial
Services Providers provides the questions that framed these interviews. Appendix E: Interview
Questions for Chamber of Commerce Representatives shares the questions asked of the business
associations that assist AAEs and advocate for their interests Appendix F: Interview Questions
for Business Consultants provides the questions asked of the participants who help AAEs
seeking capital for a fee. The participants in this part of the study were also promised
confidential treatment of their responses, such that this information could not be linked to them
personally or to their organizations, although in the interest of establishing the credibility of the
answers provided, I have listed the entities represented here.
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This sample included five bankers, four representatives of Chambers of Commerce, three
business consultants, two managers from Federal and State public agencies, three technical
assistance providers, and three CDFI representatives. Several of the participants wore multiple
hats, for example, as a former banker and current entrepreneur. In those cases, they were asked
two sets of questions related to the different perspectives. Figure 4.2 identifies the
representation in the sample.

Bankers  Sanwa Bank
 Bank of America
 Comerica Bank
 US Bank
 JP Morgan Chase
Chambers of
Commerce
 Black Business Association (BBA)
 Greater Los Angeles African American
Chamber of Commerce (GLAAACC)
 California Black Chamber of Commerce
 Gardena Chamber of Commerce
Federal and State
Agencies
 U.S. Small Business Administration
 California iBank
Technical Assistance
Providers
 PCR Small Business Development
Center
 Business Resource Group
 Vermont Slauson Economic
Development Corporation
Community
Development Financial
Institutions (CDFIs)
 Pacific Coast Regional
 Valley Economic Development
Corporation
 Nor Cal Finance Development Center
Business Consultants  Ken Harris
 Arman Walker
 Roberto Barragan
Figure 4.2. Organizations Represented in the Financial Services
Provider Ecosystem

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For purposes of this study, the roles each entity plays can be grouped into two primary
categories: 1) lenders and 2) facilitators. The lenders provide direct access to funds, and include
banks and CDFIs. The facilitators provide supportive products and/or services. Figure 4.3
presents the reordered list of interview participants. Some provide multiple functions and are
listed in both categories.

Lenders  Sanwa Bank
 Bank of America
 Comerica Bank
 US Bank
 JP Morgan Chase
 Pacific Coast Regional
 Valley Economic Development Corporation
 Nor Cal Finance Development Center
Facilitators  Black Business Association (BBA)
 Greater Los Angeles African American Chamber of
Commerce (GLAAACC)
 California Black Chamber of Commerce
 Gardena Chamber of Commerce
 U.S. Small Business Administration
 California iBank
 PCR Small Business Development Center
 Business Resource Center
 Vermont Slauson Economic Development Center
 Pacific Coast Regional
 Valley Economic Development Corporation
 Nor Cal Finance Development Center
 Ken Harris
 Arman Walker
 Roberto Barragan
Figure 4.3. Organizations Represented in the Financial Services Provider
Ecosystem – Lenders and Facilitators

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African-American entrepreneur participants. I created a study participant profile to
identify individuals who had achieved a measure of success in their businesses. The following
parameters framed the individuals who were interviewed:
-Individuals who head companies owned by African-Americans, as defined by 51 percent or
more ownership by African-Americans;
-African-Americans holding the position of president, owner, founder, or other top official of
the company;
-Main office or headquarters of the company located in Los Angeles County;
-Annual revenue of greater than $500,000 (this meets the Minority Business Development
Agency’s definition of a “high sales enterprise”); or
-Tenure in business of five years or more.
In their Frequently Asked Questions Fact Sheet, the U.S. Small Business Administration
charted the survival rates for a new business by year. Half reportedly fail within the first five
years, and roughly one third live through 10 years or more. My preference was to interview the
person who founded and operated the company rather than a general manager or other c-suite
company official. The rationale for this was that only the founding members would have the
breadth and depth of the experience shepherding their company from its nascent stage to
“success” while battling serious challenges trying to access capital.
I then opened each record retrieved through this process manually in order to identify the
firms that were owned by African-Americans.
Interview participants were selected from several sources, including the U.S. Small
Business Administration’s Search Database, referrals from individuals included in the study, and
those recruited at the 40
th
Anniversary Gala of Pacific Coast Regional Small Business
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Development Corporation, the California Black Chamber of Commerce Salute to Elected
Officials, and the Inner City Capital Connections Kickoff Breakfast for their 2017 class. The
participant profile used for the individuals recruited through these efforts included the following:
 they headed firms that were at least 51 percent owned by African-Americans;
 their firms were based in Los Angeles County;
 they were in business at least five years or had generated sales of at least $500,000.
Financial services provider ecosystem participants. The basic structure of financial
services and the organizations that facilitate access to capital for African-Americans in Los
Angeles County include banks, chambers of commerce and other business associations, federal,
state and county credit enhancement providers. These entities comprise the lending and resource
landscapes of Los Angeles County. Using recommendations from the Black Business
Association of Los Angeles and the Greater Los Angeles Area African American Chamber of
Commerce, I reached out to key leaders to capture information from those involved in the day-
to-day activity of providing and facilitating capital for small businesses, including African-
American businesses. Individuals were qualified as participants if they met at least one of the
following criteria:
 head of a business association with a focus on minority entrepreneurs or small business;
 head of a program that serves the capital needs of minority entrepreneurs, through direct
lending, credit enhancements, or technical assistance;
 a program head, loan officer, or high level relationship manager for a bank or non-
depository lender servicing small and minority-owned businesses.

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Chapter 5. Findings

Research Question 1
“How have African-American entrepreneurs in Los Angeles overcome the
challenges they faced in accessing capital to build their companies?”

The first part of Research Question 1 involves identifying the specific challenges faced
by study participants. The second part of Research Question 1 identifies strategies the
entrepreneurs used to overcome the challenges they faced. Below I have combined the results of
the interviews and the survey to identify nine challenges AAEs faced and how they overcame the
challenges in accessing capital to build their business. These findings are summarized in Figure
5.1 below.
Finding # Findings for Research Question 1
1 AAEs acknowledge the difficulty of raising capital yet keep
moving forward
2 AAEs expect positive growth for their businesses despite
challenges
3 AAEs avoid perceived unproductive/negative efforts to secure
financing
4 AAEs seek technical assistance, but not necessarily in raising
capital
5 AAEs risk personal assets for their businesses
6 AAEs use multiple capital instruments to meet their needs
7 AAEs use credit cards, sometimes at a significantly higher cost
8 AAEs rely on internal resources to support growth, often using
internal growth for capital
9 AAEs use multiple bootstrapping strategies, often very
aggressively, beginning with personal sacrifice
Figure 5.1. Summary of Findings for Research Question 1
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Survey Findings for Research Question 1
In this section I provide details on the nine findings culled from the anonymous surveys.
I also include excerpts from interviews with African-American entrepreneurs (AAEs) that offer
further support for these findings. The qualitative data proved useful in validating the findings of
the quantitative data, but also in generating additional findings pertinent to the lived experiences
of the entrepreneurs, discussed later in the chapter.
Finding 1: AAEs acknowledge the difficulty of raising capital yet keep moving
forward

The entrepreneurs surveyed in this study face numerous problems in accessing the capital
they need to operate and grow their businesses. The data provided in this section shows that they
continue to press forward despite these challenges. It is hard for African-American
entrepreneurs to get external financing either through debt or equity sources. All of the
entrepreneurs in this study indicated that they experienced challenges securing the capital they
needed for their businesses. Sixty three (63) percent also said they needed funds for their
businesses but were unable to find anyone to lend to them in the past five years. See Table 5.2.
Out of 26 entrepreneurs who reported on their experiences seeking external financing,
eight (31 percent) did not apply for a loan. Only three (12 percent) were approved. The
remaining entrepreneurs indicated that they were turned down for a loan due to: low credit score
(31 percent), lack of collateral (27 percent), or because the bank did not lend to their industry (23
percent). See Table 5.1.
Despite these challenges, the entrepreneurs registered significant tenure in business,
indicating that they continued to move forward as best they can. Seventy-eight percent of them
reported being in business more than five years, and 71 percent, more than 10 years (Table 5.1).
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Table 5.1.
Lending Experience

Questions Frequency Percent

Needed Funds/Unable to Find a Lender - n=27
Yes 17 63%
No 10 37%
Reasons given for turndown - n=26

I have not applied for any financing 8 31%
My credit score was too low 8 31%
I didn't have enough collateral 7 27%
They didn't lend to my industry 6 23%
Other. Please specify: 3 12%
I applied for financing and was approved 3 12%
I have no idea 1 4%
Age of Business n=28

0 to 3 2 7%
4 to 5 4 14%
6 to 10 2 7%
11 to 20 10 36%
21 to 30 4 14%
31+ 6 21%

Interviews with AAEs also illuminated evidence of difficulty raising capital. Their
stories express in detail the multidimensional aspects of the challenges they encountered. I
present their vignettes in no particular order or grouping, by design. The many dimensions and
depth of difficulties these AAEs faced reflect the randomness and pervasiveness of the
challenges.
Subject Eleven, for example, experienced difficulty at the beginning of the process, with
a lack of knowledge about where to start when she perceived, correctly or not, that the banks
were not lending. Subject Two experienced difficulties from a bank concerning a $1.5 million
credit line and eventually had to factor their receivables at a much higher cost.

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“My challenge was I didn’t know where to go get capital. The commercial bank wasn’t
lending. I kind of did my own thing and paid as I went. I would do hair, have work being
done on the salon at the same time. So as soon as you finished paying me to do your
hair, I would pay the contractor.” [Subject Eleven]
“. . . we were operating with that, with a million and a half line of credit, and we had a
lot of problems with them, and so, finally we had to go factor with [Name of Bank].
[Name of bank] wasn’t a good thing, because [Name of bank] was very expensive. But
[Name of bank] got their money from the lock box, and they factored our invoices for the
state much better than the bank was, and no questions asked, because the money was
going straight to the lock box and getting paid. They never argued about that, but the
thing about it is, factoring costs you a lot of money, it takes away your profit… It hurts
you.” [Subject Two]
Sometimes loan size is a major issue in accessing capital. It may be that the
entrepreneurs need more than what the bank is willing to lend, or they are shut out because the
minimum loan is much more than they need or could qualify for. Subject One expressed
confidence that his firm could get funding at one level, but not at the level required to purchase a
building, which would have been his ideal objective. And Subject Two expressed great
frustration at the fact that bank after bank refused to support a $500,000 line of credit. Their
minimums were $1.5 million.
“I’m confident that we would be able to get some kind of funding. But I’m not so
confident that we would get it at the level I would want. Because I would want to
purchase a building or something of that nature. That would be $3 or $4 million and I’m
not sure if we would be able to get that kind of financing.” [Subject One]

“Yes. It’s tough. You can’t get a regular bank loan now. They aren’t approving in here.
I’ve had [name of bank] in here, I’ve had all of them in here. And they’ve all said,
“We’re only lending a million and a half.” They’ve said, “If you can’t do that, we don’t
want [to extend you the credit]. But they have to make sure you do enough sales, if you
can pay it back, that you can qualify for their million and a half line of credit, or
whatever it is. And you never can. Myself, if I’m doing $5,000,000 a year, I can never
justify a million or two million line of credit. Some of them pay five million. You can’t
justify that. They’re not going to approve you for that.” [Subject Two]

Subject Thirteen shared the fact that after 10 years with the bank and deposits of
$200,000, he only recently could say he had a good banking relationship with his institution.
Prior to that point he knew people at the branch but could not secure a line of credit to support an
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upcoming large contract. Subject Seventeen expressed another view of more deeply entrenched
attitudes about the personal risk of extending a loan to an AAE. In his account of what happens,
the minute a Black person walks in the door the barriers go up, even if the banking official is also
African-American.
“I never really had a good banking relationship until recently. I was at [name of a
national banking chain]. To me, it’s a big bank that really doesn’t get on a personal
level. You might know a banker. You might know someone. But the organization as a
whole [is] not too personal. That’s been my experience with [name of bank]. Even after
banking with [name of bank] for ten years, and now I have maybe a couple of hundred
thousand dollars in the bank, I’d say, “I need a line, because I have some stuff coming
up, and I don’t want to spend this money. I want you guys to work with me.” They
turned me down.” [Subject Thirteen]
“Right white [applies] when it comes to business . . . there’s question marks from day
one when you walk in there. If I make this loan to this Black company, and something
happens to that loan, then, all of a sudden, I’m going to lose my job. Other people in our
society, it’s not that way. We are like that to ourselves. You call a Black guy over to
paint your house, and if he screws up, you say, “I’m not ever going to hire another Black
person in my life.” White guy comes over and paints the same house, if he screws up,
you go to the next company. You don’t see that ever happening to a white company.
[Subject Seventeen]

As banks have consolidated, past banking relationships that once helped entrepreneurs
access the capital they needed have gone away. Subject Fifteen experienced this situation in his
business, where the changing dynamic of how financial institutions make loan decisions
impacted his ability to access resources. He also recognized the benefit of Community
Development Financial Institutions (CDFIs) in the lending landscape to fill some of the lost
resources.
“For a minute, I had personal bankers. I had a lot of money in accounts, and made great
business. I didn’t have a problem getting a loan. In some years, I ran five million
dollars through my accounts. I didn’t have those issues. But then as it changed, and as
everything went from personal bankers to how the overall corporation of the bank
company itself ran things, all of that was lost. All of those personal relationships didn’t
matter anymore. It went back to credit scores, and things like that, not who you are. And
so, I lived through that scenario to now, you have companies that large banks and
corporations give money to, to lend to minorities.” [Subject Fifteen]

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Facing challenges securing capital resulted in low levels of start-up capital for many of
the AAEs in this study. This also meant they started with insufficient funding, a situation that
often compounds over time as the entrepreneurs struggle to make ends meet. Some of the
entrepreneurs did get funding from a family member or friend. These loans tended to be very
small. Subjects Three and Thirteen each started with the support of and a small amount of
funding from their mothers.
“So this is very interesting, because my business is a cash in and cash out. My terms are
typically net 30 that we receive payment, and we pay our people every week. Now you do
the math. How does that possibly work out? That doesn’t even jibe. I’m getting paid 30
on an invoice, I have four invoices out, and I’m paying a person every week. So, what
happened is, I didn’t have a line of credit when I first started. When I first started, I
actually took a $5,000 loan from my mom, and I took a loan out, $5000, from some kind
of insurance policy. So that’s not much money. When you think of my business, if I’m
putting engineers and technical people to work. It’s just a small amount to start.”
[Subject Three]

“I got a loan from my mom. She gave me a thousand dollars. She said, “Boy, you’d
better make this work, ‘cause I told you to go to school. Here you are asking me for a
thousand dollars so you could give it to these people so you could do . . . What are you
doing? Janitorial?” I said, “Yes, I’m doing janitorial, Mom.” That’s it. She gave me the
thousand dollars, and never looked back.” [Subject Thirteen]

Sometimes the entrepreneur was able to manage cash flow well enough by scheduling the
payment of invoices after receiving contract payments and by so doing mitigate the impacts of
limited working capital. This was a common strategy among AAEs who operate professional
services firms such as law firms or architectural firms and services firms such as janitorial,
insurance services or leasing services. However, as time went on and the demands grew, the
lack of sufficient capital began to take its toll on the business. Subject Ten shared her experience
in this area. When Subject Sixteen had limited capital, he relied on his ability to negotiate terms
that helped reduce the amount of external capital needed to conduct his business.

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“When I started it, we put together some money, and because we were working on a time
and material basis, and we were hiring independent contractors, we managed to get
through that pretty easily. But you find out as time goes on, and you’re growing your
business, and there’s things that happen that you don’t have enough capital. But I
managed without getting a loan, putting more money into it myself when I needed to, and
I still do that now.” [Subject Ten]

“The advantage I had was I came out of the finance industry. I used to work for one of
the largest financial companies in the world, on Wall Street, for a couple of years. One of
the things that I learned, and that was when I was financing equipment for these big
companies, was that it’s a credit economy. If you can pay your bills, you can get some
credit. What I was able to do, in most cases, is to align my jobs with the terms that I
could get from the manufacturers of the equipment. For example, if I could order a piece
of equipment from the manufacturer, they gave me a 60 day payment term. I would try to
get a 35 to 40 day turnaround from my customer, so they paid me [so] I’d be able to pay
the manufacturer.” [Subject Sixteen]

For some, the difficulties raising capital do not let up despite good credit scores, cash in
the bank, large contracts with government agencies, and a solid reputation. Such is the case for
Subject Thirteen and Subject Twenty. Both met the basic criteria for a line of credit and a loan,
but were turned down in some cases, or in others, were forced to pay more than they should
have.
“It’s still difficult. If you find it, sometimes you have to pay more for it than you probably
really should have to. Or sometimes you just can’t get it. That’s how it is. I don’t know,
because I haven’t found a stream where somebody knows I’ve been in business for 30
years. We started in 1985, 86. But still, I’ve been doing this all this time, and I have
monies in the bank. I don’t owe taxes. I don’t owe child support, and all this stuff, and
everybody’s OK, and we’re doing our job—and still, I can’t make a phone call and say,
“I’ve had a new contract come up. I need $250,000.” I can’t do it. I have to scrounge.
So I scrounge for a hundred over here, maybe a hundred over there. You know what I
mean? It’s that type of thing. It’s frustrating, especially when I know that there’s people
out there that do have a stream.” [Subject Thirteen]

“What I know now is that if they want to loan you some money, they will. If they don’t,
they’re going to find everything adverse to keep them from doing it. I learned that from
the first loan that I got. There was no reason, at all, for those people not to loan me that
money. None. I had an impeccable credit record. But they didn’t want to loan it to me.
That’s what it was. They didn’t want to. That’s the lesson that I learned. If they want to
loan it to you, they will. If they don’t, they won’t. You just have to keep going, from the
next one into the next one, and on to the next one, and keep the aggressiveness, like I did
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about my business, toward my finances. Just keep going after it, and keep going after it,
until somebody loans you some money.” [Subject Twenty]

A big challenge includes the practice of including the owner’s credit score in the loan
evaluation process. The owner’s score is often negatively impacted by efforts to survive the
challenges of not having enough capital. This was a big deal for Subject Seventeen, who
experienced challenges on his entrepreneurial journey and expressed the fact that the credit
scores of CEOs of major corporations do not factor in company financing decisions.
“When you evaluate the credit profile of a small business, you should not include the
ownership in terms of your making your decision in terms of whether or not you’re going
to make a loan to that business. That business should stand on its own. If the business
does not have cash flow, then you don’t loan them money. But if the business does have
cash flow to show that there’s enough liquidity in that system to debt service the amount
they’re asking for, they shouldn’t be declined on that loan because of their personal
credit scores. That’s what’s happening, too. The owners of the business’s credit score
should not be included or considered as far as making that particular business a loan.
The same criteria that goes to the large businesses. They don’t ever go to the CEO and
ask the CEO to put up their financial statements.” [Subject Seventeen]

Subject Sixteen indicated that he had encountered racism in his business, but dismissed
its impact as one of many factors that have to be overcome, not as a deterrent to success.
“Sure, I’ve suffered some racism. I’m from [Name of Southern state], so I already know
what it is. I don’t have to be up close and personal. But I just didn’t spend too much
time on that. I just knew what it was, so I just tried and find different ways to get my
results. Because, that’s something that will be with us forever. I don’t use it as a reason
not to succeed, though.” [Subject Sixteen]

It is clear from the data that African-American entrepreneurs struggle to access the
capital their businesses need in order to survive and thrive—whether they meet qualifications for
funding or not. To acquire the capital they need they are turning to family and friends, drawing
on personal resources, negotiating favorable deals, or relying on their ingenuity. They continue
to strive for success despite these challenges.

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Finding 2: AAEs expect positive growth for their businesses despite challenges
The entrepreneurs in the study are generally an optimistic group. The majority of them
indicated that they expect their businesses to grow over the next two years. Seventy-six (76)
percent of the survey respondents expressed favorable expectations for their businesses. When
asked about the outlook for growth over the next two years, 86 percent indicated that they expect
it to hold steady or go up at least slightly, despite also indicating that they faced challenges
securing the capital they needed (Table 5.2). Fourteen (14) percent expected their business
growth to go down.
Table 5.2.
Expected Business Growth n=28

Expected Growth
# of
Responses

Percent
Will go down 4 14%
Will hold steady 3 11%
Will go up slightly 4 14%
Will go up 17 61%

Likewise, when asked about their primary business objectives over the next five years, 54
percent reported plans to expand moderately or grow rapidly (Table 5.3). Another 36 percent
believed their businesses contained sufficient value to warrant continuation by selling it or
handing it on in a succession plan, a decision undoubtedly related to the age of the entrepreneur.
Table 5.3.
Primary Business Objective n=28

Objective
# of
Responses

Percent
To expand moderately 7 25%
To grow rapidly 8 29%
To sell the business 7 25%
To close it down 2 7%
To hand on the business/succession 3 11%
To remain about the same size 1 4%
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Respondents from the interviews also expressed optimism. Nearly 86 percent considered
their businesses successful, although not all of them defined success in financial terms. Fifty-
seven (57) percent defined success in non-financial terms, another 9.5 percent in both non-
financial and financial terms. This suggests that money is not the only motivating factor for 66.6
percent of the AAEs who were interviewed.
It is clear from the data that the entrepreneurs take a positive view of the future prospects
and value of their businesses, regardless of the challenges. They maintain an optimistic view of
the possibilities and define success in terms that keep them hopeful even as they face difficulties
securing capital.
Finding 3: AAEs avoid perceived unproductive/negative efforts to secure financing

The entrepreneurs demonstrate a widespread reluctance to apply for funding, as seen by
the survey results and interviewee comments. Past experiences seem to have jaded the
entrepreneurs when it comes to seeking external capital. I draw this conclusion because,
although generally optimistic about future growth prospects for their businesses, the
entrepreneurs were not optimistic about receiving external financing to fuel this growth. Seventy
seven (77) percent reported they had decided not to apply for a loan for fear they would be
declined. When asked why they felt that way, the entrepreneurs cited past experiences, self-
assessment of qualifications, and that they were told by bankers that one or more factors (such as
lack of collateral, low credit score, their age, too many overdrafts, and business losses) would
disqualify them.
Twenty-six (26) entrepreneurs also reported on their efforts to secure a loan. While a
number of them (31 percent) did not apply, a few (12 percent) applied for and succeeded in
getting a loan. The remaining entrepreneurs received turndowns for lack of collateral, low credit
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scores, or because the bank did not lend to their industries. Incidentally, these were the same
reasons others chose not to apply in the first place, suggesting their decisions were warranted.
Overall perceptions of the level of service and lack of responsiveness received from
banks also influenced the entrepreneurs’ thoughts about whether or not to bother to apply for a
loan. When asked to rank the financing institutions on how well they served the needs of the
African-American business community, the entrepreneurs shed additional light on past
experiences. Their answers also gave a glimpse of how positive or negative they felt about the
various financial institutions (Table 5.5). They ranked small community banks #1; credit unions
#2; non-traditional lenders #5; large banks #3; and credit cards #4.
Table 5.4.
Decided against applying for a loan for fear of decline n=22
Decision # of
Respondents
Percent
Yes 17 77%
No 5 23%

Closely related to the financial institution ranking, was the question that asked them to
rate the services and finance offerings they received. Tables 5.5 and 5.6 present their responses.
Table 5.5 presents the ranking of financial institutions by service to African-Americans. Table
5.6 shows that large banks received ratings split between good and moderate (.54) and poor and
very poor (.47), with no one giving them an excellent rating. Small community banks received
combined scores on excellent, good or moderate of .64 and .35 for poor and very poor. The
respondents rated credit unions as excellent, good, or moderate .88 and very poor .13. Non-
traditional lenders received average scores of excellent, good or moderate .81, and .13 for poor.
Credit cards received a combined rating of excellent, good or moderate .79, and .21 rated for
poor or very poor.
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Table 5.5.
Average ranking of financial institutions by service to African-American
businesses n=13

Type of Institution Ranking

#1 #2 #3 #4 #5
Small community banks .38

.08 .08 .15
Credit unions

.46 .08 .15

Large banks

.08 .31

.15
Credit cards .08 .15 .15 .31

Non-traditional lenders .08 .08 .15 .38

Table 5.6.
Average rating of financial institutions by service to the African-American Business
Community
Excellent Good Moderate Poor Very Poor
Large Bank n=19 0 0.32 0.21 0.26 0.21
Small Community Bank n=14 0.14 0.43 0.07 0.14 0.21
Credit Union n=8 0.25 0.38 0.25 0 0.13
Non-Traditional Lenders n=11 0.36 0.18 0.27 0.18 0
Credit Cards n=14 0.07 0.36 0.36 0.14 0.07

The interviews allowed me to capture details about decisions made to avoid applying for
a loan. Some based it on past experiences, some on what they heard from others who had been
declined for a loan themselves, and some on third hand information about the process and
prospects for success.
Subject Eleven, admitted that she needed additional capital, but chose not to pursue it
based on a perception that banks were not lending. She counted herself out before trying.
“I needed [external capital], yes. I didn’t reach out to get it. The only thing that I knew
was commercial banks, and I also knew that commercial banks weren’t lending, so I
never even bothered to ask them. So I did everything right, but I knew that, at the time
when I needed it the most, I didn’t have what they expected to get credit. I had borrowed
money and bought two cars, paid them off in good standing. I had a couple of time
shares that I had bought that were in good standing. But the stories about commercial
lending were so scary, I never even tried it. It was like the Big Bad Wolf. Don’t bother,
because they’re going to decline you, and who wants to be told, “no”? [Subject Eleven]

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Past experiences with questionable motives by the bank and disappointing outcomes have
created lack of trust for some AAEs who have approached lenders with hopeful expectations.
Subject Seventeen provided the private and sometimes proprietary information the banks
requested in the name of the loan review process, only to be turned down or not given a response
at all. After several similar experiences he chose to avoid them altogether. Subject Eighteen
shared the same scenario in his efforts to secure financing.
“Every time I go to a bank, they want me to tell them what I do. Then, at the last minute,
they decline. I’ve stopped doing that. What was happening was, when you reveal
everything about your business to a third party, hoping that they make you a loan, if they
don’t make you a loan, they still have all your information. They go down the street and
give it to their friend and finance them, and then, all of a sudden, you see that product
come up in the market. I decided to stop doing that.” [Subject Seventeen]

“They ask for all your information, you know. Let me see this, let me see that. Let me see
this, let me see that. And when it came down to decision time, nothing occurred. They
were [saying], “We decided not to do it,” or they don’t even call back. That’s it.”
[Subject Eighteen]

Clearly, enough examples of their peers being turned down for loans, personal
experiences attempting to get a loan, and perceptions about the general non-responsiveness of
large banks to the needs of the African-American business community have caused them to
avoid efforts to seek bank funding. New approaches to communicating information about loan
programs and what it takes to qualify must replace current methods. This will help alleviate the
deep-seated pessimism in the institutions.
Finding 4: AAEs seek technical assistance, but not necessarily in raising capital

The entrepreneurs indicated that they have sought beneficial technical assistance on a
number of different topics. Although they expressed the need for capital, the data presented
below shows that they do not seek technical assistance in raising capital in large numbers.
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Twenty five (25) of the entrepreneurs reported that they had received some form of
technical assistance that they considered beneficial (Table 5.7). Most often this assistance
covered topics in marketing and management. Despite the fact that all of them indicated they
faced challenges securing capital, only eight (32%) reported that they received technical
assistance in raising capital.
Table 5.7.
Beneficial technical assistance received n=25
Type of Assistance # of Responses
Percent
Marketing

Finding new markets 12 48%
Introducing new products or services 7 28%
Improving existing products or services 9 36%
Increasing sales 9 36%
Management

Improving management skills 10 40%
Improving skills 10 40%
Improving contacts 6 24%
Improving overall capacity 6 24%
Business recovery 3 12%
Reducing costs 3 12%
Improving supply chain operations 5 20%
Personal

Increasing confidence 6 24%
Finance

Raising capital 8 32%
Miscellaneous

Environmental legislation 1 4%
None 1 4%

The interviews helped reveal some details about the experiences the entrepreneurs are
having in their efforts to get the technical assistance they need. Subject Six described the current
delivery system as “learning in pieces.” Her challenge was how to gain competent knowledge
in small bursts that take four years to learn in school, at the same time the pressure is on to apply
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new, limited knowledge in an ongoing business. Subject Thirteen commented on the benefit of
the information provided by the Small Business Administration (SBA).
“That was the problem that I had going to these business development centers. You
might take a class on marketing, but, if you’re getting your marketing, you still don’t
know what to do with your finances at the same time. You’re learning in pieces. But I’m
operating a business. I’m not in school, where I have a four year period to learn all of
this. No, my livelihood, how my kids eat, depends on this business, and I’m getting it in
little tiny pieces at a time. So by the time I’d mastered that piece, the other pieces are in
jeopardy. An then you go with that piece that you learned, and you’re attacking these
pieces that are in jeopardy, and everything that you’ve learned is not utilized, because
you weren’t able to utilize it at the same time.” [Subject Six]
“I would say SBA had been good. SBA has been good as a whole. Even early on, when I
wasn’t even really vetted for the SBA or anything like that, I went to the SBA and they
always hand outs and pamphlets, stuff to try and give you some kind of guidance. Then I
would take that information and just kind of kick the can farther down the road. Honestly,
they have been a constant.” [Subject Thirteen]

The big takeaway from this finding is that the entrepreneurs clearly value and seek out
technical assistance, but not so much in raising capital. They gravitate towards areas that could
potentially increase their sales revenue and management, to enhance their skills in leading their
enterprises. With so many of them expressing challenges securing capital, skepticism and
mistrust about the ultimate outcome of the efforts seem to be putting the brakes on not only
applying for loans, but also in seeking technical assistance in raising capital, the companion
piece to that effort. Clearly a wide gap exists in technical assistance that truly results in
acquiring capital. This suggests that the courses may need to be revisited in content and
promotion to fit the entrepreneurs’ needs.
Finding 5: AAEs risk personal assets for their businesses
The survey revealed that the entrepreneurs put their personal assets at risk in order to
support their businesses. This section presents the data and stories of what happens when they
do this.
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The entrepreneurs who did receive external financing generally had to put their personal
assets at risk as a secondary source of repayment (Table 5.8). This took the form of pledging
non-business real estate, using personal savings or pensions, or borrowing from family and
friends. Eight entrepreneurs indicated that they took out second mortgage or refinanced their
homes to provide funds for their businesses. The impact of doing so was positive for some and
negative for others. They reported impacts that included a $1000 increase in their mortgage; that
it saved their business; that it increased awareness of the personal risk of default; that it was not
good; and that it provided resources to pay off high credit card balances due to unmet personal
needs from not getting a salary.
Twenty eight (28) percent have pledged non-business real estate to back up a loan. Their
experiences also included positive and negative impacts. The entrepreneurs who reported
positive results indicated that it helped boost their confidence that the business would grow and
succeed and that doing so allowed them to receive a bank loan. The negative impacts were both
financial and personal, including: losing the property; a sad experience; and that it caused
domestic distress.
Twelve entrepreneurs (50 percent) reported that they provided a personal guarantee to
back a loan or other credit facility. For some of them, this experience lowered payments. For
others, it caused personal angst in the family and concern that the risk of doing so linked all
personal assets to the credit.

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Table 5.8.
Personal assets used to obtain a loan

Asset
# of
Responses

Percent
Security used - n=16

Business property 5 31%
Accounts receivable 7 44%
Personal or business credit cards 5 31%
Personal savings 3 19%
Personal property 4 25%
Inventory/assets 3 19%
Business savings 2 13%
Took out a second mortgage - n=24

Yes 8 33%
No 16 67%
Pledged non-business real estate - n=25

Yes 7 28%
No 18 72%
Gave a personal guarantee - n=24

Yes 12 50%
No 12 50%

The interviews shed light on these findings. Sometimes securing the loan with personal
assets helped strengthen the business. Sometimes it produced dire consequences on the personal
financial position of the entrepreneur and on the business. Things do not always go as planned
as Subject Five discovered when he backed up a loan with cash. In this case, the bank
representative was in the process of completing an SBA loan that would have replaced the loan
on the books. However, the bank failed and having issued the $100,000 loan, recovered the loan
by seizing the cash collateral.
“I’ll give you a $100,000 loan, but you have a CD in [name of bank].” They wanted me
to move it. I moved it, and she gave me another $100,000. Secure cash by cash. It was
my CD. Then she said, after that, she applied for a loan for me, it was SBA (Small
Business Administration). The bank went out of business. The loan closed. They took
my $100,000. I was giving her the note as a guarantee, but it was compensation until the
SBA loan clears. When the SBA loan came through, it was going to pay off the $100,000.
That was our arrangement. But midway, things changed. I was without a line of credit,
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and I lost my $100,000 CD. Actually, I didn’t lose it. They took it away. Then, no bank
would loan . . . that was a rough time. I had a lot of money that I owed.” [Subject Five]
Subject Two described what happens when the first round of financing encumbers your
personal residence. The next level of growth requires additional financing, however, the
property is already backing up another loan and there is no available equity to collateralize the
next phase of growth. Subject Five contributed more than $600,000 of personal resources to
support his business, not to mention the ongoing sacrifice of not taking a salary.
“They wanted collateral. My house, I had already given it up [for collateral] to [name of
bank]. I couldn’t give it to anybody else. There was no room on there, for that. And so,
I wanted to give the real estate that I had out of state. They said, “No, we can’t take any
out of state real estate. It has to be in the state. You’re sucked in. Because you’ve
already used that [your personal resources]. You can’t use that again. You have to pay
that whole loan off. Get it free, unencumbered. To come back. You don’t have time to
do all that. You need the money now. You all have a game going here. But they
wouldn’t do it. Now, white boys don’t have that problem. They get loans. How they get
them, I don’t know. But they get loans.” [Subject Two]
“I went through a lot. I had to cash my life insurance. . . It was a bottomless pit. In all,
about $600,000 of my own money. Borrowed money from here, borrowed money from
there. If I would have invested that—the money that I invested in this company—I would
have been a multimillionaire. But that’s the Monday morning quarterback.” [Subject
Five]
Subject Seventeen witnessed his credit score decline after using personal assets to meet
business obligations. His frustration centered on not having the financial backing or family
wealth that would make going into business easier.
“A lot of small businesses have a problem because we have to pull everything out of our
personal side to keep the business going. After we do that, our personal credit FICO
score goes down, and that’s their justification for not making us the loan… It’s a little
easier to get into the business world if you’ve got financial backing. What we’ve had to
do is rely on banks. The money was not in our families.” [Subject Seventeen]

The need for more capital as a business begins to grow can often pressure owners to
contribute more and more personal resources to fill funding gaps. This was the case for Subject
Ten who learned she did not have enough capital as her business grew. Subject Nineteen,
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however, found himself contributing substantial personal resources in order to maintain control
and independence.
“When I started it, we put together some money, and because we were working on a time
and material basis, and we were hiring independent contractors, we managed to get
through that pretty easily. But you find out as time goes on, and you’re growing your
business, and there’s things that happen that you don’t have enough capital. But I
managed without getting a loan, putting more money into it myself when I needed to, and
I still do that now.” [Subject Ten]

“They want to have a say so… and I guess I’m too independent to subject myself to that
sort of thing. So I just did not go out and seek a lot of outside capital. In retrospect, that
might have been a mistake, because when the recession hit, all the money that was lost
was mine. Hmmmm.” [Subject Nineteen]
The information shared by the entrepreneurs shows that they often risk considerable
personal resources to support the survival and growth of their businesses. This takes many
different forms, including: using their savings and pensions, placing a second on or refinancing
their residences, borrowing from family members and friends and giving personal guarantees.
Sometimes they do so as leverage to secure external financing, sometimes to avoid it and
maintain full control of their businesses. Doing so sometimes helps the business and sometimes
leads to reversals of fortunes.
Finding 6: AAEs use multiple capital instruments to meet their needs
The entrepreneurs find it necessary to use multiple capital instruments to meet the needs
of their business. This section presents the data on the methods they use.
Twenty-eight (28) entrepreneurs provided information on the types of financing
used during their tenures in business (Table 5.9). Given a list of 18 possible choices, the
combined answers resulted in 97 occurrences, for an average of 3.46 instruments per
entrepreneur. The spread ranged from a minimum of one to a maximum of eight. The top five
instruments used included: #1 personal credit cards (64 percent); #2 savings (46 percent); #3
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friends/family (32 percent); #4 company credit cards (32 percent); and #5 retained profit (25
percent).
Table 5.9.
Financing used during your time in business n=28

Type of Financing
# of
Responses

Percent
Personal credit card(s) 18 64%
Savings 13 46%
Friends/family 9 32%
Company credit card 9 32%
Retained profit 7 25%
Pension 5 18%
Secured bank loan 5 18%
Small business loan guarantee 5 18%
Second mortgage 3 11%
Bank overdraft 4 14%
Financial factoring 5 18%
Unsecured bank loan 4 14%
Business angel 3 11%
Supplier credit 3 11%
Second job 1 4%
Financial leasing 2 7%
Government guaranteed loans 1 4%
Government grants 1 4%

The following examples highlight the pressure the entrepreneurs face in addressing
natural funding gaps that occur as a business grows and weathers seasonal factors. They pull
together multiple sources. Subject Five describes getting money from the people closest to him.
Subject Ten listed loans, lines of credit and factoring, and shared that the bank took back the line
of credit after his business showed a loss. Subject Twelve explained the importance of leveraging
a relationship with the SBA to identify and maintain multiple sources of financing.

146

“Borrow money from family members. Borrow money from friends. Borrow my own.
And then again, do you know sub financing? [Subject Five]

“The first time I got a loan, we were in a deficit, and we needed to get the cash, and we
got it, and we paid the loan back. We’ve done some factoring. We’ve done a lot of
things. We have a line of credit, and we had a loss, and the bank basically takes your
line of credit back, and does other things. The capital thing is always a big issue.”
[Subject Ten]

“They said no. They said, “We can’t do it, because you don’t fit the criteria—this, that,
and the other. So I said, OK. Too bad.” Then I started going to the SBA. The SBA
steered me to [name of another bank]. At [name of bank], I met a banker who was more
friendly, more of an individual who explained to me how the banking really goes.
Really, they can do what they want to do. If you’re the bank manager, if you’re the loan
officer, and you feel good about a particular business, you can suggest, “I believe in
these people. I believe in this company. Even though the paperwork doesn’t exactly
show they’re a good [candidate].” You’ll get help like that. He was able to help me, by
doing that, like I just explained to you. Then he helped me some, and then at one time, he
couldn’t help me. So I went to the SBA again, and then they had some SBA lenders who
will help you on the SBA just on the strength, but they’re going to charge you more for it.
Once you learn all that, then you realize you need multiple avenues of getting money.
That’s where we are now. Right now, we’re starting up three, four contracts all at the
same time. For me, it’s pretty big because these contracts are million-dollar contracts.
I’m starting them all up at the same time, where in the past, I’ve always started one, and
then three months later, started another, like that. Now, we have so many starting at
once that we’re scrounging for money. To answer your question, I think it’s to have
multiple options. That’s the key. You have to have options. And it’s still good just to
know people who have money.” [Subject Twelve]

It is clear from the data that the entrepreneurs have blended together multiple sources of
financing to address the ongoing needs of their businesses, a practice that is not uncommon for
any small business to survive. They approach family members and friends, use personal and
business credit cards, inject life into their business from their savings. Some of the potential
forms of financing they use come with negative consequences, ranging from high costs, to
creating more problems for them. But given the circumstances they face, these may be their only
alternatives. More information needs to be available to them about the full breadth of financing
options, their pros and cons and how to access them.

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Finding 7: AAEs use credit cards, sometimes at a significantly higher cost
Credit card financing emerged as the single most widely used funding instrument for the
entrepreneurs in the survey. Sixty four (64) percent use personal credit cards for their businesses
and 32 percent use company credit cards. The balances on these cards ranged from zero, for
entrepreneurs who use credit cards and pay the full balance each month, to more than $25,000.
As seen in Table 5.10, almost half (45 percent), carry a small balance of less than $10,000.
Interest rates on the credit cards ranged from less than 10 percent (40 percent) to more than 20
percent (7 percent). In comparison, variable interest rates for an SBA loan could range between
1.5 and 3.75 percent over prime (6.0 to 8.25 percent).
Table 5.10.
Credit card balances and interest rates

# of
Responses

Percent
Credit card balances - n=22

Carry a balance of more than $25,000 4 18%
Carry a balance of $10,000 - $24,999 3 14%
Carry a balance of less than $10,000 10 45%
Pay off your credit card bill each month 2 9%
Don't use credit cards 3 14%
Interest rates - n=15

Less than 10% 6 40%
10% - 14% 4 27%
15% - 19% 4 27%
20% or more 1 7%

Although I did not ask the entrepreneurs interviewed in this study about their use of
credit cards, Subject Twenty-One shared his strategy for leveraging credit card use as a free
source of short term financing for his business.
“[Bank 1] and [Bank 2]are my two financial institutions both personally and
professionally. I know how to float money. I know they’re disappointed. I realized when
American Express might cut off on the 29th of every month. My VP of Finance, clearly
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understands she is to drop all things on the 29th because what it does is it allows me to
carry for 60 days without paying the bill.” [Subject Twenty-One]

The data clearly show a heavy reliance on credit cards by the AAEs. They generally
carry relatively low balances and 61 percent have interest rates of between 10 and 20 percent,
higher than what they could potentially get if a loan were possible. Of course, the AAEs who pay
off their cards every month pay little or no interest on the funds used.
Finding 8: AAEs rely on internal resources to support business development, often
using internal growth capital

In the absence of external capital, the entrepreneurs look inward at the resources
generated in and through the activities of their businesses. This section presents the data on this
finding (Table 5.11). Some entrepreneurs chose to grow organically, preferring to avoid
external financing. Others were forced to look to internal resources because external funding
was not an option for them. In the absence of access to external capital, entrepreneurs rely
heavily on internal growth for the capital they need to fuel expansion. Resources generated
inside their businesses include: earnings of the business (35 percent); vendor credit (23 percent);
and selling/pledging accounts receivable (12 percent).
Table 5.11.
Types of financing used last 12 months n=26

Type
# of
Respondents

Percent
Credit cards 12 46%
Earnings of the business 9 35%
Vendor credit 6 23%
Revolving line of credit from a bank 4 15%
Private loan (friends or family) 4 15%
Bank loan 2 8%
Leasing 3 12%
Selling/pledging accounts receivable 3 12%
Other. 2 8%
Used no financing 3 12%
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The entrepreneurs in the interview cohort shared experiences using external resources.
Their stories highlight how they leveraged resources within their businesses to support their
capital needs. Subject One choose to forego costly expenses that could potentially grow and
enhance his business in exchange for the slower growth method of using internal resources.
Subject Six sold her product from the trunk of her car rather than leasing a brick and mortar
location. Subjects Nineteen and Twenty preferred to use internally generated funds, partly
because it preserved autonomy and partly because they were risk averse.
“Well, everything is done within our resources. With business development, I could
spend easily $30,000 to develop some sort of promotion of [Name of Business], but we
don’t have $30,000 to improve our website, to produce a slick brochure, or to do some
press releases. So we bootstrap it. We fix up the brochure we have, we polish it up, we
try to polish up our website ourselves, we do all of that with our own internal resources.
We promote ourselves, and it is not done at a good level, but the alternative is to spend
$20,000 to $30,000, which we don’t have. Also, in recruitment. We struggle mightily, but
we’re not alone in this market, to recruit senior staff. The best way to do that is to go
through an executive recruitment firm. You’d probably have to spend $30 grand to get
the executive, senior level staff we would be looking for. And so, we don’t want to do
that. So we use our own recruitment methods which are not netting us the results we are
looking for as well.” [Subject One]

“Well, I started selling the product in the back of my car, just selling at the farmer’s
market. We just barely self-funded our growth.” [Subject Six]

“We didn’t really seek a lot of external capital. We just grew our company based on
internally generated capital and the profits from the deals we made. I guess I’ve been the
kind of person that didn’t want to have to report to a bunch of investors. I really did not
seek outside capital. We did get one or two investors who remain passive. Any time you
go out and seek capital, then you typically have investors who don’t want to be passive,
particularly in real estate deals. When I first got started, it was much more difficult to
find passive investors.” [Subject Nineteen]

“I never really got loans from outside. I always grew my business with the revenues that
I earned from the business, which kind of kept me in line. You couldn’t go too far,
because you didn’t have revenues to do it. By self-funding, I was able to hamper my
growth to my funding. When you go out and get a loan, now you have to conform at a
certain level, because you have to pay off this loan. If you’re self-funding, you can grow
your business based on the income that you have coming in. That was my strategy. I
would grow my business based on my income, rather than going out and getting a loan to
front load it, and then try to catch up.” [Subject Twenty]
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The data clearly points to the fact that using internal resources represents a viable strategy
when external funding is difficult to secure as well as when it is not desired. This includes
resources at their disposal because the business is operational, such as vendor credit, and cash
reserves when the business is generating profits.
Finding 9: AAEs use multiple bootstrapping strategies, often very aggressively,
beginning with personal sacrifice

This section presents the multiple bootstrapping strategies used to patch financing gaps
when traditional external financing is not available. I have separated bootstrapping as a strategy
from the use of internal resources because it is highlighted in the literature as a particular
category of response that includes lots of forms of addressing financing gaps. Sometimes
bootstrapping pushes the envelope beyond customary business practices when the entrepreneur is
backed against the wall facing major threats to the firm’s survival. Examples would include
temporarily holding off payments to taxing agencies and incurring interest and penalties, or
temporarily delaying payments to vendors in order to meet payroll.
Twelve (12) entrepreneurs reported using bootstrapping strategies to address capital
shortfalls. Sometimes utilized as a last resort option, temporarily or for longer periods, the
entrepreneurs tapped into a large number of these guerilla tactics. They used an average of four
strategies, ranging from a low of one and a high of 19. It appears that when entrepreneurs must
resort to these tactics, the biggest losers are owners/managers or entrepreneurs and suppliers who
must forego their salaries or wait to be paid. Table 5.12 provides the results.

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Table 5.12.
Bootstrapping Strategies Used to Keep the Business Going
6 Withhold owner's/manager's salary for some time
5 Deliberately delayed payments to suppliers
3 Shared premises with other businesses
3 Obtained loans and contributions from family and friends
2 Sought out the best conditions possible with suppliers
2 Occasionally hired personnel for a shorter period instead of employing permanently
2 Contributed capital via other projects the owner got paid in
2 Used manager's private credit card for business expenses
1 Bought on consignment from suppliers
1 Minimized inventory
1 Offered customers discounts if paying in cash, in order to get paid earlier
1 Deliberately chose customers who pay quickly
1 Used float to meet short term cash shortages
1 Got payments in advance from customers
1 Employed relatives and or friends with non-market salary
1 Ran the business completely from the home
2 Raised capital from a factoring company
2 Bought used equipment instead of new
2 Allowed checks to be returned to buy additional time to pay
2 Used bank overdrafts as a means of financing cash flow gaps
2 Leased equipment from a leasing company
1 Shared equipment with other businesses
1 Carried out barter instead of buying products/services
1 Used employee withholdings to meet cash shortages
1 Coordinated purchases with other businesses
1 Borrowed equipment or machinery

After establishing the initial frequencies, I performed two data reductions to analyze the
reported information for important takeaways (Table 5.13). The first grouped the bootstrapping
responses into three categories of possible actions: 1) actions involving a personal sacrifice; 2)
actions within the existing business network; and 3) actions within the existing personal network.

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Table 5.13.
Bootstrapping Strategies 1st Reduction
Personal Sacrifice -11
6 Withhold owner's/manager's salary for some time
2 Contributed capital via other projects the owner got paid in
2 Used manager's private credit card for business expenses
1 Ran the business completely from the home

Owner Action Within Existing Business Structure - 18
5 Deliberately delayed payments to suppliers
2 Sought out the best conditions possible with suppliers
1 Bought on consignment from suppliers
1 Minimized inventory
1 Offered customers discounts if paying in cash, in order to get paid earlier
1 Deliberately chose customers who pay quickly
3 Shared premises with other businesses
2 Occasionally hired personnel for a shorter period instead of employing permanently
1 Used float to meet short term cash shortages
1 Got payments in advance from customers

Owner Action Within Existing Personal Network - 4
3 Obtained loans and contributions from family and friends
1 Employed relatives and or friends with non-market salary

This analysis shows that the majority of strategies employed fall within the
entrepreneur’s existing business network. Eighteen of the strategies identified by participants
were connected to current suppliers, customers or employees.
The second data reduction looked at the actions that were within the entrepreneurs’ direct
or indirect control. Strategies that were within the owner’s direct control involved actions the
owner took (or could possibly take) without asking for permission. Actions within the
entrepreneurs’ indirect control were those that involved agreement or permission by someone
else before they could be executed. Table 5.14 presents the responses in the final categories.
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The entrepreneurs took actions within their direct control more often than those within their
indirect control. These actions necessarily represent the strategies that could be implemented the
fastest when facing a financial crisis.
Table 5.14.
Bootstrapping Strategies 2nd Reduction
Owner Action - Direct Control - 21
6 Withhold owner's/manager's salary for some time
2 Contributed capital via other projects the owner got paid in
2 Used manager's private credit card for business expenses
1 Ran the business completely from the home
5 Deliberately delayed payments to suppliers
1 Minimized inventory
1 Deliberately chose customers who pay quickly
2 Occasionally hired personnel for a shorter period instead of employing permanently
1 Used float to meet short term cash shortages

Owner Action - Indirect Control - 12
2 Sought out the best conditions possible with suppliers
1 Bought on consignment from suppliers
1 Offered customers discounts if paying in cash, in order to get paid earlier
3 Shared premises with other businesses
1 Got payments in advance from customers
3 Obtained loans and contributions from family and friends
1 Employed relatives and or friends with non-market salary

Analysis of the qualitative data revealed that many AAEs relied on bootstrapping tactics
as a frequently used workaround. Seventy six percent (76) indicated that they used
bootstrapping in their businesses.

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Table 5.15.
Used Bootstrapping

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid 1 4.8 4.8 4.8
N 3 14.3 14.3 19.0
N/A 1 4.8 4.8 23.8
Y 16 76.2 76.2 100.0

Total 21 100.0 100.0

The following stories from the interviews describe how the entrepreneurs bootstrapped
their firms in order to keep moving forward despite encountering challenges securing the capital
they needed. Subject Sixteen started his business in his home, with an answering service to keep
overhead at minimal levels. Subjects Three and Five negotiated favorable terms which allowed
them to time their receivables and payables in their favor. Subject Ten laid off workers and
temporarily reduced the number of staff hours worked.
“I started my business in one of my bedrooms at home, so I didn’t have any initial
overhead. I took one of my bedrooms, converted it to an office for the first couple of
years, and I had an answering service that answered the phones for me, a live one, of
course. And so you wouldn’t know where you were. You wouldn’t know it was some guy
working out of his house. All those things—you had to be frugal, and you had to be
creative in terms of how you’re going to get through this.” [Subject Sixteen]

“…then just had my receivables come in faster. I just worked real hard on the street.
Instead of getting my receivables in 30, I was getting them in five and ten days. And
that’s what kept us going.” [Subject Two]
“But I was able, in a couple of instances, to negotiate better terms to increase cash flow.
In business, cash isn’t king, terms are king. Terms are king. You’ve got to negotiate
great terms to manage and float your business. If you’ve got cash going out every week,
you’ve got to have cash coming in. So that’s why I say terms are king, and not cash. So I
had the fortune of negotiating a couple of contracts so that, instead of 30, I was able to
get them at 15.” [Subject Three]

“Our business, it’s an ARAP (accounts receivable, accounts payable) business. They
extend us 30 days, 60 days. We need chemicals. Our source of working capital is
vendors. The vendors, they carry us. If it weren’t for the vendors, we’d be dead. And
155

vendors, they now . . . you know, no matter how much cash you have, if your vendor
doesn’t support you, you’ll be out of business.” [Subject Five]

“You have to cut. You have to look at your expenses, and you have to cut your expenses.
You may have to lay off people. One of the things that we did when we were really
running very tight is that we cut back on employees’ hours. We cut them from 40 to 32
hours, with a goal not to lay everybody off but to keep everybody working, because we
knew that, at some point in time, the volume of the business would go back up, the
revenue would go back up, and we’d be able to bring everybody back on for 40 hours.
That’s been one of my key strategies.” [Subject Ten]
Bootstrapping strategies clearly offer entrepreneurs some relief when financial gaps
occur, if used wisely. Not all strategies are created equal. Some fix immediate gaps and put the
business in harm’s way. Some make practical sense as a temporary solution when seasonal
factors, downturns in business, or other factors increase financial pressures.
Qualitative Data Findings for Research Question 1
I identified eight more findings from the interviews. This section shares these findings,
beginning with a summary in Figure 5.2 below.

Finding #

Finding
10 AAEs face challenges raising capital at every stage of
the business life cycle but have the same resolve to
succeed
11 AAEs understand that relationships matter in business,
and banking relationships in particular, for accessing
capital
12 AAEs are resilient, expressing the view that quitting is
not an option in the face of adversity
13 AAEs define business success in non-financial as well as
financial terms
Figure 5.2. Qualitative Data Findings – Entrepreneurs

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Finding #

Finding
14 AAEs are driven by a higher purpose to excel as they
confront challenges, barriers, and setbacks, emphasizing
a strong spiritual grounding
15 AAEs acknowledge the impact of race, but do not agree
on whether being an African-American is more positive
or more negative concerning their business
16 AAEs list personal characteristics as strengths almost as
much as skills in business disciplines
17 AAEs give to others and to their community in multiple
ways
Figure 5.2. Qualitative Data Findings – Entrepreneurs
Finding 10: AAEs face challenges raising capital at every stage of the business life
cycle but have the same resolve to succeed
Intuitively, one would assume that the more experienced a firm is and the greater the
level of sales, the easier it would become to secure the capital they need to grow their businesses.
The data does not support this assumption. Instead, the stories tell quite a different reality. The
following data and quotes reveal that the challenges of raising capital persist throughout the
business life cycle, as the requirements continue to allude AAEs, like a moving target. However,
they continue to persist.
Table 5.16 provides the summary of responses from the 21 AAEs asked whether or not
they had applied for a loan and been unsuccessful. For this group, just 38.1 percent had been
unsuccessful. More than sixty-one (61.9) percent had either not applied for or been successful in
receiving financing. When asked if securing financing had gotten easier as the firm grew, 57.1
percent indicated that it had not gotten easier. Only 14.3 percent indicated that it had (Table
5.17).

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Table 5.16.
Unsuccessful Loan Attempt
Frequency Percent Valid
Percent
Cumulative
Percent
Valid N 13 61.9 61.9 61.9
Y 8 38.1 38.1 100.0

Total 21 100.0 100.0

Table 5.17.
Ease of Financing as Firm Grows
Frequency Percent Valid
Percent
Cumulative
Percent
Valid N 12 57.1 57.1 57.1
N/A 4 19.0 19.0 76.2
Y 3 14.3 14.3 90.5
Y/N 2 9.5 9.5 100.0
Total 21 100.0 100.0

In response to a similar question on whether or not the business became more bankable as
it grew, 42.9 percent indicated that their business had not become more bankable (Table 5.18).
Despite their continued challenges, 85.7 percent of the AAEs interviewed expressed the
sentiment that their business was successful (Table 5.19). From this data I draw the conclusion
that the belief that the business is successful provides the hope they need to keep going.

Table 5.18.
More Bankable as Firm Grows

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid 1 4.8 4.8 4.8
N 9 42.9 42.9 47.6
N/A 4 19.0 19.0 66.7
Y 7 33.3 33.3 100.0
Total 21 100.0 100.0

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Table 5.19.
Considered Business Successful

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid

2 9.5 9.5 9.5
N 1 4.8 4.8 14.3
Y 18 85.7 85.7 100.0
Total 21 100.0 100.0

The interviewees’ stories reveal frustration over the challenges that persist because their
credit scores have been adversely effected by financial challenges in their business, and because
bank support has proved so elusive. Subject Seventeen indicated he approached many banks that
turned him down. He surmised that some degree of racism was involved.
“I’ve gone to about a hundred banks, and they say the same thing. A lot of it is racism.
A lot of it is the fact that our society really doesn’t necessarily want to see Black people
with technology. But if you look at the last 100 inventions in this country, 50 of them
were done by African-Americans, but they worked for companies like Ford, GM, [so] that
everything they developed or produced, it became the ownership of the company. You
have to sign those non-disclosure agreements. Meaning that, if you produce anything on
their time, they own it.” [Subject Seventeen]

Sometimes the AAEs ran into situations where the bank reneged on an informal
commitment. Such is the case with Subject Twenty, who suffered a bait and switch move by the
bank when he successfully won a bid to acquire a critical piece of equipment to start his business.
“I went to the bank, and they assured me they would loan me the $35,000. When I won
the bid, however, I went back to the bank [and they] said they were not going to loan me
the money. Actually, they said the only way they would lend me the money is if I had a
million dollar net worth.” [Subject Twenty]

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Subject Sixteen lamented the non-personal nature of banking these days and his
experience being turned down by a computer.
“I know that at these higher-level people, these bankers have dinner and pick clients.
But I think for the most part, for small business, [banking relationships don’t] exist
anymore because everything is so computerized. They put your scores into the computer,
and it pops out “yes” or “no” and you get credit. There’s no interaction between the
person and the banker, so they don’t really get to know your business. You can’t sit
down with them and explain all this stuff. It’s just, “The computer said ‘no.’” [Subject
Sixteen]

The challenges include mistrust of the financing institutions that promise support, but
place insurmountable requirements in the path of approvals. Subject Six encountered this
situation in her efforts to secure a loan. Subject Ten, on the other hand, expressed the difficulties
that arise when the business suffers a loss and cannot get the bridge financing that a credit line
offers.
“I don’t give a damn what they say—they all say it—“Oh, you don’t have to have . . . We
don’t look at your credit score. It doesn’t have to be a high credit score. That’s why
we’re here.” They are all lying. Because if you don’t have it, and they approve it, you
still have to get a guarantor. Well, who’s going to do that, nowadays? You have to have
that credit score. That is the barrier.” [Subject Six]

“[Getting a line of credit] depends on the finances, what happened the year before. It’s
always more difficult to get money when you’ve had a loss. It’s almost impossible. If
you show a loss, if you don’t show you made money on your tax returns, nobody’s going
to give you money. Period. End of sentence. They’re not doing it. I can say I’ve been
successful in obtaining financing, but sometimes, like I said, if you have a bad year, the
bank looks at you under a microscope, constantly. Even our mortgage—every year, they
want to see our financials, they want to see what we’re going, they want to see our
personal financials, it is really, super-duper invasive.” [Subject Ten].

In sum, there is considerable evidence from the data that three gaps in funding for
African-American firms exist: those at the birthing and nascent stage, those at the high-
growth/high sales stage, and every stage in between. The lack of avenues for both has directly
impeded start-up rates and severely hindered the success of large AAE firms. Yet, none of the
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resistance proved strong enough to cause the AAEs to abandon their dream of successful
business ownership.
Finding 11: AAEs understand that relationships matter in business, and banking
relationships in particular, for accessing capital

Over and over one hears about the importance of establishing a banking relationship. In
this age of computer algorithms deciding loan decisions, consolidation of banks and centralized
review outside of the branches, how important is a banking relationship? To get at this answer, I
asked the AAEs if a relationship helped them get a loan (Table 5.20). Their responses supported
the importance of having a banking relationship, but the relationships that brought them to the
point of securing capital were not always limited to banks. Across the population interviewed,
66.7 percent said that a relationship help them get a loan.

Table 5.20.
Relationship Helped Get a Loan

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid

1 4.8 4.8 4.8
N 1 4.8 4.8 9.5
N/A 5 23.8 23.8 33.3
Y 14 66.7 66.7 100.0
Total 21 100.0 100.0

The stories from the interviews reveal a host of relationships of all types in business, and
banking relationships in particular. Among the sentiments expressed were: thoughts about the
significance of relationships; determination on the AAEs’ part to live up to their commitment to
the person who provided financial support or a very strong trust element in the relationship
(Subject Five); opportunities to mutually support projects (Subject Fifteen); and the recognition
that people do business with people (Subject Thirteen).
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“Let me tell you, I wouldn’t default[on] investments. Because of the personal trust.
Honestly, to tell you the truth, I would say, “Those are my friends.” This is [name of
bank] money, and I’m still part of [name of bank]. I wouldn’t default. [Subject Five]

“Relatives [are helpful relationships]. People who I’ve worked with, or believed in their
projects, and then they come back and believe in mine. We can both even be in the same
business, but in different areas of the country or the world. It makes it easy as well.
For me, it’s like this. I have projects that require investments, and I have work, where
me as a consulting firm now, will work on projects so that I have some type of monies
coming in. So I can kind of semi-fund myself to a certain degree. Then I have other
friends and partners who may have similar projects, or who will come in, if I can explain
it to them and make it worth their while, then they can come in, too.” [Subject Fifteen]
“…I found out early that people do business with people. A business is a structure, but,
ultimately, it’s connections, contacts, and relationships. When I started working from
that standpoint, then I stated realizing that everybody has different personalities, and life
experiences, and backgrounds that they carry with them. They come from that
standpoint.” [Subject Thirteen]

In contrast to discrimination against AAEs by white bankers, Subject Seventeen revealed
that a form of black on black discrimination also occurs which makes securing funds even more
challenging.
“For example, when you go to a Black banker in a white environment, she’s got other
things that she’s talking about. If I make this loan to this Black company and they go
belly up, it’s going to make me look bad. They take it personal. Then, if they make a
loan to you, and it goes belly up, they’re going to think it’s another Black person doing it
to them. But, in all fairness to that banker, their associates, if one does go belly up, a lot
of times they think, oh, they’re on the buddy system, because that company was a Black
company. The Black banker doesn’t go to the white banker and say, “Oh, you made a
loan to a company, and it didn’t go well because you made a loan to a white company.”
A lot of those underlying issues, that shouldn’t be part of the equation, they are part of
the equation.” [Subject Seventeen]

Closely related to maintaining strong relationships in business is the process of
developing an ever growing network of individuals and organizations that can assist in sharing
information about available programs for financing and technical assistance, encouragement, and
identifying individuals with specific expertise. Subject Eight emphasized the importance of
networking in business as well as social settings. For Subject Ten, the key relationship was with
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one of the organizations that helps AAEs secure financing. Subject Nine added that longevity in
relationships mattered.
“Network. To build a personal relationship with folks. A personal relationship helps.
Join social groups. You learn to play golf. Tennis. Active in your church. When people
know who you are, they’re more willing to open up and tell you what is happening. They
won’t open up to strangers. Most of the people I get money from [are] based on
relationships. They are people that I talk, that I play golf with. I tell them, “I’m doing
this project, or that project. Do you know anyone you can hook me up with, who can give
me a sweetheart loan?” They say, “Oh sure, yeah. Call [Name].” It’s from
relationships. 95% of my [borrowing] is based on relationships.” [Subject Eight]
“Probably both the times I got loans were through relationships, either through [name of
agency] . . . I think the first time I got a loan, it was with the support of the [name of
agency]. The second time was through [name], who owns a company that is committed
to helping find financing for minority-owned businesses. She helped orchestrate getting
the line of credit and a loan for us.” [Subject Ten]

“And the only way that I was able to put this together was because I was in banking and I
had relationships. Everything about this place is about a relationship that I have had
over the years. Long standing relationships.“ [Subject Nine]

The opposite of a strong banking relationship was a non-existent relationship, where the
bank only handles banking transactions without providing other kinds of assistance to support
the business. This was the situation for Subject Five.
“It’s only a depositor relationship. [Name of bank], it’s a bad bank. Big banks are not
interested in small business. If I had to, I would change my relationship with a small
bank, like [name of bank]. The small community bank. Of course, there are no
community banks. The Korean banks . . . the problem is they are a one branch bank.”
[Subject Five]
Clearly the data indicates that relationships play a critical role in business and in securing
capital, despite perceptions that the era of relationship lending has passed. The AAEs in our
study shared stories of relationships being involved directly and indirectly in the decisions that
resulted in successful loans. Important relationships exist on the individual and organizational
level and can be nurtured through professional, business, and social settings. For AAEs, tapping
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into networks that can result in personal relationships is critical. Without question, this data
shows the significant role relationships play in securing capital.
Finding 12: AAEs are resilient, expressing the view that quitting is not an option in
the face of adversity

The AAEs interviewed in this study demonstrated resilience by virtue of their decisions
not to quit in the face of a myriad of difficulties, not the least of which was securing needed
capital. This section presents evidence of their postures towards quitting, with examples of
experiences that back their declarations that quitting is not in their DNA. This is a substantial
finding because it speaks of a certain type of leadership that I assert must be required for AAEs.
Bennis and Thomas (2018) spoke of a form of leadership, called “true leadership” that arises
based on how one processes adversity. “The skills required to conquer adversity and emerge
stronger and more committed than ever are the same ones that make for extraordinary leaders”
(Bennis and Thomas, 2018, p.9).
Of the 21 AAEs interviewed, the overwhelming majority indicated that they never
considered quitting (76.2 percent). Five (23.8 percent) considered quitting, however, this did not
result in actual quitting (Table 5.21). What this says is that 100 percent of the AAEs continued
to operate their businesses in the face of financial challenges and other issues that make
operating a business hard.
Table 5.21
Considered Quitting

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid N 16 76.2 76.2 76.2
Y 5 23.8 23.8 100.0
Total 21 100.0 100.0

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Several of the AAEs said that quitting was not in their DNA. Their words are presented
in the following paragraphs in which they share, to a person, that something in them will not let
them give up until they have exhausted all avenues.
“No, that’s just not in my DNA. I don’t recognize . . . if it’s time to do it, I would do it,
but I’m just saying that I need to exhaust all my remedies and avenues before I come to a
conclusion like that.” [Subject Sixteen]
“Yeah, I don’t know. I’m a retired military officer. We don’t quit. That’s not in our
DNA.” [Subject Eighteen]
“No. It’s not part of my DNA. I’m not that kind of guy.” [Subject Eight]
“I think that’s a personal trait. You just can’t give up. When you stop, then you fail. As
long as you continue to do, you’re still in business. I could have said, a number of times,
and believe me, there were some difficult times, I could have said “I’m just going to
quit.” But my persistence, in getting up every morning, putting my suit on, going to the
office and doing whatever I could do, that’s the way to make it happen. That’s the
solution. That’s the solution to moving forward—never quitting. It’s just like swimming.
Every time you stop stroking, you’re going to sink. I always just keep stroking.
Sometimes, it felt like a fruitless stroke. Sometimes, it didn’t feel like I was stroking for
something. It felt like I was just stroking in [word not clear]. But I was still stroking. I
think that’s what people have to do. They just have to keep going, and not quit. [Subject
Twenty]
Subject Six expressed a personal commitment to being a positive example.
“Aw, man, I feel [that] most [give up too soon]. And, to your question that you asked
earlier, I think inside that fire [is] within me because I do want to be an example. As a
single mother, especially, and as a Black woman, especially, that it can be done.”
[Subject Six]
Subject Thirteen indicated that he felt the pressure to quit, took a break, and went back at
it. His comment provided insight into the level of commitment required on the African-
American entrepreneurial journey. Sometimes it can overwhelm.
“Yes, I’ve had experiences like that. Where I’ve almost quit, and quit personally. I still
was working, I still had people working, and after a little hiatus, a little time off, I’d get
back in it. But there have been times, I’ve shut down, [said to myself] I can’t do this. I
don’t know what I’m going to do, but I can’t do this anymore. I might have to go get a
job. I didn’t do it, but I still came close to it.” [Subject Thirteen]

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Finding 13: AAEs define business success in non-financial as well as in financial
terms
This section reports on the AAEs’ responses to the question of how they define success.
This was an interesting question because I wanted to understand their personal views on the
results they had achieved so far. The question allowed them to step back and consider why they
wanted to be in business in the first place. It bore no connection to how others evaluated the
success of the business, including bankers and other stakeholders. After I asked about their
definition of success, I asked if they believed their business was successful, and as indicated
above (Table 5.20), 85.7 percent considered their business successful.
Their success definitions ranged from being able to meet their bills and cover their
personal needs, to being a positive role model, providing good jobs for their employees, and
offering excellent goods and services. As indicated above (Table 5.7), I grouped their responses
into two categories: 1) those that were financial, such as generating a profit, securing market
share, or meeting financial obligations, and 2) those that were non-financial, e.g. providing good
jobs, offering quality goods and services to the markets they served, or serving as role models for
their community. The results were skewed towards those who defined success in their business
in non-financial terms (57.1 percent). Thirty-three (33 percent) defined it in financial terms and
9.5 percent both.
The interviews offered further insights on various definitions of success. Subject Eleven
defined it in financial terms related to paying bills and personal needs. Subject Twelve, defined
it in terms of providing the highest quality standards in the goods and services the business sells.
“I measure success by being able to pay the overhead for the salon and still have money
in the bank to take care of my personal needs. Then I know that the business is being
successfully run, because there is a profit being made. That would answer the question—
how do I measure it—because if I’m in business and I’m not making enough money to
take care of me or to put in my personal bank account, if all the money is going back into
the business every time, then that’s not a successful business.” [Subject Eleven]
166

“Success is getting our products and services out there with high quality standards, high
integrity. That’s success for me. I won’t do anything that is not ethical [just] because it
makes money. I’ll walk away. I’ve done it so many times. Success to me is to wake up in
the morning, and not have to look over my shoulder and not have to worry about who I
have here or work there… It has to be something positive for all involved, and I’ve had
that for the most part. You should have this with some of the people that provide the
capital.” [Subject Eighteen]

Finding 14: AAEs are driven by a higher purpose to excel as they confront
challenges, barriers, and setbacks, emphasizing a strong spiritual grounding
The AAEs reported being driven by a higher purpose that not only keeps them pushing
past difficulties, but motivates them to excel. What keeps the AAEs moving forward when
challenged or facing adversity in their businesses? The first part of this section provides
summary data on their answers to several questions about the first time they thought about
owning a business (Table 5.22), the motivation for going into business (Table 5.24) and the
impetus for taking the entrepreneurial leap (Table 5.25). The second part of this section some of
their stories clarifying the higher purposes that drive them.
The vast majority of AAEs considered going into business for the first time when they
were adults (76.2 percent), but a small percentage first dreamed of business ownership when they
were children (23.8 percent). Most of them were also intrinsically motivated to go into business
(76.2 percent) and took the leap for intrinsic versus extrinsic reasons (61.9 percent).

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Table 5.22

First Thought of Owning a Business - n=21

Frequency Percent
Adult 16 76.2
Child 5 23.8
Total 21 100.0
Motivation For Going Into Business - n=21

Frequency Percent
Extrinsic 5 23.8
Intrinsic 16 76.2
Total 21 100.0
Catalyst For Going Into Business - n=21

Frequency Percent
Extrinsic 8 38.1
Intrinsic 13 61.9
Total 21 100.0

The AAEs described giving jobs to young people.

“The thing I see is that … when you are in a position to do good work, meaning helping
people that wouldn’t ordinarily seek help, that’s really gratifying. So I’m not just thinking
about me. I’m thinking about some of the young people that I could give a job to or my
daughter who works for me. Someone else that … a couple of people that I’ve promoted
out in the desert when I work out there. So there’s some satisfaction that comes with
being in a position to make a difference.” [Subject Seven]
“You know I’ve never wanted to be rich. That’s not my goal. If you keep your goal as
you being a positive person, be a good person and always thank God for whatever you
get…and I’ve always been thankful for the success I get and give thanks for the day. You
put Jesus first. You know what I’m saying? You always say thank you for this, thank you
for this. You know, count your blessings. And pretty much, that’s what I’ve always done.
God’s been good to me.” [Subject Twelve]

Most often the higher purpose they pointed to related to their spirituality. Table 5.23
shows that, out of 21 respondents to this question, only one indicated he was not driven by a
higher purpose. Nearly 67 percent attributed this higher purpose to a spiritual reason. This
important theme is echoed in the following excerpts by Subjects Six, Fifteen, Thirteen, Twelve,
Nine, Ten and Eleven but expressed by many others. They share their own experiences in their
168

own words, but in one accord credit God for helping them persist and achieve success in
business.
Table 5.23.
Higher Purpose
Frequency Percent
Valid
Percent
Cumulative
Percent
Valid N 1 4.8 4.8 4.8
Y 6 28.6 28.6 33.3
Y-Spir 14 66.7 66.7 100.0
Total 21 100.0 100.0

“I’m very God centered, and so I’ve eliminated probably about 95% of the distractions in
my life, in my world, in people around me. I have created such a focus, and my
motivation is my spirituality. I get filled up from that.” [Subject Six]

“It’s my belief in God. My faith that God has me at every turn, and he always has had
me. Every time, when stuff doesn’t look like it’s going in the right direction—it can look
like it’s going in the worst direction—but God always comes through. Not at that
particular moment, but I know that it’s coming again, where I know I’m going to be back
up, or even better than what I was. Doing better. So it’s my faith in God.” [Subject
Fifteen]

“Ultimately, I am aware that God is in control. It may not be something that everybody
wants to hear, or something that everybody would expect in this environment, but I feel
like it comes from God. I feel like, no matter what, I’m going to be all right. If I make my
move with the understanding that I feel like I’m doing the right thing, I pray about it, I do
what I think is the right thing, and after that, however it falls, it falls. That helps [to give]
me some peace. It’s not money-driven. I’ve had lots of money, and I’ve had no money at
all. And been in between two or three times. Because the money, it comes and goes. I
look at it like it’s not to be put away and horded. It’s not for that. It’s not for me,
anyway. I want to make sure I have the basics, but after that, I don’t need millions and
millions and millions. I don’t need that. So I try to take care of the people that helped
me. I try to make sure everybody’s OK how they come out. I’m not going to take on any
more than that, because that’s comfortable for me. “ [Subject Thirteen]

“I’ve been to the points I’ve been like… I felt… like it was so hard at times. It’s been
hard. But when I wake up and look around and I look at other people and other situations
and I say it’s been hard but it’s been fair. God’s been good to me. So, I just keep on
pushing. I can say let’s suck it up and get it done. You know there’s always going to be
times in your life when you figure it’s just not going to happen but if you stay in constant
and keep your relationship with God. You’ll always be able to say it’s going to be okay
because God … He took me this far; he’s not going to let me fail now. You know what I’m
169

saying? That’s the way I live my life. God’s been good to me. I don’t worry about it. I’m
at the age now that I don’t worry about anything. God’s been good to me. He’s been
very, very good to me. So I don’t fear … at this age I don’t fear … I would pretty much
say I could work another 15-20 years if I want to. That’s just the way I feel about it.”
[Subject Twelve]

“Prayer. And I’m not lying. You do have to be centered, you have to be still, because
those things are noise. So, if you don’t know the direction you need to go in, if you don’t
sit down and allow that overarching, in your mind and in your sight, you can’t really . . .
you don’t really know the direction. I’m a believer, so you won’t know the direction that
God will have you to go in.” [Subject Nine]
“It’s about faith, so when I have a challenge, I pray about it. Sometimes, I can’t sleep at
night, I am praying about it. God always answers prayer. He may not answer it the way
I want him to answer it, but [it] basically gives me the strength to keep on, to keep facing
the challenges, to keep beating them back. My ultimate motto has always been . . . If you
look at the first interview I ever did with me about business, I said, “Failure is not an
option.” I just absolutely refuse to be a failure.’ Girl, this is what I’m going to call
“Faith.” Because I really believe it. It’s my faith that drives me. I don’t know what else
would make anybody want to keep going through the ups and the downs at my age. My
husband and I say “Age is relative, because it’s nothing but a number,” but it still is the
number that it is.” [Subject Ten]

“Surrounding myself with people that are going to encourage me to stay engaged. Don’t
give up. You’ve been doing it this long. But you have to say that anything that I give,
when I’m in a situation that I need, there’s someone around me who will give it back to
me. Who will remind me [what the] word of God says. Don’t give up. Trust in God’s
word that He won’t leave you, won’t forsake you. And He gives and He takes it away.
Stories about Job, and some of the other people in the Bible that went through hard
times. Trouble doesn’t last, so just hold on. That was one of the things that taught me to
just trust God, that he’s going to always provide, always make a way, there’s always
friends to push. That’s the only thing that kept me going. Period.” [Subject Eleven]

It is clear from the preponderance of evidence that the AAEs place a heavy emphasis on
their spiritual connection to God. This occurs when facing a myriad of financial and other
challenges. They pray, trust in God’s word, appreciate the positive things in their lives and they
carry on.

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Finding 15: AAEs acknowledge the impact of race, but do not agree on whether
being an African-American is more positive or more negative concerning their
business

Ninety (90) percent of the AAEs answered the question about whether or not they were
treated differently because of their race. It was generally acknowledged as a factor, however, a
few indicated that the impact was positive while most felt it was negative. Table 5.24 below
provides the distribution of whether or not they were treated differently. In subsequent
paragraphs the AAEs share their stories.
Table 5.24
Treated Differently Because They Were African-American

Frequency

Percent
Valid
Percent
Cumulative
Percent
Valid N 4 19.0 19.0 19.0
N/A 2 9.5 9.5 28.6
Y 15 71.4 71.4 100.0
Total 21 100.0 100.0

Subject Eight did not believe that he was hindered by being Black as he raised capital for
development projects, demonstrating the diversity of thinking and experiences among the
participants. Subject Twelve made it a practice to change his voice and speech when conducting
business to disguise his race and when in person, to pass as an employee rather than the owner of
the company. Subject Sixteen expressed that the impact of race was negative, in that his efforts
to secure financing consistently resulted in declines. Subject Eleven focused on the negative
attitudes of family members and friends who questioned the decision to go into business and
were not able to provide support. Subject Fifteen attributed the negative label to the fact that
African-Americans do not control the resources to be in positions to provide financing to
companies that need it.
171

“I never considered being Black is going to hinder me. I have never gotten to the point
where I have to go beg anybody for loans. The partners, they come to me to invest
money. To insure my safety, to insure my freedom, I don’t go around taking money from
anybody. I discriminate who I associate myself with in terms of capital. It has [little to
do] with me being Black or not. I don’t see being Black as a hindrance to my ability to
move forward. Because I know many creative ways to raise money.” [Subject Eight]
“Well, I was in a restaurant one time, you know, and what happens is I get called over
there and I talk different. I’m talking shit. When I talk to a business person, I talk like
“sir” and a lot of people take me for a white guy at first because of my words and stuff
like that. And then I get there and they’re like “Uh, we talked to [Name of Person]” and I
say, “Well, ok, I work for [Name of Person].” You know what I’m saying? You can tell
by their face, “well where’s [Name of Person]?” But once they know, once they realize
you work for him, then they’re ok.” [Subject Twelve]

“I would say [being African-American has] been negative, only because I don’t know of
another way. I can say I’ve never seen it any other way. I never went to the bank and
someone said, “I looked at all the stuff and everything looks good. Come on in.” I have
never had that. It’s always, “Give us some more. Give us some more. Give us some
more information, give us some more paperwork, and no. It hasn’t been . . . It’s not an
easy route, [racism]still goes on, but not as much. We’ve been established in the
industry. People know me, but it doesn’t change the fact that I’m still African-American.
I’m not that naïve. But they’ve come to realize that we bring a high level of quality
service. At the beginning, it was just really tough, because I was probably the only
African-American out here trying to do what I do. They were just not accustomed to
seeing a guy like me. Not that they said bad things or did bad things, it was just they
didn’t have that trust.” [Subject Sixteen]

“No, it’s more challenging for us for several reasons. In our culture (and maybe it’s just
for me), I feel like we’re almost negative by nature. We don’t feel like we can do it. We
don’t feel like we deserve it. We don’t put in the work and the effort to succeed and get
past that neutral state. It can be really hard for us because we don’t have anyone to
encourage us, to push us. We don’t have the support team in our own families. They
question you, or drag the business down once you do get it started. They don’t want to
put their boots on and roll up their sleeves and get in and help you. They naysay, but
once they see you succeed, at any level of success, then they just want to [say] “Can you
hook me up?” [Subject Eleven]
“The negativity is just that African-Americans don’t manage the companies that have the
resources, at least not where I’m at in [name of city]. They don’t manage the resources.
Whereas, if you’re somewhere in the South, say, or somewhere where more African-
Americans have control of the resources to lend, then you have a better shot at doing it.
If you can meet all of the requirements on paper, then at least you have a better shot. In
[name of city], it can be a type of racist situation. Not only from Caucasians or
Hispanics, but whoever has got control of the money.” [Subject Fifteen]
172

Subject after subject recounted experiences where the fact that they were African-
American had an impact on their business. It is not so clear whether they feel that the overriding
impact is negative. For those who are able to take advantage of special programs, it is clearly
positive. For those who seek financing, more often they indicated the impact was negative.
What we do know is that whether or not they consider their race to be positive or negative in
their business dealings, they treat the challenges with their race as par for the course, one of
numerous challenges to be tamed.
Finding 16: AAEs list personal characteristics as strengths almost as much as skills
in business disciplines

The entrepreneurs provided information on their top four personal strengths and
weaknesses. Their answers tended to fall into five major categories: marketing, management,
finance, administration, and personal characteristics. Further coding of the data reveals two
relevant categories: the disciplines of business (55 percent) and personal characteristics (45
percent). This distribution led me to draw the conclusion that both are important strengths to the
AAEs in this study.
The entrepreneurs listed 15 personal traits as strengths, such as old-fashioned values,
integrity, and commitment. They also listed 18 business disciplines as strengths, such as
customer service, management, distribution, and communication. Figure 5.3 presents the
complete list of strengths. The shaded areas represent personal characteristics. Some strengths
were listed multiple times, however, they are included only once in the figure.
A similar listing identified their personal weaknesses. Using the same categorization of
business disciplines versus personal characteristics, the entrepreneurs listed 16 business
disciplines (44 percent) as weaknesses and 20 personal characteristics (56 percent). Figure 5.4
presents the list of weaknesses. The shaded areas represent personal characteristics that the
173

AAEs consider weaknesses. Some weaknesses were listed multiple times, but appear only once
in the figure.
The information shared in this finding suggests that technical assistance in the areas
identified as weaknesses would be beneficial to the AAEs.

Old-
fashioned
values
Customer
Service Listen
Pride
in work
Management Distribution Products Long history
Integrity Commitment Focus Hardwork
Knowledge
Communi-
cation
Relation-
ships Honesty
Education Experience Salesmanship
Uncompro-
mising
Creativity Know-how Expertise Dependable
Self-starter Creative
Get along
well with
others Service
Doggedness Planning Honesty Clients
Project
Management Lean Marketing Contacts
Figure 5.3. Personal Strengths

Finding
good
contracts Help
Technical
writer
Too nice Finance
Intro. new
products Equipment
Generous
Control
freak
Not
delegating
Not taking a
vacation
Small Timeliness Delegation
Lack of
Planning
Marketing Accounting Intolerant Forgiveness
Try to do too
much at once
Too
emotional
Single
Minded Trust
Over commit
Not willing
to share Finances Too nice
174

Administration
Sense of
obligation Partnerships Balance
No patience Generous
Attention
span
Figure 5.4. Personal Weaknesses

Subject One summarized his feeling about the value of personal characteristics in his
business dealings. Numerous AAEs expressed similar sentiments in their responses.
“The biggest thing is that we’re still in business after 33 years, and we’re still a
partnership. We have maintained our integrity, we have maintained our reputation, we
have maintained our hope, and we feel that we’re positioned to take advantage of any
opportunity that will come our way to go to the next level. And of the hundreds of people
that have benefitted from their experience here.” [Subject One]

Finding 17: AAEs give to others and to their community in multiple ways
The data revealed an interesting phenomenon among the AAEs concerning desire
to give back, whether to individuals or the community at large. This section presents a few
examples of how they used the goods and services they offer through their businesses to benefit
others (Subject Eleven); fed hungry children (Subject Sixteen); created jobs for veterans (Subject
Eighteen); helped improve the community where they do business (Subject Four); developed a
special training program that opened doors to new careers (Subject Ten); and set out to help
African-Americans get jobs in the technology and science fields (Subject Seventeen). The
following stories share their commitments to causes that extend well beyond the bottom line.
“This past Mother’s Day, I did hair for free. I didn’t do hair for profit. It felt really
good because, where I’m at now, with my vision and my goals, is [that] I’m not chasing
the money. I’ve found that—the Scripture says, “The more that you give, the more will
be given unto you.” Press down, shaken together, and you running over. That’s how I
run the business now. I do a lot of giving through the business. Helping those that can’t
afford to get their hair done, to helping a customer that was a regular and then all of a
sudden she fell off, and I’m like, “Hey, [name] is everything good, all right?” And she
was like, “I’m going through some challenges...” I know that, when a woman’s hair is
done, their spiritualism, their personality is better. Even though they’re going through
some of the hardest times in life, when we look good, we feel good. To be able to offer
these services that—at the end of the day, they really don’t cost me a lot. They just cost
me my time.” [Subject Eleven]
175

“Well, the higher purpose is to . . . Well, God has a lot to do with all this stuff. Coming
from a disadvantaged family, like I did, and being hungry as a child, I get a lot of
fulfillment out of doing my community work, and also contributing to . . . I have a
foundation that donates food, and toys, and money to disadvantaged kids. We give out
scholarships and all of those things. That’s really the higher purpose in all of those
things. The higher purpose is really to be able to assist people like that.” [Subject
Sixteen]

“To hire our veterans, our returning veterans and, of course, young people, giving them
an opportunity. They graduate from college or university and then to hire them. Because
a lot of them when they graduate, they don’t have any opportunity. They have all these
degrees and no opportunity. So trying to provide that to them. So all those things [are]
success for me. That’s what it’s all about. To make sure the next generation keeps it
going, or to give them inspiration to start their own thing.” [Subject Eighteen]

“And realizing that you can’t just be involved in your business. You also have to be
involved in your community. And that also means you have to be involved in the politics
of the community as well. So you can’t just have people that are running your community
and you not be [with] or have a word with them. You have to be able to express yourself
in the community.” [Subject Four]

“We’ve had probably about 80 individuals go through this training. Many of my
employees came from that training program. That makes me feel like I’ve done something
positive. Positive for the community, positive for these individuals that may otherwise
have never been introduced to this industry.” [Subject Ten]

“I wanted to make a difference in our community. I wanted to get as many of us as
possible involved in science and technology.” [Subject Seventeen]

It is clear from the data that the AAEs are finding multiple ways to give back to their
communities, and that they offer more than the goods and services generated through business
transactions. It seems that more access to capital will increase the residual value they currently
bring, despite facing challenges.
Conclusions from the Findings for Research Question 1
In sum, the quantitative and qualitative data collected for Research Question 1 from 28
anonymous online surveys and 21 interviews of AAEs revealed 17 key findings about the
challenges AAEs encounter in seeking capital for their businesses and the strategies they
employed to overcome them. The data reflects attitudes, perceptions, beliefs and behaviors that
176

influenced their responses to the difficulties that come with operating a small business when
capital, the life- blood of business, may be out of reach, or when they decide to forego seeking
outside capital. Eleven (11) of the 17 findings involved underlying attitudes/perceptions, three
involved beliefs, and ten involved behaviors. Seven of the findings involved a combination of
the three. It is interesting to note that attitudes/perceptions were as important as behaviors in the
findings. In Figure 5.5 below, I have indicated whether the findings resulted from
attitudes/perceptions, beliefs and or behaviors. The information is useful in identifying areas of
major focus for others looking to learn from their experiences. The results suggest that any
effort to make measurable progress must deliberately factor in the influences of
attitudes/perceptions and beliefs on behavior.
Findings for Research Question 1 Attitudes/Perceptions
Beliefs/Behaviors
1 AAEs acknowledge the difficulty of raising capital
yet keep moving forward
Attitude/Perception
/Behavior
2 AAEs expect positive growth for their businesses
despite challenges
Attitude/Perception
3 AAEs avoid perceived unproductive/negative efforts
to secure financing
Attitude/Perception
Behavior
4 AAEs seek technical assistance, but not necessarily in
raising capital
Behavior
Attitude/Perception
5 AAEs risk personal assets for their businesses Behavior
6 AAEs use multiple capital instruments to meet their
needs
Behavior
7 AAEs use credit cards, sometimes at a significantly
higher cost
Behavior
8 AAEs rely on internal resources to support growth,
often using internal growth for capital
Behavior
9 AAEs use multiple bootstrapping strategies, often
very aggressively, beginning with personal sacrifice
Behavior
10 AAEs face challenges raising capital at every stage of
the business life cycle with the same resolve to
succeed
Attitude/Perception
177

11 AAEs understand that relationships matter in
business; and banking relationships in particular for
accessing capital
Attitude/Perception
12 AAEs are resilient, expressing the view that quitting
is not an option in the face of adversity
Behavior
Attitude/Perception
Belief
13 AAEs define business success in non-financial as
well as financial terms
Attitude/Perception

14 AAEs are driven by a higher purpose to excel as they
confront challenges, barriers, and setbacks,
emphasizing a strong spiritual grounding
Belief/Behavior
15 AAEs acknowledge the impact of race, but do not
agree on whether being an African-American is more
positive or more negative concerning their business
Attitude/Perception
Belief
16 AAEs list personal characteristics as strengths almost
as much as skills in business disciplines
Attitude/Perception

17 AAEs give to others and to their community in
multiple ways
Attitude/Perception
Belief/Behavior
Figure 5.5. Findings for Research Question 1 by Attitudes/Perceptions/Beliefs/Behaviors
Research Question 2
“What challenges do financial services providers face in distributing
the necessary capital to African-American entrepreneurs?”

Research Question 2 sought to uncover helpful information from individuals
representing organizations specifically charged with providing funding to small businesses,
delivering technical assistance to them in their efforts to raise capital, or creating access to
funders, information and resources to support African-American entrepreneurs. This chapter is
exclusively based on the 20 interviews conducted with the financial services providers, which I
have divided into two categories: lenders and facilitators. Lenders were representatives from the
banks and CDFIs that have the mission and resources to make loans to the small business
community, including, but not limited to AAEs. Facilitators include all other representatives
from: chambers of commerce; organizations under contract with a public entity to provide
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technical assistance; business consultants; and public agencies providing credit enhancements for
loans.
Summary of Findings for Research Question 2
Several findings emerged from the interviews, and are summarized in Figure 5.6.
Lenders

1 Lenders have considerable ambivalence about lending to AAEs
2 Lenders must balance regulatory compliance with serving the needs of the AAE
community
3 Lenders in banks operate in a shareholder-driven environment where costs and
profitability take precedent over corporate responsibility
4 Lenders are able to meet their CRA test by supporting/funding technical
assistance programs and non-profit lenders when they don’t make loans to
AAEs, but this information is not widely known
5 Lenders lack sufficient training on how to assess the strengths of AAEs and
communicate the programs they offer more responsibly
6 Lenders confirm that building relationships with branch managers and other
key officials in the lending landscape is still important but there is confusion
that in this era of centralized loan decisions it is not as important as in the past
7 Lenders representing CDFIs or mission-driven lenders have flexibility when
evaluating credit and collateral, but are evaluated on performance and are just
as concerned about repayment
8 Lenders representing CDFIs or mission-driven lenders have flexibility to offer
smaller-sized loans, but many AAEs do not know about them.
Facilitators
9 Facilitators indicate that there are funds available, but many AAEs are not
applying for them
10 Facilitators express both frustration and understanding that many AAEs do not
have their business affairs in order but fail to take steps to correct them
11 Facilitators observe that AAEs sometimes ask for loan funds when they actually
need technical assistance, but the providers must make it easier for them to
access it
12 Facilitators have well-developed networks of lenders and other key resources
that AAEs could tap into, but the information is not widely publicized
13 Facilitators operate in silos with not enough collaboration to push banks to do
more, work together on deals, or disseminate comprehensive information to the
AAE business community
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14 Facilitators cite an absence of African-American owned banks as an
impediment to more loans to AAEs as well a general absence of AAEs in
influential bank positions
Facilitators
15 Facilitators recognize a disconnect between the messaging banks use to
communicate their loan programs and the expectations of AAEs
16 Facilitators have observed evidence of racial discrimination against AAEs even
when they do meet stated criteria
Figure 5.6. Summary of Findings for Qualitative Data - Financial Services Providers

Qualitative Data Findings for Research Question 2

Finding 1: Lenders have considerable ambivalence about lending to AAEs

A number of the lenders identified consistent deficiencies in the applications of AAEs
that make it difficult for them to recommend or support a favorable loan decision. In this section
I provide a few examples of the concerns expressed by several of the large bank representatives.
These common issues identify some of the challenges the lenders encounter in their efforts to
deploy resources to AAEs. They ranged from the typical poor credit histories, tax problems, poor
record keeping and negative cash flow, to failure to have a workable plan for management,
marketing, etc. Absent a clear understanding of how much is needed and for what purposes,
backed by a track record of paying bills on time and a secondary source of repayment in the form
of real estate collateral, the large banks regularly turn down the requests.
Subject 4 and several others had a great deal to communicate about the challenges lenders
(particularly large banks) face. A number of issues considered in the review process may not be
apparent to the AAEs. They are never shared in the impersonal form letters that generally break
the bad news that the loan was not approved. In an effort to streamline the long list of challenges
shared in the interviews, I include short headings above the quotes.

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Lenders uncomfortable with the past challenges on the AAEs records
“I think the challenge is what it always has been. In my view, it’s preparation. Black
folks have tended to juggle financial challenges over the years. So we may be coming
into a situation where we’re more than qualified to run a business, but we may have had
some financial challenges in the past that make a lender uncomfortable.” [Subject 16]

Poor credit history
“For one reason or another, in our community, we don’t value our credit histories, we
don’t treasure them enough, we don’t protect them enough, we don’t think that anybody’s
looking. We don’t realize the impact of a 30 day late payment will have. We don’t
realize it, or we don’t care. Credit histories have been historically an issue that we have
had to deal with in the African-American community. I have even heard radio
advertisements coming across KJLH where it’s a car dealer saying that they will finance
anyway, to anybody, regardless of their credit. But they even have, in that little tag line,
that “Who has good credit, anyway?” That’s the kind of stuff that we have in our
community. Unfortunately, too many of us buy into it.” [Subject 15]

No team of professionals involved
“One thing that I figure, our counterparts know laws, and they have their experts that
they can go to, to talk to. We don’t, unfortunately. We don’t know how to build a good
team. I’m not talking about the team to execute what you do every day, but your
advisors, and those people—your attorney, your CPA, your bookkeeper—you need other
mentors and entrepreneurs that have run businesses before that you can bounce things
off of, and [they can] advise you. I see that most African-Americans do not have that. At
all.” [Subject 9]

Tax problems
“The other thing that I see is we don’t honor taxes. You know, if you don’t pay your
taxes, you’re going to be capped on your ability to acquire monies at a higher level. We
know that one, if you’re credit’s bad and you’re not honoring your obligations, we’ll
need to see payroll taxes and those kinds of things. We see something’s amiss and then
using or stalling their obligation with the State Board of Equalization or whoever
because that’s their way of getting funded so they can keep their business from growing
and they’re paying a penalty. We see some of that. That’s out there to a great extent.”
[Subject 4]

Poor record keeping and financial information
“The second thing that we run into is poor record keeping. Keeping regular financial
statements. Tracking sales receipts, expenses. Filing tax returns. Just to give you an
example, we have been working on the Metro Business Interruption Fund. That’s where
Metro is building out its rail line, like the Expo line that goes through Culver City. As it
builds, you have to have a fund that provides grants to the businesses that are disrupted
by the construction. We’re working on the Crenshaw to LAX line. We’re working on the
regional connector in Little Tokyo. We’re working on the purple line below Wilshire. In
all three of those cases, there are businesses along the Crenshaw to LAX line that are
challenged with regards to getting their records together.” [Subject 15]
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Biggest challenge for AAEs was financial information
Mainly, lack of good financial information. Lack of accurate tax returns that would
support debt service coverage. Financial information was the biggest challenge we saw
with African-American businesses.” [Subject 20]

Concentration of business in one or two customers
“The other thing too that sometimes is a challenge is they may have a concentration of
one customer that might represent 30-60% of their revenue. If you have one company
that is contributing to most of your revenue, if that company chooses to go elsewhere or
to a price point, you’re done. It’s almost like you really worked for that company. That’s
why a lot of minority businesses that work with the government, who’s going to squeeze
margins and profits and is going to have a longer cycle in which they start to pay and it
puts stress on you to survive.” [Subject 4]

Heavy investment in salaries with limited to no marketing focus
“The other area that we look at is where they actually and how they invest their money. If
a large percentage is going into salaries and they’ve accumulated enough cash to
reinvest, do we know that’s a sign that it’s just a matter of time before this business
ceases to exist? You’ve got to invest in marketing which is usually under-invested.
Particularly in digital marketing, tech, and social media. There’re so many different
ways to tell the story.” [Subject 4]

No succession plan
“We don’t have a succession plan. You’ve got to or it’s the demise of the business. The
businesses for the most part, cease to exist. We don’t have any escape plan. Most of the
businesses that last through the years or generations [do so] because someone had a
legacy strategy. We don’t do that in our community. We have no insurance. It is the only
product that creates cash where none existed before. Now, there’s a consequence --
demise, disability, or something. But we haven’t linked up something sustainable.”
[Subject 4]

AAEs have to match their needs to the lenders’ profiles.
“Even if you have a successful business, banks, like any other type of entity of that
nature, they have an appetite for certain types of businesses, certain dollar amounts when
it comes to loans. There’s all kinds of different things that are there. Kind of like their
profile. If you don’t happen to hit that particular profile, don’t align that profile and
bank with that particular business, someone that may be getting turned down for a loan,
maybe based on that they’re not matched up with the right institution. It’s not
necessarily their financials, or not anything about their business. They’re just at a bank
that doesn’t lend to that particular industry for that particular reason. That’s just the
bank’s choice. It’s not based on any other type of demographic other than their portfolio
and their profile. I think, again, it goes to education—letting folks know that.” [Subject
10]

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Perceived risk
“That’s why it’s so hard to lend in some of those communities now—because of the
perceived risk. The perceived risk, because in actuality, they do pay the loans back.”
[Subject 3]

The information shared by the lenders clearly indicated that many different circumstances
surrounding the information AAEs submit make it more difficult for the lenders to easily extend
the credit they request. They included the typically mentioned issues of poor credit histories, tax
issues, and record keeping, but they also listed more subtle issues such as “perceived risk,”
insufficient planning for succession or sales growth and the risk associated with having one or
two major customers. It also included situations where there is a mismatch between the
borrower and the bank. Clearly workable solutions could be developed to systematically address
all of these challenges.
Finding 2: Lenders must balance regulatory compliance with serving the needs of
the AAE community

The lenders interviewed in this study included representatives from two groups: banks
and CDFIs. This finding focuses on the bank lenders who work for examined institutions that
must comply with strict banking regulations outlined in the Dodd-Frank Act and preceding
legislation designed to protect the interests of depositors. While the regulations do exist, not
much is known about their impact on the AAE community and their efforts to secure financing.
Subject 4 provided an inside view of how the banks view their roles, given regulatory
requirements. Subject 3 also shared that banks have a different way of looking at things than
borrowers. His perspective indicates that the two objectives of complying with bank regulations
and making loans to AAEs may be at odds. Such a condition would surely cause lenders to think
carefully about taking on too much risk in their loan decisions.

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“You know, we’re governed and we have high regulatory and compliance issues that we
operate, for the most part, within predetermined guidelines. You know in terms of aiding
people . . . People confuse banks oftentimes with assets-based lenders and venture
capitalists. We are not. We are a bank. We’ve become underwriters from an
income/credit cash flow perspective. Traditionally for us or anyone to get capital, you’ve
got have some stability in your business. [They’ve] got to have some ability…and
willingness to honor their obligations, which speaks to one’s credit. Those are the
stabilizing areas, that help frame up whether or not we can move forward fast or whether
or not a deal might have some “hair on it” as we call it. We try to get creative and
operate in that gray area. That’s from the bank’s perspective.” [Subject 4]

“In the banking arena. We have our own silos. It’s all defined by the angle of
perspective on the world. And then you have the community that has its own mores and
cultural values.” [Subject 3]
Clearly, lenders set priorities based on complying with the regulations that govern their
activities. As Subject 4 shared, at times compliance may be at odds with the bank’s ability to
satisfy AAE loan requests. And from Subject 3’s vantage point as a banker, the banking
perspective on the world tends to exist in a silo. In order to bridge the bank perspective and the
community perspective, more honest and engaged communication is needed, and then a strategy
for moving from positions, to understanding, to consensus.
Finding 3: Lenders in banks operate in a shareholder-driven environment where
costs and profitability take precedent over corporate responsibility

Finding 3 reveals the added pressure on banks to maximize shareholder wealth. This
section provides evidence that FSPs have trended towards larger loan minimums as the cost to
close a small loan mirrors the cost of a larger loan where they make more money. This makes it
structurally more difficult for AAEs to access products that fit their needs or to qualify for the
loan products available on the market. Subject 3 described this situation. And although my only
quotes come from one subject, its importance is significant enough in my mind to warrant a
finding.

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Tougher regulations forced banks to focus on stock prices
“When the regulatory environment became so stringent for banks, rightfully so, I think,
banks had to really focus on where their stockholders wanted the stock price to be. A lot
of the community development stuff went away from the banks themselves. Then these
other community development financial institutions took that space. There’s just been
this chaotic shift of what’s important and what isn’t. I think the communities have
suffered, to the largest extent, because the banks are really focused on stockholder value,
and rightfully so. But then, there’s another value to the stock that’s community driven. I
don’t think we’ve quite defined how we’re going to approach that.” [Subject 3]

FSPs have a challenge balancing the need to generate a profit with the needs of the
community; low interest rates present low profitability for business loans
“[Some banks] do a good job in really trying to strategically and systemically
understand how a bank can be more impactful, but in the meantime, it’s the business
piece that’s most important. When interest rates are rising, we’re flush with cash. We’re
doing extremely well. When interest rates are flat, like they’ve been, and low over the
last five years, we suffer.” [Subject 3]
The data reinforces the fact that banking institutions also have the responsibility to
generate profits in order to maximize shareholder wealth. This fact compels them to operate
within their mission and within certain risk parameters that may be at odds with making the
smaller loans (below $250,000) which some AAEs require. This finding clearly emphasizes the
fact that, for certain borrowers needing smaller loans and concessions, banks will not be the best
source of support. The first stop in these cases will be the mission-driven lenders or CDFIs who
exist to provide needed resources. They do not have the same shareholder demands.
Finding 4: Lenders are able to meet their CRA test by supporting/funding technical
assistance programs and non-profit lenders when they don’t make loans to AAEs.

The Community Reinvestment Act of 1977 is often heralded as a law that compels banks
to address the financial services needs of low to moderate income areas by investing products
and services back in the areas where deposits are accepted. Under CRA requirements banks are
evaluated on three tests: lending, investment and service. Finding 4, however, reveals that banks
are able to meet their CRA requirements by investing in entities that lend to low and moderate
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income individuals and by funding technical assistance programs. This practice is apparently not
well known in the broader African-American business community.
Subject 3, representing a large bank, provides funding to support loans made through
other organizations and funding to organizations that offer technical assistance programs. He
also advocates creating a more comprehensive service delivery map to help AAEs understand
their financing options, when bank financing is not appropriate. Subject 4, who also represents a
large bank, indicated that they direct resources to non-traditional lenders for the purpose of
making loans to underserved communities.
“Let’s define what the needs are for all of those banking intermediaries. That becomes a
delivery map. That’s the map that banks would work with. When folks come into a bank
and say, “I’d like to borrow money,” [they are told] “OK, you’re credit’s shoddy. We
can’t lend you money. But we have a partner that we fund that may be able to help you,
not only with access to capital, but also with the technical assistance. That is, the back-
office stuff. The marketing. The accounting, the legal, etcetera, etcetera. That piece is
where we need to define who those players are, where they’re located, and how we can
build effective referral programs to them. That is the interim piece.” [Subject 3]

“We have organizations like the Valley Economic Development Corporation. They call it
the VEDC. You have another one called PCR, Pacific Coast Regional. Those are two that
really cater to the minority communities and what they do is they create an incubator
culture and what they do is provide capital. They also prepare them, these businesses, to
get to a point where they can meet the criteria of a conventional lender... So we work
closely with non-traditional lenders to make sure that money flows to the underserved
communities. We fund technical support advisors. I work with a lady … who’s well-
known out there in the marketplace. We support her group and she’ll train, she’ll train
my underwriters as an independent small business. So we try and find, homogenize, or
integrate a bank with some of the behavioral realities that exist in minority communities
to make sure we do our part in providing funding.” [Subject 4]

Subject 3 also expressed the idea that someone who understands both the community and
the bank sides should help bridge the divide between the two.
“There’s the silo, the space in between that’s hard to bridge, unless you have someone
that understands how to speak both languages, bank speak and community speak, you
can’t get in between and figure out what’s impactful. The community is a circular piece.
The bank is a very linear piece. One plus one absolutely equals two. In the community,
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that’s not necessarily so. It depends on who you’re talking to, where you are, where
you’re trying to get to.” [Subject 3]

Other creative ideas shared by Subject 3 also indicated that there is a need for more
flexible lending guidelines, specifically, more risk tolerance and relationship-driven drivers,
which he shared can be addressed by CDFIs and other mission-driven lenders.
CDFIs can add the risk tolerance and relationship drivers that banks perhaps don’t
have
“Where there’s more risk tolerance, more relationship driven drivers than just by the
book. For instance, the banks say in the book, you have to have a working capital ratio of
125%. Or 1.25. Whereas in reality, it could be just 1.01 to 1 and it works for that
particular business. But you have to have the time and the expertise to understand that
and make it happen. Or find a partner who’s willing to come in and take a larger share
of the risk for a higher return on the interest rate so that you could take the senior debt
[or debt in first position], and do the current debt, cash flow stuff and the riskier lender
can do the term stuff. It’s partnering together to make things happen. A lot of that’s
happening now with the SBA. They do that. A lot of the CDFIs. So does the iBank,
which runs a lot of the Financial Development Corporations (FDCs) in California.
You’ve heard of Financial Development Corporations. All of those are these credit
enhancement organizations that can make a loan easier. A lot of banks don’t use those
programs anymore. When I was a very successful community lender, I had access to all
of those programs, to provide credit enhancements for my loans.” [Subject 3]

This finding explains how conventional banks are able to comply with CRA regulations
even when they do not make loans to AAEs. In sum, they support the communities by funding
organizations certified with the Department of the Treasury as CDFIs and others such as
Financial Development Corporations (FDCs) in the state of California. The question becomes
are they doing enough to make significant impact? Funding needs to be made available to build
a fully functioning system to address lack of access for AAEs.
Finding 5: Lenders lack sufficient training on how to assess the strengths of AAEs
and communicate the programs they offer more responsibly

Finding 5 sheds light on the fact that bankers lack special training on how to assess the
strengths of AAEs beyond the standard methods of credit scores, collateral and tax returns.
Interviews with various lenders and facilitators pointed out this fact. Part of this training should
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involve new ways of communicating information about their financing programs, how to qualify
and available assistance. The following comments validate this finding and some of the reasons
for it.
Banks recognize the need to train key employees.
“I work with a [consultant] who’s well-known out there in the marketplace. We support
her group and she’ll train, she’ll train my underwriters as an independent small business.
So we try and find, homogenize, or integrate a bank with some of the behavioral realities
that exist in minority communities to make sure we do our part in providing funding.”
[Subject 4]

Two bankers recognize how vastly different perspectives can be between a borrower and
a lender and a bank and the community. A better understanding by the banks would increase
their sensitivity.
Sometimes the financial only perspective provides a limited view of the facts
“Yes. Even though you may finance in a particular area of expertise that you’ve learned,
the business, you’re still learning it from a financial perspective, which is somewhat
academic, compared to being in the guts of the business, and understanding what really
moves that business, which is people. I have been guilty of that, in terms of monitoring
portfolio investments and not having a full, complete understanding that I probably
should have (had) if I’d had that experience as an entrepreneur, and on the business
side.” [Subject 18]

Banks need sensitivity training to better understand AAEs
“You go back to the underwriting question, I think what happens, not only is it
commercially and mathematically discriminatory, the banks need sensitivity training.
Just like any other aspect, Blacks are held to an unreasonable standard. It’s not the
numbers, it’s the social, it’s the whole environment of not valuing Blacks, and it impacts
them.” [Subject 19]

Banks only know what they do
“The bankers are not knowledgeable enough about the other forms of capital. They’re
not that good. Well, it’s shown in severe ways in venture capital, and in capital
formation, asset-based lending.” [Subject 19]

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The data for this finding points to important gaps in understanding and knowledge of
AAEs that would increase their sensitivity to AAEs. Training could help banks better assess the
strengths to be able to suggest other avenues of assistance or financing if the applicant does not
qualify under the bank’s guidelines.
Finding 6: Lenders confirm that building relationships with branch managers and
other key officials in the lending landscape is still important but there is confusion
that in this era of centralized loan decisions it is not as important as in the past

Information from some AAEs seems to suggest that relationship banking no longer plays
a role in financing decisions, especially for AAEs. Consider these words from subject nine, a
formers banker with a large institution. He introduces the idea that algorithms are used in
making lending decisions. Finding 6 qualifies the idea that lenders make decisions irrespective
of the banking relationship. Quite to the contrary, bankers and CDFIs emphasize the important
role relationships play in funding decisions, even when the ultimate decision comes from outside
the branch, in the case of a bank. For mission-driven lenders, relationships continue to be
extremely important. The excerpts below offer details on the origins of this finding.
Evidence that algorithms used to make loan decisions
“Most, I would say—there are some who have other algorithms and other means by
where they lend—but most banks, even during that time-- my bank was a cash flow
lender. That would X out any business that did not have a history, that couldn’t provide
the tax returns that we require. Very few lenders will be a stated kind of situation, where
they would just, for example, go with your last three month’s business account
statements. And then develop a trend based on that. They’d have a system and/or
algorithm to let you know they can pay this amount of money based on all that you see
coming in and going out.” [Subject Nine]

Bankers want to develop relationships also to make better loan decisions
“So what we try and do is understand a business, understand their financials, understand
their staffing and leadership and all the core values of the company. They might be softer
measures. We really want to get to know the leadership to see that they have the thought
process to sort of do things beyond where they are today. You know, oftentimes, we will
look at some of the character issues of a business and the leadership as a variable in us
providing access to capital. So it’s really, really important for me, particularly as an
African-American male. There’re not many guys in my world that do what I do. I
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literally run the branches, probably have 120 branches and everything that goes in them,
small business loans, mortgages, and so forth. It’s really important for me to build a team
that looks like the market so they can have access to capital. Oftentimes, they haven’t
built the right infrastructure to get access from a bank.” [Subject 4]

FSPs establish long term relationships with their borrowers that
“Relationship lending is a big part of what we do. When we’re deciding on making a
loan, that relationship, or whether we can build a relationship, is also a big part of it…
I can give you an example. We have a company that does airport concessions as a client.
They’re one of our best clients. They borrowed $750,000 a few years ago, and they’ve
almost paid it back. They’re actually a bankable client. What we should be doing as an
organization is growing our constituency into people that are bankable enough that they
graduate from us to a bank to get their financing. This company that I’m thinking about
would be a prime candidate for that graduation thing that I just talked about, because
they’ve grown to the point that they would fit the criteria for bank financing. But they
don’t want to go to a bank now.” [Subject 15]
A strong banking relationship can result in competitive pricing of loans, such that
there can be an economic value to sustaining good banking relationships
“Traditionally, we will relationship price. We know that our competitor banks will say,
“Oh, my God. [Banker] and all these boys [are] cleaning our clock right now.” They
may just come in and go 25 or 50 basis points under the rate that I might offer. But if I
have a customer that’s been with us for a long time, and I really find value in the
company, and they bring it to our attention, we may match that rate if it’s reasonable.
We don’t let other banks’ pricing affect what we do. We just look at the individual
relationship pricing.” [Subject 4]

Bank employees must write up a loan request and then it bubbles up. Often what they
write includes knowledge of the entrepreneur through relationship
“Traditionally, a branch manager will have some reasonable flexibility, or they will have
an escalation process to go to the next level of leadership to tell the story. They’ll do a
big write up. There’s a process that’s consistent, it’s fair, so we don’t get caught up in
that “This neighborhood gets more loans approved than another”…that leads to
redlining. None of that happens on my clock. I sit here. I’m the senior guy.” [Subject
4]

Relationships clearly are alive and well in the financing landscape for AAEs. This is true
whether seeking a loan from a bank or mission-driven lender. The more they know about the
strengths, goals and values of an entrepreneur, the better able they become to tell his/her story
and to advocate for a favorable decision. Missing in this message is how to develop a banking
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relationship. It will be important to educate AAEs on how to develop those relationships at
various steps in the life cycle of their businesses.
Finding 7: Lenders representing CDFIs or mission-driven lenders have flexibility
when evaluating credit and collateral, but are evaluated on performance and are
just as concerned about repayment

The data provides considerable evidence that CDFIs and other mission-driven lenders
have the authority to evaluate loan decisions more flexibly than banks. They do not have the
same regulations that banks have, or the pressure to maximize shareholder wealth in their
business practices. While they may be more lenient on credit history, tax returns and collateral,
their objective continues to be to get paid back. They still operate under scrutiny to make
prudent loan decisions. They must report their results and remain fiscally responsible. AAEs
need to understand the parameters that also play in their loan decisions.
The right products and evaluation criteria result in loan performance
“You have to be able to really deploy capital. Once people hear that you’re willing to
deploy capital—approve it and fund it—they will come to you. The problem is our
communities[are weary] of promises. They’re tired of being told, “Yes” and then to be
told “No.” To change that paradigm, to change that conversation . . . actually take some
risk and put capital out there. It’s not up to us to change the game. It’s up to lenders to
change the game.” [Subject 20]

The state guarantee program offers an avenue for funding
“This [state guarantee] program, to me, coming out of a larger bank and being able to
watch the program help those that wouldn’t otherwise have that opportunity . . . we’re
just trying to get the word out now, about this program. There are eight Financial
Development Corporations (FDCs) that work it. We’re the ones, in particular, that do
most of the loans under $100,000. No, we don’t [have the same regulations as banks].
Well, we have restrictions. We definitely have to be regulated. But you don’t have the
kind of underwriting basis, where you have to protect the capital . . . . you can’t do this,
you can’t do that. We don’t have that Tier One capital requirements that traditional
banks have. And they’re getting grants, stuff like that. I was talking to a guy privately.
He was, like, they’re not really 100% sustainable because they get grants to cover their
costs. Banks can’t do that. They’ve got to be 100% sustainable because they’re either
traded on the open market, or, if they’re a private bank, they have to be solvent.”
[Subject 17]

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African-American entrepreneurs often must overcome a history of struggling in their
businesses
“Our biggest challenges are preparation, training, and then overcoming history, in some
cases, of credit challenges. Because, if you get into a situation where you’re going to
borrow money, and there is a history of not paying bills, then that almost takes you out of
the game from the start. It sounds like an excuse, but it’s a reality. Even in a CDFI,
we’re expected to make good loans. Now, the number of loans that we write off,
compared to a bank, should be higher because of the kinds of lending that we’re doing,
and the kind of work that we’re doing in the community. Still, there’s an expectation
that, if you’re actually making loans, you’re making good loans. There’s a level of care
that’s just a little bit different, I think, in this arena. That’s neither here nor there, but
there is sort of a level of care and expectation because you’re lending investors’ money,
and you want to make sure you’re paying those investors back.” [Subject 16]

FSP lenders are subject to being evaluated, though not through the same bank
regulations
“My criteria for doing some things are probably more aggressive than you would find at
a bank. But I’m now managing hundreds of millions of dollars in investments that I have
to find a way to deliver. I’m not even sure if the banks and investors are looking for a
positive return, but they are looking for a return. They don’t want to invest in us and not
get their money back. Again, there’s a level of care, and really sort of discomfort with
just making sure that we’re doing the right thing all the time.” [Subject 16]

Non-examined loan funds have compliance oversight
“Well, the reason why we check it, is we check it for compliance. We have rules. There
are certain types of transactions I won’t do, so I check for compliance, as well as making
sure I’m not overleveraged. As far as lending, being able to do more, it’s more of a
matter of the fact that we just have more money than we historically did.” [Subject 11]

Loan decisions, even under a more flexible evaluation, will focus on credit, collateral
and cash flow
“When it came to collateral, we were not necessarily looking for or trustees or houses.
We were looking for some level of collateral coverage. Maybe not 100%, but something
that would cause the borrower to pay back their loan.” Sure. Most loans are based
upon three things: credit, collateral, and cash flow. When they looked at credit, they
didn’t look at FICO score. They looked at the credit report. They looked to see whether
someone’s credit history, credit management was reasonable. So, if someone had a
lower score, but had paid off old debts, had paid charge-offs, had paid collections, that
was still a loan that was considered possible. It might be real estate, but it might not be
100% coverage. It could be equipment, it could be a vehicle, it could be other types of
unusual collateral that, at the very least, gave [Organization] a chance at repayment.
When it came to cash flow, it’s also recognizing that African-American businesses don’t
necessarily have good financial statements, don’t necessarily have tax returns that reflect
the entirety of the business itself. It was being flexible with those kinds of tax returns and
other financial information to really focus on, “Is this company going to be able to pay
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us back?” If they are, don’t get caught up in the paperwork. Focus on their ability to
pay us back, and make the loan.” [Subject 20]
Besides a good credit score for the entrepreneur, the business must demonstrate the
ability to repay the loan
Even if they have the greatest credit walking in the door, I need to see that the business,
based on projections, is going to produce enough revenue for them to start making
payments in 30 days.” [Subject 12]

Finding 7 focuses on the positive impact that CDFIs and mission-driven lenders are able
to have on AAE loan decisions. With more flexible underwriting criteria, they are actually able
to deploy capital and create jobs in their communities. But Finding 7 reflects the reality that
they also expect to be paid back. Like banks, they too are under scrutiny to perform, not just
making loans, but effectively managing their loan portfolios. Subject 20 headed a CDFI that
made loans to African-Americans.
Finding 8: Although banks have difficulty making smaller loans, CDFIs or mission-
driven lenders do have the ability to approve the smaller-sized loans

Finding 8 revealed that although banks may not have the ability to make the smaller-
sized loans that may be more appropriate for some AAEs seeking financing, CDFIs do have this
ability. This section presents examples of information shared by the FSPs that supported this
finding.
The smaller loans represent the organization’s loss leaders, but they support their
mission
“So for us, it’s most important that we help these smaller businesses. We don’t make a
lot. Matter of fact, our small deals are our loss leaders. But that’s OK. [The] mission of
[our organization] is to provide capital to businesses that couldn’t otherwise find it. We
kind of break even in the middle ground, where deals are half a million to a million. And
we make the money that we need to sustain the business on our larger deals. A lot of
people don’t want to do the smaller deals. They don’t generate enough money—it’s the
same amount of work. But we say, for us, some of these smaller deals are so much fun.
So much fun. We’ve got this one guy . . . this group of kids, who made sunglasses. They
couldn’t open up a beer, and they said, “What if we put in a bottle opener?” So they did.
We loaned them 50, 60, 70 thousand. The next time they were out, they did $1.1 million
in sales. They create niche jobs like you wouldn’t believe.” [Subject 17]

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The minimum loan size of $250K is leaving needs below that unmet
“Right now[the community development banks have been replaced by the CDFIs]which
are the banking intermediaries. They do an excellent job. And I would say that they
should…That’s a good program. It’s an excellent program. But even they have
small…there are minimums. The minimums used to be down to fifteen-hundred, five
thousand dollars. Now they want at least $250K before they’ll look at a loan. [Because it
costs money to put that together]… [Subject 20]

The data indicates that avenues do exist for AAEs to secure the size of loans they need,
but for amounts below $250,000, the sources are not likely to be banks. AAEs must be educated
on where to go to seek the funds they need for their businesses. This is a difficult proposition
when information is so fragmented in the system. More widespread information about available
sources and their requirements would help address this issue, as would additional education on
how to prepare to access available funds.
Finding 9: Facilitators indicate that there are funds available, but many AAEs are
not applying for them

Finding 9 revealed that some of the financial services providers observed that there are
funds available, but that AAEs are not applying for them. As a result, the data on loans to
African-American firms continues to be extremely low. This section shares the data on their
experiences.
FSPs must overcome mistrust in the system through using their collective pull to get
people to apply
“I think from my perspective, I would say more of a concern is that I think there’s a
stigma out there right now, that access to capital is not available, particularly in certain
markets. People are just not applying. I don’t know who the messenger has to be. I don’t
think we can message it any further than we have. I think there’s going to have to be
some trusted agents created somewhere along the line, that folks are going to be a little
bit more engaged and responsive to. We, of course, are going to continue to message it.
I think there’s going to have to be some sort of concerted effort between the banks and
the community to navigate that.” [Subject 10]

Lender fatigue may be influencing decisions not to apply
“Sure. Obviously, we are always trying to create different loan products that . . .
matching the loan products with the need is always important. But the other piece is that
we have to kind of look at is, how do we really evaluate credit? What is a model that will
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work that will give lending institutions a comfort to lend as well as providing opportunity
to get the capital out the door in a way that is fiscally responsible? I think there’s this
whole concept around what I have coined as “lender fatigue.” They go to the bank that
they know, or, if they do happen to have an account, they go there, and they get turned
down, and they’re done. They say, “If this bank turned me down, they’re all going to
turn me down. Again, that goes back to the education piece.” [Subject 10]

Subject 20 operated a program that provided funds to African-American entrepreneurs.
The program was widely publicized and as a result, they received many more applicants than
they could accommodate. Demand far exceeded supply, indicating that when the right products
are provided, the AAEs do respond.
The approach matters in how
“The fact is, when people say there’s not enough demand in African-American business
for capital, that’s wrong. There is significant demand. But if you treat the African-
American and Latino businesses with a checklist—you know, do this, do this, do this,
[then] come back to me—you’re never going to get any loans done.” [Subject 20]

Finding 9 reflects the observations of individuals working with or in support of loan
programs, that funds do exist for small businesses. Considerable evidence has been shared in
this study that confirms the finding that AAEs are not applying for loans. On the face of it, the
data may confirm this fact, however, there is also evidence that AAEs do apply for loans when
they believe they fit the criteria. Besides not applying, they may also be getting turned down
when they apply, such that it almost becomes a self-fulfilling prophesy. They apply and get
turned down. They tell their friends and associates. They don’t apply based on the information
they have heard from people who have applied, or they learn about the minimum size
requirements and self-assess that they would not qualify, and again, they don’t apply. The data
does indicate that AAEs need external resources to better manage and grow their businesses,
however, perceptions on the street are that funding is not available to them. That being the case,
why waste the time? Better communication about the realities of how to gain access is needed,
through strong educational programs, marketing, and more examples of successful efforts.
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Finding 10: Facilitators express both frustration and understanding that many
AAEs do not have their business affairs in order but fail to take steps to correct
them

The facilitators in the financial services provider ecosystem provide technical assistance,
referrals and credit enhancements (loan guarantees). As a group made up of bankers, non-
depository lenders, technical assistance providers, their roles vary greatly. The data shows that
some of these facilitators are frustrated that many AAEs do not have good records, stellar credit
reports or strong business plans. At the same time, others understand the challenges that have
caused this widespread lack of preparation and offer courses and workshops that they believe
will help potential entrepreneurs. Even then, a significant number of AAEs do not take
advantage of these programs. The following stories explain these contradictions in the system.
Some of the systemic challenges in meeting criteria relate to the fact that AAEs are 500
years behind
“What I’m saying is, we’re in a place where we’re 500 years behind. We are. And when
you talk about having access to friends and family—most of us are in the same boat. We
ain’t got no money. And friends and family are where people want you to start, even with
banks. Then you have these business plans that are not well thought out. They’ve got it
up in their heads, but they’re not well thought out. So when you’re dealing with those
things, those folks aren’t as prepared to deal with us as funders as they are with the
SBDC, the Small Business Development Center, where they go in and they have to get
prepped. I understand the plight. And some of it’s not fair. What we do is recognize
that, and we do our best to match folks up with the correct community partner.”
[Subject 17]

Lack of business history – 1
st
generation businesses
“A lot of it is a lack of history in business. A lot of these businesses are first generation.
We don’t have a history of sitting around the dinner table and talking about business, or
having the kids grow up in the family business. A lot of these things, we’re having to
learn on the fly, or not at all.” [Subject 15]

Financial records are not in order, so facilitators are afraid to recommend them
“It’s one thing to not have the funds, but to not have your financial records in order, your
accounting in order . . . I might be able to work to get you a contract, but if you have
your financial records in order, I might be able to steer you to a loan or a grant or some
possible ways that you could fulfill the [word not intelligible on recording]. I’m scared
for a company to take a chance on a small business and to find their financial records
are not in order.” [Subject 7]
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Challenge – record keeping
“Their record keeping is an issue. Time is an issue. Knowledge of the financial process,
what you need to know, and what you need to have. That’s really a basic obstacle. Then
of course, just the market itself. Know the interest rates, the requirements.” [Subject 7]

Challenge – financial literacy; credit scores
“That’s one of the things that’s always been a challenge—the financial literacy
component, its processes, understanding at a very young age that the decisions you make,
without having good, sound fiscal practices, are going to follow you for a very long time.
So when these banks look at FICO scores, for example, and you’re hovering in the high
500s, or low 600s even to that extent, it’s highly unlikely, unless you can substantially
collateralize the loan, which is uncommon. You’re not going to be able to get funded.”
[Subject 14]

Several Facilitators pointed out that AAEs are not prepared when seeking funding.
Financial literacy is a limiting issue. More knowledge needed.
“When you sit down with them, their affairs are not in order, because they don’t know
even what their affairs are supposed to be. They don’t know anything. They want to start
a small business, and you tell them the documentation they’re going to need in order to
qualify or even apply. Imagine I’m a hair stylist. I just did $1600, I went to the State
Board, I just got my license, I’ve started doing hair, I want to open up my own hair salon.
Whoever taught me about a P and L? You say, “P and L” to me, and I’m like “What is
that?” That’s one of the main things a financial institution or any lender is going to want
to know. What’s your profit and loss?” [Subject 9]

FSPs offer opportunities to increase knowledge and AAEs do not take advantage of
them
“They’re [AAEs] still saying the same thing: “We can’t get the funding.” The problem is
they don’t want to accept ownership of why they can’t get the funding. The money is
there. They [Banks] have to loan the money out. I should say, they [banks] have to make
the money available to be loaned. If they [banks] don’t loan it out, they don’t care. But
they have to, by law, make the money available. It’s not their [banks] fault that you
[AAEs] don’t know how to qualify for it. What I hear is, “We have problems getting
access to capital. I’ve done . . . I know Congresswoman [Name of well-known African-
American lawmaker] did this whole thing on keeping all the banks to the wall about why
they don’t have funds available in the inner cities. She’s the head of the Finance
Committee in DC. The problem is, we [AAEs] just want to keep singing that song, but we
won’t get our business affairs in order to qualify. So, if you go to a bank and apply for a
loan, and they tell you they need this, this, this, and that, pull all that together. Have
them, and then present it. Take away the opportunity for the lender to tell you “no.”
Does that make sense?” [Subject 9]

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The organizations and individuals established to assist AAEs in securing capital
recognize and understand the challenges that AAEs encounter. Many of them operate programs
to help address these challenges, however, they run into problems getting the AAEs to seek the
assistance they need to correct them. There is a disconnect between the technical assistance
providers and the AAEs that must be addressed in order to fix these issues. The origin of the
disconnect could be due to multiple reasons. It could be that the subject of the event, whether it
is a workshop, conference, course, networking event, etc. does not resonate with what the AAEs
believe they need. The manner in which the information is made available may not work, as in a
face-to-face course versus an online method of delivery. The timing of when the event is offered
my conflict with schedules, or the promotional strategy may need a little more creativity. As
with the lending products, it could be that the right products are not in place yet to address the
underlying problems on a scale necessary to effect system-wide change.
Finding 11: Facilitators observe that AAEs sometimes ask for loan funds when they
actually need technical assistance, but the providers must make it easier for them to
access the knowledge they need

Finding 11 shares word from the field that many AAEs seek external funds when they
actually need technical assistance first. The technical assistance could be receiving help
developing and executing a plan for seeking external funding by getting records in order, filing
tax returns, increasing sales to raise profitability, or developing a business plan. It could also be
a crash course on the types of financing available for various business purposes. This section
presents the observations of the individuals in the FSP ecosystem who work with AAEs in this
situation. The other side of the issue concerns needed improvements in how the technical
assistance is delivered to the entrepreneurs. Subject 16 revealed that the way technical assistance
is delivered to AAEs has not changed in 30 years!
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The head of one chamber told the story of a member who landed a sizable contract, but
was not ready to get the financing needed to support that contract. With the proper planning and
technical assistance, this problem could have been avoided.
“When you’ve got a great plan, “I’m about to get this contract, I need a loan, I think I’m
ready,” and the banks, with their criteria, are like, “You’re not ready,” you may feel like
a liability to the bank, so you need to pursue some other efforts. But you need to keep
pursuing, until the alternative—at some point, if you go through all these alternatives, at
some point, it’s on you. You’re not ready for that loan. You need to stop and get your
books in order. I’m sure it’s not quite that simple, like I said. It’s also the whole
climate, the current administration.” [Subject 7]

FSPs work with AAEs to help get them ready to get a loan after they learn they don’t
qualify. Subject Twelve shared her process for keeping them engaged to help them develop
alternative funding solutions and address shortcomings.
“Here’s what I tell them [when they don’t qualify initially]: the banks are in business to
lend money. If you’re in a position to get funding, they’re happy to lend it to you.
The other piece of it is the client who walks in the door may not be in a position to get
funding now. It’s my job to get them to the point where they are able to get funding if
funding is what they need. We continue to work with them.” [Subject 12]

“In most cases, if they can’t get funding from a traditional bank, either they don’t have
any collateral, they haven’t been in business long enough . . . most banks want the
business to have been in existence at least two years. The reason for the two years is they
need to see some historical ability to repay. That basically means the business needs to
be generating revenue and they need to be in a profitable financial situation. Sometimes
they’re not, but I don’t give up on them. I continue to work with them, if they’ll allow us
to, to the point of helping them. [Subject 12]

If there’s another resource out there that I can use to help them to get the funding, it may
be a little bit more expensive than going into Union Bank or Bank of America, but at least
it gets them started. What we’ll do, is we’ll give them the option of getting this more
expensive money, and then getting the out of it as soon as we possibly can.” [Subject
12]

FSPs want AAEs to be better prepared to seek funding. They offer the technical
assistance to help.
“They need to be better prepared, and take this technical assistance that’s free. There’s
lots of organizations out there, like SBA, but I’m only going to talk about ours. We have
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the wherewithal to help them to get funding here locally in our office, if they fit. If they
don’t, we have access to get someone that can help you. The other thing is a lot of people
don’t want to do a business plan. For a startup, it is an absolute necessity. Even if
they’re trying to buy a franchise, the franchisor’s going to ask for a business plan.
They’re going to want to see what your projections look like, and so forth. But with a
franchise, the corporation will help you to do a lot of that stuff, then we can help you with
the funding.” [Subject 12]

FSP Subjects 14 and 16 acknowledge that the current technical assistance delivery
systems must be updated to meet current AAE needs. The delivery methods reportedly have not
changed in 30 years.
“We’ve got to get away from this antiquated way of doing things where people have got
to literally jump in the car, if they have one, or take public transportation, which is not
the safest thing at night, when the majority of these classes are being offered. We’ve just
got to business a different way, to make it more appealing for our potential clients to
participate. They need that knowledge, they need that experience, to know how to
prepare. A legitimate argument is this: if you have a business, and I know a ton of them
that have three or four or maybe five employees at most, if you tell that owner, “We need
you to come in. If you want us to help you get a loan, you’ve been in business three or
four years, and you want to get to the next level, we need you to come to these classes,”
he or she is going to look at me kind of crazy. “You mean I’ve got to leave my business
for three hours every Wednesday?” That’s huge for them.” [Subject 14]

“What I see in the technical assistance space is actually disappointing. People take
advantage, but not the number of people who probably should be taking advantage. You
look back on the history of technical assistance in LA, and it’s been basically delivered in
the same way for the last 30 years. There hasn’t been a lot of innovation that’s happened
in the technical assistance space. That’s where I think we will change. I think I’ll bring
innovation to that space, and allow us to do things that are really different from things
that have been done in the past. People have been so beaten down by requirements here,
processes and procedures there, that they haven’t or aren’t taking full advantage of
technical assistance opportunities today in the way that, in my view, they should. I think
that’s a function of the way training has been delivered historically in a community of
people that have been beaten down with requirements, and really had no help at the other
end.” [Subject 16]

FSP Subject 10 expressed an observation that there needs to be better coordination
between the organizations preparing technical assistance in developing loan packages and the
banks. Because the AAEs don’t always have the bank connections or contacts to deliver the
packages to, they require additional assistance in finding the right banking institutions.
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“I think what would enhance us in some areas is a better what I’m going to call
“handoff” between the folks providing the consulting services and the bank. The
tendency is for borrowers to go to some type of consulting service, whether it’s a Small
Business Development Center, whether it’s a Women’s Development Center, whether it’s
an LA Business Source Center, whoever they happen to go to. There are several different
avenues for that. And quote “We get them prepared,” but not the structure to get them
from that preparation session or sessions to the bank. There’s probably room for
improvement. How to do that? I don’t know. There’s a lot of different avenues to do
that, but again, it’s got to be resources that have to be applied to get that done.”
[Subject 10]

The data clearly shows that FSPs that deliver technical assistance could make a
tremendous difference in preparing AAEs for external financing. The better prepared the AAEs
they need, new methods of delivering information must be developed and distributed in an open
source platform, where it is accessible to all, 24 hours a day, seven days a week.
Finding 12: Facilitators have well-developed networks of lenders and other key
resources that AAEs could tap into, but they are not widely publicized

Getting to the right people in the right organizations is crucial to achieving the best
results for AAEs. Resources and expertise reside within the FSP ecosystem but all organizations
do not have the same level of knowledge, networks, and ability to match AAEs’ needs with the
available resources. Finding 12 highlights the fact that information and resources can be found
in organizations that exist to assist AAEs, but finding the right organization can be difficult for
them. This section presents the data that led me to draw the conclusion that well-developed
networks along with access to special expertise can be found in the existing organizations and
individuals, but this is not widely publicized. The comments captured below support this
finding.
Understand the lay of the land, and the available resources
“Here are some solutions that I call business literacy. To identify and partner, whether it
be via Chambers [of Commerce], or professional associations, to tap into different
programs outside of a bank, to learn all the moving parts. Or surround yourself with
those people who are subject matter experts in areas that you might not be. A doctor
might be great at doing brain surgery, and do well financially, but it doesn’t mean he
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knows anything about finance. So they’ve got to understand and be honest about their
skill set, their competencies, their experiences, and surround themselves with people.”
[Subject 20]

Relationships can be leveraged to benefit AAEs
“I have some key stakeholders, not shareholders, stakeholders . . . stakeholders involved
from a banking standpoint. I think we have a fabulous relationship with a lot of financial
institutions that have basically made it possible for our clients to get funding. They still
need to be in a position to repay it.” [Subject 12]

FSPs have written agreements connecting their relationships
“In some of the banks, we actually have an MOU [memorandum of understanding] with,
some organizations—keep in mind, this is how they make a living—they’re going to make
sure that I’m aware of what they do so that I can refer clients to them. It’s to their
benefit to make sure that I know what they do and what they’re offering, so that when I’m
in a situation when there’s an opportunity to refer someone to them, I can do that.”
[Subject 12]

FSPs can also leverage their relationships on the borrower’s behalf to get financing.
AAE’s have to know that they exist and where to find them. Information scarcity about
the available programs
“They didn’t talk to us. They didn’t come here. See, that’s what I mean. The problem
with this program is there’s still a lot of people that still don’t know that we are out there.
People don’t know that [these organizations] exist. The problem is, there’s no
advertising, there’s no marketing. These are federal dollars that we’re spending, and the
federal government says “You will not use money that we give you to help a client to
market.” [Subject 12]

Help is available, but the entrepreneurs have to do the work
“A lot of it’s up to the entrepreneur to come get the information, then go back to work
and really . . . that’s a plan you have to work. I know that a lot of the entrepreneurs are
torn between delivering their product vs. getting their house in order. So we try to come
up with a lot of ways that we can help them get their paperwork in order, and their taxes
in order. Companies want to see that kind of thing. They ask for a lot of information.
They want to be sure that, if they give them a contract, the small business is going to be
able to handle it in the long term. A lot of our success is one-on-one.” [Subject 7]

Technical assistance providers know the small, more responsive lenders
“Yes, we use a number of CDFIs. Opportunity Fund is one. There’s probably a list of a
dozen or so. In fact, I can give you a snapshot of some of the ones we work with because
I just got through meeting with my lending officer a few moments ago. Greenpoint,
Cathay Bank, American Services Bank. . . these are small lending institutions. We tend to
have more success with them than the larger banks, because the lending criteria and the
underwriting with the larger banks is just so tough.” [Subject 14]

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Technical assistance providers maintain existing networks that connect AAEs to people
and organizations to help them
“That’s why when I help Black businesses, I’ve been able to walk them through, because
I have relationships with the banks and the finance companies, so I walk them through as
far as you can. [The lenders are] already saying “Yes” before they even think about
meeting the client. I think you level the playing field that way, but I think the banks have
bias. I think that impacts their underwriting, and I think that’s the unwritten thing that
doesn’t show up in the numbers.” [Subject 19]

Subject 18, a successful business consultant who has helped clients get funded, explained
how people accessed his services. In essence, it was driven through referrals.
Sometimes the only way one can find or access an important resource is through
referral
“Most of the clients that I had were through the reputation that I established in financing
those segments. I didn’t branch off and look at doing something outside of the areas that
I had invested in. I didn’t do any advertising. And also, word of mouth. I didn’t do any
advertising. It was a small operation, I was not looking to be a big investment banking
firm. My relationships, referrals from clients, are how I typically got most of the business
that I did. There are so many different firms out there now. [People] really have a choice
of what kind of firm they want to deal with. There are different banks that have
specialties. [I went] to the conventions and establish[ed] relationships and networks
with them.” [FSP –Subject 18]

Another business consultant specialized in helping clients learn about the various ways to
finance business growth. When an AAE is not familiar with the type of capital they should be
seeking, connections to organizations and individuals can accelerate the critical learning curve.
This knowledge must be widely available to fine-tune the AAEs’ efforts to raise capital.
Business consultants are familiar with all the forms of capital
“So I developed skills, over time, to learn all of the different types of financing made
available to a business to help it operate. Equity and venture capital is only one form,
and bank financing on the other side, is only another. So I learned to specialize in all of
the forms of capital, all of what it takes to get a small business up and operating. I felt
the existing venture capital model is flawed when it comes to Black businesses.”
[Subject 19]

Important for AAEs to have people around them with expertise
“From a business perspective, a holistic perspective, all forms of capital, and all forms of
advice and consulting, are all meant to incubate at the same time, so that business
owners always have people around them thinking about, not just the capital, but the
operations, the markets . . . they’re always thinking, but there are structures set up to do
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it. They aren’t governmental, bureaucratic, they’re entrepreneurial. (This is where
consultants and buyers, advisers to the middle market, become the most valuable in how
you transition from 8(a), because you now have to qualify for credit, and sometimes the
subcontracts don’t work the same way. But also, sometimes it’s where the discrimination
is laced into this. It’s like, “Oh, you’re an 8(a) contractor. Stay there.” [Subject 19]

This finding focused on the tremendous amount of information and resources available to
AAEs by tapping into the various technical assistance providers and organizations in the
Financial Services Provider ecosystem. These organizations can connect and advise AAEs and
leverage their relationships to access funding, technical assistance, and the professionals who can
help them solve issues in their businesses. Whether they receive direct support through
programs, and technical assistance, or indirect support through referrals and events that allow
them to network, tapping in is an important step. Knowing where to start or where to go is not
always easy. It is clear from the data that a huge need exists for more publicity about the
programs that are available.
Finding 13: Facilitators operate in silos with not enough collaboration to push
banks to do more, work together on deals, or disseminate comprehensive
information to the AAE business community

Finding 13 focuses on the fact that many of the FSPs exist in operational silos. They
know that organizations exist, and maintain positive relationships with them, but may not have
developed a working relationship whereby they collaborate on deals or collaborate on how to
leverage resources to address the problems AAEs are facing systemically in accessing the capital
they need to start and grow their businesses.
FSPs acknowledge and recognize the need to collaborate more, but this is new territory
“(Organization) doesn’t have a history of collaborating, so it’s been more of a “go it
alone” type of attitude. My attitude is different. I want to find ways to collaborate as
much as I can, and make sure that we can get as much money on the street as we possibly
can. If I’m working with an organization where I partner up, and I take a portion of the
financing, and someone else does it, then that’s cool. That’s exactly what the big banks
do. They work together, partner up, and they reduce their risk by doing that. I think
there’s not only opportunities, there’s high demand for that. I’m familiar with all of these
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organizations, but I’m embarrassed to say I’m not sure what they all are doing.”
[Subject 14]
FSPs operate too much in silos. They would like greater collaboration
“I think that’s a major challenge for us—to be able to get out of our silos. I encourage
collaboration, but it’s just the knowledge of what you’re doing. We have very limited
resources, and our capacities are limited, particularly in 501 c(3)s. We need to
understand what those other organizations are doing and leverage our resources with
them to try to overcome some of these obstacles with them and try and enhance the
quality of life for our folks in the areas we represent. So absolutely, yes, we’ve got to do
a better job.” [Subject 14]

No one speaking to the banks on behalf of the community to change their risk
tolerance
“I think the most critical thing you asked is, “Why is there a valley between the two silos,
and nobody’s really serving as the go between to speak on behalf of the communities to
get the bank to understand that they need to shift their risk tolerance for those
communities?” I think there’s been so much chaos since the Great Recession. They say
it started in 2008. It actually started in 2006, maybe even earlier. Lasted through 2013.
There’s just been this chaotic shift of what’s important and what isn’t. I think the
communities have suffered, to the largest extent, because the banks are really focused on
stockholder value, and rightfully so. But then, there’s another value to the stock that’s
community driven. I don’t think we’ve quite defined how we’re going to approach that.
[Subject 19]

Infrastructure missing to bring everything and everyone together
“We need infrastructures, whether they be tied to academic institutions, business schools
that are permanently funded that are tied to venture capital and other capital sources.
There needs to be permanent vehicles, and they need to be set up regionally, in every
market in this country.” [Subject 19]

Finding 14: Facilitators cite an absence of African-American owned banks as an
impediment to more loans to AAEs, and as well a general absence of AAEs in
influential bank positions

One of the key missing elements in the financial landscape of Los Angeles County is
African-American-owned banks that offer business loans. The FSPs commented about this as a
challenge in their efforts to lend to AAEs. The other part of this finding is the limited number of
African-Americans in decision-making positions to speak up on behalf of African-American
entrepreneurs.

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Existing African-American –owned banks offer non-business products
“We would love to do business with African-American owned banks. Here’s the
challenge: most of those banks deal only with real estate, mortgages, and consumer
business. If you want to be successful in the lending side, you’ve got to have a base of
services.” [Subject 17]

FSPs point to a lack of AA-owned banks
“My view, we had a recession that pretty much impacted the entire nation, because of the
rates. Unfortunately, African-American businesses seem to be the last to get back to pre-
recession levels of access to capital. The recession certainly added some challenges that
were not there previously. Also, there is a lack of financial institutions, that are
controlled by African-Americans. In general, what I see is that a bank’s portfolio will
pretty much mirror those that are in control. If you have a Korean bank, then they’re
going to market and lend to Korean businesses. A Latino bank—they’re going to market
and lend to Latino businesses. A Caucasian bank, quite naturally, the majority of their
clients are Caucasian businesses. We do not have, at least in the City of Los Angeles,
one African-American financial institution that does business loans.” [Subject 15]

Need more African-Americans at the tables where decisions are made
“You have to have people of color who sit at the table and make decisions. Otherwise, I
tell people, “If we’re not at the table, we’re on the menu.” It’s important for me to
understand the transaction or a deal, and that we’re consistent so favoritism or bias is
not a part of how decisions are made. So over the years, we really—and I know a lot of
the banks do the same—but we really do provide a reasonable grey area to have a
manager tell the story on behalf of a client.” [Subject 4]

Finding 15: - Facilitators recognize a disconnect between the messaging lenders use
to communicate their loan programs and the expectations of AAEs

One FSP emphasized the messages that lenders use to communicate their loan programs
to AAEs. Although one quote brings out this point, it captures the frustration that many AAEs
express, except that it comes from someone charged with providing information and resources to
small businesses. Her perspective comes from observing presentations and conversations from
bankers multiple times and recognizing that the majority of the AAEs in the audience cannot
meet the qualifications to succeed in getting approved for a loan. Although there is one quote for
this section, I believe it captures the sentiments of many more. For that reason and the
exploratory nature of the research, I have included it as a finding.
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“You’re not doing a workshop to walk them through qualification. You’re not trying to
do anything except advertise that ‘Hey, we’re [Name of bank] small business banking
and we have funding. Apply today’ knowing that 90% of the applications, you’re going
to deny. (Here’s what I believe. I know a lot of the business bankers in [Name of area],
from [Name of bank] to [Name of bank] to [Name of bank]. I can meet any of them. It’s
pretty much all the same. They’re required, they’re mandated, that they’re supposed to
put forth a good-faith effort. Put the money out there, and that’s all they do. They just do
the bare minimum.” [Subject 9]

Finding 16: Facilitators observe evidence of racial discrimination against AAEs

Finding 16 brings up the issue of discrimination. The facilitators in the financial services
provider ecosystem observe behaviors and actions across many different applicants and
circumstances, over time. They shared observations that led them to draw the conclusion that
discrimination against AAEs was involved.
Historical discrimination a big impediment to people of color accessing the capital
needed to start and grow their businesses
“Entrepreneurs of color have traditionally not been able to access credit and capital like
others. They just have not the wherewithal, the ability, to access conventional financing.
There are a whole host of reasons. It’s not always on the lender. But a significant part
of that has to do with some discrimination, some racism, some red lining that has
prevented a lot of businesses from being able to access capital to be able to either start,
expand, grow their particular businesses. That’s historical. As a result of that, what
happens is there are lots of kind of subsidy programs with the SBA or other kinds of
initiatives that have been developed over the years that have replaced traditional lending.
Whether it’s coming out of banks or credit unions or what have you, but still the lack of
access to capital is one of the biggest impediments to people of color either starting a
business or growing and expanding their businesses.” [Subject 18]

Access denied at every stage
“You get … someone who’s been in business for a few years, and now they’re looking for
some capital to expand, grow . . . they’re in a little bit of a different situation than
someone who’s starting out . . . and hell, they’ve got a track record, and even then, they
can’t access. In those instances, sometimes, they need equity versus debt. They can’t get
equity. You can’t get that. It’s just very difficult, for whatever reason. I think a lot of it
has to do with discrimination and racism. I just don’t know how you deal with that.”
[Subject 5]

Black on black discrimination also occurs
“[Sometimes] when you go to a Black banker in a white environment, she’s got other
things that she’s talking about. If I make this loan to this Black company and they go
belly up, it’s going to make me look bad. They take it personal. Then, if they make a
207

loan to you, and it goes belly up, they’re going to think it’s another Black person doing it
to them. But, in all fairness to that banker, their associates, if one does go belly up, a lot
of times they think, oh, they’re on the buddy system, because that company was a Black
company. The Black banker doesn’t go to the white banker and say, “Oh, you made a
loan to a company, and it didn’t go well because you made a loan to a white company.”
A lot of those underlying issues, that shouldn’t be part of the equation, they are part of
the equation.” [Subject 5]

Low loan performance for AAEs is evidence that no system exists for getting capital to
them
“What happens is, when people walk in the room who are Black, they don’t get capital.
All kind of excuses and reasons, so America, which should have a strong, strategic
relationship between Black businesses in America and Africa, has zero. When I saw
three years ago…an SBA regional director gave a presentation, and he said [out of] 1.3
billion dollars made in SBA loans that last year, 2.2% went to Black businesses. I did the
calculations, and I’m like “Wait a second. That’s under 30 million dollars.” You’re
going to tell me that Chase, B of A, Citi, Wells, all these big banks plus the SBA, with a
guarantee, did 30 million dollars last year in the largest market in the country? That’s
less than I was doing at the Black owned bank in a month. I said, “No.” The system for
incubating and getting capital to Black owned business—it’s not broken. It’s nonexistent.
We don’t have the type of infrastructure set up. It has to be everything from incubation to
real business hands-on to capital on a continual basis. We’re correcting a problem with
centuries of bullshit.” [Subject 19]

AAEs could raise their standards to meet qualifications, but racism needs to go away
“I think that, with Black owned businesses, it’s imperative that the businesses raise their
standard to the highest standard. That has to be the approach for Black businesses—
that, whatever that underwriting criterion is, I want to make that. Bank standards are not
unreasonable—you just want the racism to go away. I think that, if Blacks get the racism
to go away and get avenues of equity capital, other forms of capital, then I think the
underwriting standards can stay the same. If it’s a major bank, it’s sheer
institutionalized discrimination. The reason why I say that is because it’s the rounding
errors for their reserves. They’re not doing anything. [One large bank] helped us set up
a national lending fund. They contributed $3 million to it. That’s an insult. They’re not
taking us seriously. No. We’re not taken seriously, and we don’t have the type of
infrastructure that supports black businesses to be taken seriously.” [Subject 19]

Clearly the data indicates that racial discrimination effects lending decisions in addition
to the deficiencies noted by the facilitators. Addressing this challenge will require collective
planning and action to reveal it when observed and to fight against it to achieve better results for
African-American entrepreneurs.

208

Conclusions From the Findings for Research Question 2

In sum, the qualitative data collected for Research Question 2 from interviews of 20
Financial Services Providers revealed 16 key findings about the challenges they face in
deploying capital to African-American entrepreneurs. This group represents some of the largest
banks in the area, the main African-American business associations, the most active CDFIs
serving African-American entrepreneurs in Los Angeles County, and the federal and state public
agencies providing credit enhancements to lenders. Lenders explained the hurdles that constrain
their efforts to deploy more capital to AAEs, and facilitators explained their issues in teeing up
the AAEs for external financing and providing meaningful technical assistance.
The interview data captures some of the attitudes, beliefs, and behaviors that influenced
their actions. Nine of the findings involve attitudes or attitudes with behaviors; two involve
beliefs with attitudes, and 12 involve behaviors or behaviors with attitudes (Figure 5.7). For this
group, behaviors outweigh attitudes, but the influence of attitudes on behavior must be
considered in addressing findings that can help develop workable solutions to the efforts to
deploy capital to AAEs.

Lenders Findings Attitudes/Perceptions
Beliefs & Behaviors
1 Lenders have considerable ambivalence about lending
to AAEs
Attitude/Perception
Behavior
2 Lenders balance regulatory compliance with serving
the needs of the AAE community
Behavior
3 Lenders in banks operate in a shareholder-driven
environment where costs and profitability take
precedent over corporate responsibility
Attitude/Perception
Behavior
4 Lenders are able to meet their CRA test by
supporting/funding technical assistance programs and
non-profit lenders when they don’t make loans to
AAEs.
Behavior
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5 Lenders lack sufficient training on how to assess the
strengths of AAEs and communicate the programs they
offer more responsibly
Attitude/Perception
Behavior
6 Lenders confirm that building relationships with
branch managers and other key officials in the lending
landscape is still important even in this age of
centralized loan decisions
Attitude/Perception
Behavior
7 Lenders representing CDFIs or mission-driven lenders
have flexibility when evaluating credit and collateral,
but are evaluated on performance and are just as
concerned about repayment
Behavior
8 Lenders representing CDFIs or mission-driven lenders
have flexibility to offer smaller-sized loans. When
they do they deploy funds to AAEs.
Behavior
Facilitators
9 Facilitators indicate that there are funds available, but
many AAEs are not applying for them
Attitude/Perception
Behavior
10 FSP - Facilitators express both frustration and
understanding that many AAEs do not have their
business affairs in order but fail to take steps to correct
them
Attitude/Perception

11 FSP - Facilitators observe that AAEs sometimes ask
for loan funds when they actually need technical
assistance, but the providers must make it easier for
them to access it
Behavior
12 FSP - Facilitators have well-developed networks of
lenders and other key resources that AAEs could tap
into, but the information is not widely publicized
Behavior
13 FSP - Facilitators operate in silos with not enough
collaboration to push banks to do more, work together
on deals, or disseminate comprehensive information to
the AAE business community
Attitude/Perception
Behavior
14 Facilitators cite an absence of African-American owned
banks as an impediment to more loans to AAEs as well
a general absence of AAEs in influential bank positions
Attitude/Perception

15 FSP – Facilitators recognize a disconnect between the
messaging banks use to communicate their loan
programs and the expectations of AAEs
Attitude/Perception
Belief
16 FSP - Facilitators have observed evidence of racial
discrimination against AAEs even when they do meet
stated criteria
Belief
Attitude/Perception

Figure 5.7. Summary of Findings for Research Question 2 by Attitudes/Perceptions
/Beliefs/Behaviors

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Research Question 3
“What information can be shared with African-American entrepreneurs to shorten their
journey to success by improving their potential to secure the capital they need?”

This section identifies the quantitative and qualitative findings for Research Question 3.
In the first set of analyses of quantitative data, I examined the relationship between descriptors
about the AAE’s business, and three success measures: 1. whether or not the entrepreneur got a
loan (no/yes); 2. whether or not the entrepreneur had unmet capital needs (no/yes), and 3. gross
revenue over the previous 12 months (ranged from 1 for “less than $99,999” to 5 for “$5 million
- $24,999,999). The first measure, obtaining a loan, was considered a measure of success
because the AAE was able to work through the complex qualification process. Only 14 of the 28
AAEs said yes on this variable. The second measure, whether the AAE had unmet capital needs,
was considered a measure of failure if the AAE said yes because it meant that the AAE was not
able to obtain adequate funding from the financial industry. Seventeen (17) reported having
unmet capital needs. The last measure, gross revenue, was used as a proxy for business success.
For this analysis I converted the original five revenue categories into to just two categories. As
reported earlier ten AAEs reported gross revenues of less than $500,000, and 16 reported gross
revenues of greater than $500,000.
Using these three (3) measures as dependent variables, I examined which characteristics
of the business and the AAE were related to these dependent variables using t-tests when only
one of the variables was ordinal scaled, and chi-square when both variables were binary.

211

Table 5.25 summarizes the results of the data analysis.
Table 5.25
Data Analysis - Three Dependent Variables

Independent Variables Dependent Variables
Codes Got a
Loan
Unmet
Capital
Needs
Gross
Revenue
Had technical training before owned business
2=Yes
(1,2) N.S. N.S. N.S.
From a family business 2=Yes (1,2) N.S. N.S. N.S.
Worked in family business 2=Yes (1,2) N.S.
Definite
Trend
N.S.
Finding 1: 1st business 2=Yes (1,2) p<.10 N.S. N.S.
Primarily sell direct to public 2=Yes (1,2) N.S. N.S. N.S.
Finding 2: Geographic markets served (1→5) p=.10 N.S. p<.05
Finding 3: Received technical assistance in
raising capital 2=Yes
(1,2) N.S. p<.10 p<.05
Finding 4: Number of financial sources (1→8) p<.05 N.S. N.S.
Finding 5: Did not apply for loan 2=Yes (1,2) N.S. p<.05 N.S.
Investors 2=Yes (1,2) N.S. N.S. N.S.
Finding 6: Received technical assistance in
marketing 2=Yes
(1,2) N.S. p<.01 N.S.
Received technical assistance in management
2=Yes
(1,2) N.S. N.S. N.S.

212

Summary of Findings for Research Question 3
Figure 5.8 summarizes the quantitative data analysis for Research Question 3.
Findings
1 AAEs whose business is their first are more likely to
obtain a loan
2 The larger the geographic markets, the more likely the
AAE will obtain a loan and have larger revenues.
3 Receiving technical assistance in raising capital is related
to unmet needs and gross revenue
4 Number of financial sources is related to getting a loan
5 Whether you apply for a loan or not is related to having
unmet capital needs
6 Receiving technical assistance in marketing is related to
having unmet capital needs
Figure 5.8. Findings from the Statistical Analysis of AAE Surveys
Survey Findings for Research Question 3
Finding 1: AAEs whose business is their first are more likely to obtain a loan
Apparent from the chi-square test (Table 5.26), AAEs operating their first business were
more successful at obtaining a loan. The most logical reason relates to the financial position of
the AAEs. First businesses represent the first entity to encumber what may be limited equity in
real estate to serve as required collateral for a loan. Once that equity is encumbered the property
cannot secure another loan unless the loan is paid in full and the obligation released. Higher
credit scores may also be a factor prior to starting a business that puts the first business in the
best position for approval.

213

Table 5.26
Crosstab for First Business X Obtaining a
Loan
Count
Financing
Loan?
Total
No Yes
1stB
us?
No 6 2 8
Yes 7 12 19
Total 13 14 27
Chi-Square Tests

Value

df
Asymptotic
Significanc
e (2-sided)
Exact
Sig. (2-
sided)
Exact
Sig. (1-
sided)
Pearson Chi-Square 3.283 1 .070

Continuity
Correction
1.933 1 .164

Likelihood Ratio 3.387 1 .066

Fisher's Exact Test

.103 .082
Linear-by-Linear
Association
3.162 1 .075

N of Valid Cases 27

Finding 2: The larger the geographic markets served, the more likely the AAE will
obtain a loan and have larger revenues
Geographic markets ranged from 1=local to 5=international. A t-test was conducted to
determine if those obtaining a loan also served larger markets. The results of the t-test indicated
only a marginal relationship, such that those obtaining a loan tended to have larger markets.
Table 5.27.
Group Statistics for Geo Markets

PreFinLoan

N Mean
Std.
Deviation
Std. Error
Mean
t-test (df),
Sg
GeoMkts 1.00 no loan 13 1.92 1.038 .288
-1.706 (26),
p=.10
2.00 yes loan 15 2.60 1.056 .273

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Finding 3: Receiving technical assistance in raising capital is related to unmet needs
and gross revenue

The Chi-Square indicates that those receiving training are less likely to have their needs
met. This is the reverse of what we expected, suggesting that those with unmet needs may be
more likely to seek out capital assistance training.
Table 5.28.
Crosstab for Received Technical Assistance in
Raising Capital
Count
Unmet Capital
Needs

Total
1 NO 2 YES
Received
t.a. in
raising
capital
1.00
NO
7 8 15
2.00
YES
1 8 9
Total 8 16 24
Chi-Square Tests

Value

Df
Asymptotic
Significance
(2-sided)
Exact
Sig. (2-
sided)

Exact Sig.
(1-sided)
Pearson Chi-
Square
3.200 1 .074

Continuity
Correction
1.800 1 .180

Likelihood Ratio 3.546 1 .060

Fisher's Exact Test

.178 .087
Linear-by-Linear
Association
3.067 1 .080

N of Valid Cases 24

215

Finding 4: Number of financial sources is related to getting a loan
I asked the AAEs to indicate which of 17 of financial sources they used within the past
12 months to meet their capital needs. They were able to check all that apply, allowing for the
possibility of up to 17 financial sources selected. However, the most that any one respondent
selected was eight. A t-test of the relationship between the number of financial sources and
whether they obtained a loan or not indicated, strongly, that those using more financial sources
were more likely to also obtain a loan. The average number of sources for those obtaining a loan
was 4.3, compared to 2.0 for those who did not.
Table 5.29.
Group Statistics for Number of Financial Sources Used

PreFinLoan

N

Mean
Std.
Deviation
Std. Error
Mean
t-test (df),
Sg
Number_of
Financial
Sources Used
1.00 no loan 13 2.6154 1.55662 .43173 -2.354 (26),
p=.026
2.00 yes loan 15 4.3333 2.19306 .56625

Finding 5: Not applying for a loan is related to having unmet capital needs

The Chi-Square test indicates a strong relationship between not submitting an application
for a loan and having unmet capital needs. In other words, if these AAEs don’t apply for a loan,
their capital needs are less likely to be met. Although this seems to be an intuitive result, for
individuals who refrain from submitting an application for fear of being declined, when they
actually could be successful, the results of the decision could be harmful on their businesses.

216

Table 5.30
Crosstab for Unmet Capital Needs and Not
Applying

Unmet Capital
needs?

Total 1-No 2-Yes
No
application
submitted?
1 NO 4 1 5
2 YES 3 14 17
Total 7 15 22

Chi-Square Tests

Value

df
Asymptotic
Significance
(2-sided)
Exact
Sig. (2-
sided)
Exact
Sig. (1-
sided)
Pearson Chi-Square 6.924 1 .009

Continuity Correction 4.348 1 .037

Likelihood Ratio 6.674 1 .010

Fisher's Exact Test

.021 .021
N of Valid Cases 22

Finding 6: Receiving technical assistance in marketing is related to having unmet
capital needs

A significant Chi-Square suggests a strong relationship between getting technical
assistance in marketing and having unmet capital needs. This was surprising, but the direction of
causation is not clear. Perhaps, once the AAE realized he/she had unmet capital needs, he/she
sought out training. Efforts to increase sales often come with a need for growth capital, working
capital and other supportive financing.

217

Table 5.31.
Crosstab for Unmet Capital Needs
And Received Technical Training in Marketing
Count of Unmet Capital Needs
1-No 2-Yes Total
Received
t.a. in
Marketing
1.00 No 4 0 4
2.00 Yes 4 16 20
Total 8 16 24

Chi-Square Tests

Value

df
Asymptotic
Significance
(2-sided)
Exact Sig.
(2-sided)
Exact
Sig. (1-
sided)
Pearson Chi-Square 9.600 1 .002
Continuity Correction 6.338 1 .012
Likelihood Ratio 10.537 1 .001
Fisher's Exact Test
.007 .007
Linear-by-Linear
Association
9.200 1 .002
N of Valid Cases 24

In sum, the following three factors seemed to be related to getting a loan: 1. first
business (p<.10); 2. geographic markets served (p=.10); and 3. number of financial sources
(<.05). Entrepreneurs who were operating their first business were more likely to have received a
loan than if they had operated previous businesses. Those operating I larger geographic markets
were also more likely to have received a loan. Finally, entrepreneurs who used several sources
to meet their financial needs were more likely to have received a loan.
The next dependent variable analyzed was “unmet capital needs.” The analysis identified
three significant variables: 1. received technical assistance in raising capital (p<.10); 2. Received
technical assistance in marketing (p<.01); and 3. Did not apply for a loan (p<.05. The results
suggest that entrepreneurs who had worked in a family business were more likely to have unmet
218

capital needs. Further, entrepreneurs who received technical assistance in raising capital were
more likely to have unmet capital needs, as were those who received technical assistance in
marketing and those who did not apply for a loan.
The third dependent variable was “Gross Revenue.” The analysis revealed two
significant variables: 1. geographic markets served (p<.05); and 2. received technical assistance
in raising capital (p<.05). This suggests that the likelihood of generating gross revenue of
$500,000 and above was positively influenced by the size of the geographic market served. The
broader the market served, the greater the potential for higher sales. Those who received
technical assistance in raising capital were less likely to have received a loan.
For geographic markets covered, the data support the intuitive expectation that the
broader the coverage, the more likely it is that the entrepreneur will have larger revenues and
obtain a loan. This would specifically apply to AAEs serving national markets and those who
serve international markets. Both market areas require more resources and more sophistication
than local market coverage, which could enhance the experience and resourcefulness of the
AAE. The statistical analysis also indicated that using more than one financial source to address
the financial needs could increase the likelihood that the AAE will receive a loan. The analysis
suggests that the AAEs who are blending their financial structure are more likely to get a loan.
Using multiple financing sources could mean the AAEs are wisely leveraging opportunities to
maximize their cash flow, rather than relying on a single source of financial resources that may
be inefficient or costly—as in using a term loan to finance accounts receivables rather than a line
of credit in which only the funds needed are utilized. The resulting effect on their financial
statements could positively influence a loan decision.
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Whereas the statistical analysis offered an independent view of access to capital for the
AAEs who completed the online survey, additional information directly from AAEs with
significant experience in this area provided anecdotal information. It captured their advice in the
qualitative data analysis findings provided in the following section.
Qualitative Data Findings for Research Question 3
In addition to the quantitative analysis, 20 of the entrepreneurs who were interviewed in
the study offered advice about how to succeed in securing capital. Again, all of the
entrepreneurs were African-American entrepreneurs. All faced challenges securing capital for
their businesses. Sixty-two percent (61.9) of this group were successful in raising external
capital for their businesses. These findings cover five areas: 1. financial matters, 2.
relationships, 3. management matters, 4. leadership matters, and 5. resilience. These are listed
below in Figure 5.9.

Findings
7 AAEs advise that the top priority should be on financial
matters
8 AAEs advise that the second highest priority should be
on nurturing and building business relationships
9 AAEs advise that the third highest focus area should be
on management matters
10 AAEs advise that the fourth highest focus area should be
on leadership matters
11 AAEs advise that the fifth highest focus area should be
on resilience
Figure 5.9. Summary of Findings for Advice from AAEs

Table 5.32 below lists the advice the AAEs provided in response to questions about
lessons learned over the course of their time in business. As expected, they offered a wide range
of answers, some longer than others. Responses went from one idea to multiple ideas embedded
in their stories. I compiled their responses by summarizing the key points, then axial coding them
220

by key areas that had been brought out in the data. Appendix G: Advice and Lessons Learned
From AAEs provides excerpts from the interviews of the 20 AAEs who offered their lessons
learned.
Finding 7: AAEs advise that the top priority should be on financial matters

Finding 7 represents the area with the largest number of responses from the
entrepreneurs. Based on their experiences, the priority for an AAE seeking external capital is to
begin with financial matters. This would mean starting with, maintaining, or correcting financial
issues, such as credit scores, bookkeeping, tax returns, financial statements, and cash flow. This
finding is important because it comes from fellow AAEs who have experienced and overcome
challenges in accessing capital, and or figured out workarounds that allow them to continue
moving forward with their business goals.
It is clear from the data that making sure the business is able to produce good records and
protect the AAEs personal credit history as much as possible is an essential first step in securing
external capital. This finding suggests that resources must be available to AAEs to establish,
maintain, and correct conditions when these areas are weak in a business. They should be able to
access the experienced professionals who understand how to address the issues that plague so
many AAEs and restrain the development of their businesses.
Finding 8: AAEs advise that the second highest priority should be on nurturing and
building business relationships

Finding 8 elevates the importance of developing and maintaining relationships in
business. Fifty-five (55) percent of the AAEs chose to include relationships in their advice,
representing the second most common area of importance. The AAEs emphasized building
personal relationships with bankers, valuing relationships, building networks, and expanding
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reach beyond one group. As one person put it, “People don’t do business with strangers.”
Another went so far as to say “relationships trump capital.”
This advice seems simple on the surface, however, developing relationships requires
AAEs to get out of their businesses to participate in organizations, attend events, and increase
their opportunities to meet new people and strengthen existing relationships. One of the most
successful AAEs in the interview cohort explained his strategy for determining which events to
attend, emphasizing that the need to network does not cease as the business matures. Changing
priorities, staff turnover, opportunities and issues in the dynamic world of business necessitates
building and nurturing relationships. Others mentioned establishing goals when attending
networking events. Not all AAEs understand the art of starting and building relationships.
Clearly, given the importance AAEs place on relationships with bankers and other professionals,
additional training on how to successfully build, value and nurture relationships would be an
important area of focus for technical assistance. Currently, organizations create the opportunities
for AAEs to network, however, without specific guidance on how to approach it, these
opportunities will produce a fraction of the potential results.
Finding 9: AAEs advise that the third highest focus area should be on management
matters

Finding 9 turns the attention to the role strong management plays in the ability to secure
capital for an AAE business. Forty-five (45) percent of the entrepreneurs mentioned this category
as important. They advised to know the business, its customers and cost accounting; have a
strategic plan; get the business foundation together; do the necessary homework; and be ready to
answer the questions asked when pitching the business. Strong management clearly reveals itself
in the ability to communicate the goals, values and vision of the company, provide current
financial statements, and execute a well-thought out business plan, among other things. It also
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shows when networking and conversing with bankers and other professionals in efforts to build
personal relationships. What this finding suggests is that technical assistance providers should
continue to offer assistance in enhancing management skills and that they should be actively
promoted.
Finding 10: AAEs advise that the fourth highest focus area should be on resilience

Finding 10 shifts the focus to the importance of resilience in the face of obstacles and
resistance that will come up in the efforts to seek capital and survive and thrive in business.
Thirty five (35) percent of the AAEs offered advice related to the importance of resilience.
Statements included: don’t let anybody stop you; be persistent; the fight is to accomplish; just
have thick skin; don’t be quick to give up; and you always get knocked down.
Their advice seemed to warn that on the entrepreneurial journey, people, circumstances,
situations, and personal shortcomings will come up from time to time threatening to stop them
from continuing. They suggest that the decision to continue or quit resides within the
entrepreneurs and his/her ability to stand strong.
Finding 11: AAEs advise that the fifth highest focus area should be on leadership
matters

Finding 11 concludes the AAEs’ advice with attention to leadership. Thirty (30) percent
of them identified the need to exercise leadership in their business and particularly in their
pursuit of capital. Comments included: don’t look for permission; know what you stand for; be
consistent; surround yourself with people who give you wisdom; find a mentor; and have a thirst
for learning.

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Table 5.32.
Listing of AAEs’ Advice
Advice Category # %
Accounting practices have to be top notch. Financial 1

Fastidious about record keeping. Financial 2

Set your books up properly. Financial 3

No shortcuts. Financial 4
The most important thing is credit. Financial 5
Invest in real estate. Financial 6
Always have your own. Financial 7
Credit score. Financial 8
Don’t wait until you need money. Financial 9
Get it when you don’t need it. Financial 10
Take out a loan. Financial 11
Don’t spend all of your money. Financial 12
Your credit score is your backbone. Financial 13
Understand the importance of credit scores. Financial 14
Capital of your own. Financial 15
Learn about all of the different financing tools and
approaches.
Financial 16
Have some of your own money. Financial 17 85.0%
You’ve got to have a relationship with a banker. Relationship 1
Exposure, relationships, visibility. Relationship 2
Relationships trump capital needs. Relationship 3
Network. Relationship 4
Build personal relationships. Relationship 5
People won’t open up to strangers. Relationship 6
Learn how to leverage relationships and how to
network.
Relationship 7
Network. Relationship 8
Build relationships. Relationship 9
Maintain and value relationships. Relationship 10
Build relationships beyond one group. Relationship 11 55.0%
Know your business, customers and cost accounting Management 1
Strategic plan Management 2
Have a solid plan. Management 3
First, get your foundation together. Management 4
Really understand what you’re doing. Management 5
Learn how to put yourself and your company on paper
so that you look viable.

Management 6
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Advice Category # %
Be persistent. Management 7

Do your homework. Management 8

When you make your pitch, provide the answers to the
questions.
Management 9 45.0%
Don’t look for permission. Leadership 1

Know what you stand for. Leadership 2

Be consistent. Leadership 3

Surround yourself with people who give you wisdom. Leadership 4
Find a mentor. Leadership 5
Have a thirst for learning. Leadership 6 30.0%
Don’t let anybody stop you. Resilience 1
The fight is to accomplish. Resilience 2
Just have thick skin. Resilience 3
Don’t be quick to give up. Resilience 4
Be prepared to not give up. Resilience 5
You always get knocked down. Resilience 6 30.0%

Conclusions From Findings for Research Question 3
The findings for Research Question 3 summarize all of the research activities to offer
statistical results and recommendations that could lead to more African-Americans securing
capital for their businesses. Figure 5.10 presents a summary of the findings for Research
Question 3. Analysis showed that first time business owners were more likely to obtain a loan;
the larger the geographic markets, the more likely they were to obtain a loan and to generate
larger profits; and receiving technical assistance in raising capital is related to unmet needs and
gross revenue. Statistical analysis also showed that the number of financial sources used is
related to having unmet capital needs; whether or not they apply for a loan is related to having
unmet capital needs; and receiving technical assistance in marketing is related to having unmet
capital needs.

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The next part of the findings covered advice from AAEs for others on their
entrepreneurial journey. They advise that given a difficult environment for raising external
capital, AAEs must make getting their financial house in order their top priority. Specifically,
they pointed to good record keeping, protecting or improving their credit scores, investing in real
estate, seeking outside capital before it is needed, and learning about the various types of capital
available. Their second priority must be in building good relationships, especially banking
relationships. Their comments suggest that building a strong network brings direct and indirect
benefits that one respondent suggested is more important than money. The third priority was
placing a deliberate focus on management. Here they emphasized planning, understanding their
business and customers very well, and solid preparation. The final two areas were resilience and
leadership. In the area of resilience, they acknowledged that they will be knocked down, but
resistance must be met with persistence, a prior decision to not give up, and a thick skin. Advice
on leadership focused on areas that support a good reputation, such as knowing what you stand
for and being consistent. Their comments also encouraged continuous learning by surrounding
themselves with people who give them wisdom, finding a mentor, and other means of building
knowledge.
Findings for Research Question 3 Attitudes/Perceptions
Beliefs & Behaviors
1 AAEs whose business is their first are more
likely to obtain a loan
N/A
2 The larger the geographic markets, the more
likely the AAE will obtain a loan and have
larger revenues.
N/A
3 Receiving technical assistance in raising
capital is related to unmet needs and gross
revenue
N/A
4 Number of financial sources is related to
obtaining a loan
N/A
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5 Whether you apply for a loan or not is related
to having unmet capital needs
N/A
6 Receiving technical assistance in marketing is
related to having unmet capital needs
N/A
7 AAEs advise that the top priority should be
on financial matters
Behavior
8 AAEs advise that the second highest priority
should be on relationships
Behavior
9 AAEs advise that the third highest focus area
should be on management matters
Behavior
10 AAEs advise that the fourth highest focus
area should be on leadership matters
Behavior
11 AAEs advise that the fifth highest focus area
should be on resilience
Attitude/Percepiton
Behavior
Figure 5.10. Summary of Findings for Question 3

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Chapter 6. Discussion
Making It: A Strategies Primer for African-American Entrepreneurs Seeking Capital in
Los Angeles presents exploratory data on the attitudes and behaviors of both AAEs and the
financial services provider ecosystem by collecting and analyzing data and stories that emanate
from them directly, rather than from analyses of aggregated secondary data on disparities in loan
performance. It does not treat AAEs as a group average, as the stories captured in this research
show diversity in thinking and in the sizes of their firms. The stories collected from the AAEs in
my research represent stories that should be told. For that reason, many large excerpts from their
interviews appeared in this dissertation.
So what does all of this mean in the total scheme of things? Figure 6.1 provides a
commentary on each of the findings from the qualitative data for Research Question 1, “How
have African-American entrepreneurs in Los Angeles overcome the challenges they faced in
accessing capital to build their companies?”

Quantitative Data
Findings
Commentary
1 AAEs acknowledge the
difficulty of raising capital
yet keep moving forward
They are under no delusions about the circumstances, but
the challenges do not put a period on their hopes, dreams
and aspirations.
2 AAEs expect positive
growth for their businesses
By believing that the business will grow as time passes,
the AAEs are able to fuel their hope. Their energy is
deliberately placed on possibilities that they can perhaps
influence, rather than those they cannot change. They do
not dwell on the negative aspects of business. As a
result, they demonstrate staying power and long-term
commitment to their businesses.
Figure 6.1. Commentary on Research Findings for Question 1

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3 AAEs avoid perceived
unproductive/negative
efforts to secure financing
They assess the wisdom of pursuing what may turn out to
be futile attempts to raise capital. But declines effect
their emotional states as well. They can also waste time.
Experiences, stories from the field and urban legends
have taught them to be skeptical about their personal
opportunities to secure capital. Sometimes the
assessments are correct, sometimes not. Being difficult to
decipher, many choose not to participate. Mistrust of the
banking system and practical realities may keep them
from applying, and protect sometimes fragile emotional
states concerning their businesses. These perceptions
represent attitudes that must be addressed in order to
affect new behaviors. The suggested new behaviors
would be for AAEs who do not qualify for funding to
begin to plan to improve their financial profiles, as
opposed to recognizing that they do not meet the criteria
and that becomes the end of the story. Other suggestions
would be for them to gain a better understanding of all of
the options available to them and pursue them more
aggressively.
4 AAEs seek technical
assistance, but not
necessarily in raising
capital
The participants in this study most all had at least some
exposure to college. Many sought out and received
beneficial technical assistance in improving marketing
techniques and management skills, but it appears they
avoid seeking technical assistance for raising capital,
much in the same way they avoid applying for funds.
New forms of technical assistance must be created to
break this cycle. Rather than the typical loan packaging
assistance that is one form of technical assistance for
raising capital, courses are needed that educate AAEs on
the numerous types of capital available to help them take
charge of their firm’s financial structure and that teach
how the firm’s financing needs will change over time and
as the company matures. More effective training must be
available to offset some of the recurring challenges that
hinder their ability to raise capital.
Figure 6.1. Commentary on Research Findings for Question 1

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5 AAEs risk personal assets
for their businesses
Their personal assets are fair game whether external
financing is available or not. So they have to make their
cash, their real estate, and their accumulated wealth
available whether they want to or not because it is the
only option that they fully control. The result is that
business and personal resources get tied together in an
inextricable web. As the business goes, so goes their
entire financial foundation. If they pledge their home as
collateral for a loan, the risk is there that it could be
foreclosed on if the business cannot service the debt; if
they back up financing with cash, the loan can be called
and the funds seized by the bank; if they offer personal
guarantees, if the business fails, they will be personally
held responsible, even if they have set up corporations,
LLCs or other noted forms of business structures to
protect their personal wealth. They have signed these
things away because it was the only option for getting the
money. As a result, their business and personal financial
well-being are inordinately linked. This brings personal
stress and a toll on them, threatening past wealth
accumulation. The take away is that they should be very
cautious about this and very aware of the potential
consequences. Sometimes it is best not to go forward
with external capital.
6 AAEs use multiple capital
instruments to meet their
needs
This approach is perhaps different from the practice of
maximizing the financial structure of a business. In the
absence of sufficient capital from a single source, the
entrepreneurs who incidentally may have started with
insufficient capital are filling gaps more aggressively.
Sometimes using multiple capital instruments creates
inefficiencies, and therefore results in higher costs.
Additionally, some of these strategies are bad choices
that harm the business, such as credit card advances, and
in some cases, factoring.
Figure 6.1. Commentary on Research Findings for Question 1

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7 AAEs use credit cards,
sometimes at a significantly
higher cost
Credit card usage has changed over time as the companies
have marketed their use for business expenses. This works
fine if in fact the entrepreneurs are paying them off each
month. Credit cards also offer the advantage of speedy
access to funds that fall within the entrepreneurs’ control
when needed. The danger is running up high credit card
bills on high interest cards, and struggling to settle the
bills later.
How they used credit cards can vary quite a bit, with
outcomes that range from very positive to very negative.
It is positive if they can extend the payment of certain
obligations by paying for needs with the card and paying
it off at the end of the billing cycle. This allows the free
use of funds and is a strategic use of the card. Others
could make purchases on the card that drive up the credit
card bill and subject them to high interest rates, that in
effect lowers the amount of funds they would have had
they paid for the goods or services with cash. Some credit
cards also give users the ability to withdraw cash. These
cash advances as well have the potential to help or harm
the financial stability of the firms. AAEs should exercise
caution in using personal or business credit cards.
8 AAEs rely on internal
resources to support
growth, often using internal
growth for capital
Internal growth is less risky than taking on investors or
borrowing funds, however, it is slow growth. Internal
sources cover a broad range of areas that are essentially
closer to the AAEs’ control. For example, they could fuel
growth with retained earnings, pursue equipment
financing, factor receivables to generate the cash flow
they need to service new contracts. This approach
assumes that the firm is generating sufficient revenue to
accumulate savings in the form of retained earnings, and
that other more expensive approaches will indeed offer
more positive than negative results.
9 AAEs use multiple
bootstrapping strategies,
often very aggressively,
beginning with personal
sacrifice
The entrepreneurs seem to have each configured the
package of bootstrapping strategies that work for them
personally within the structure of their industry. The
danger is that all strategies in this category are not equal.
Some put the business and/or the entrepreneur at risk or
cause reverberating consequences that become difficult, if
not impossible, to overcome. Strategies that put the
personal well-being of the entrepreneur in a downward
spiral often create personal crises that can only be
mitigated by borrowing additional funds from family and
friends.
Figure 6.1. Commentary on Research Findings for Question 1
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Research Question 2, “What challenges do financial services providers face in
distributing the necessary capital to African-American entrepreneurs?” captured the observations
of financial services providers who were lenders or facilitators. Several summary takeaways are
worth noting here. First, I interviewed lenders from banks which are examined and heavily
regulated, as well as CDFIs, most of which are non-depository lenders and therefore not subject
to the same bank regulations. The bank lenders seem to express frustration with AAEs not being
prepared or having their records in order to qualify for products, however, issues of smaller loan
requests also limit their willingness to approve loans. It appears that to overcome these
challenges, banks are working closely with CDFIs, through grants to support technical assistance
and grants for making loans. In studying CDFIs and banking relationships, I also learned that
banks lend to and invest in CDFIs under certain circumstances. This information did not come
out in the interviews, but would be worth researching. The big take away is that for community
lending, CDFIs appear to be the best source of funds for African-American entrepreneurs who
may not meet bank requirements.
Financial services providers that fall into the facilitator category help AAEs build their
capacity for financing. They also provide technical assistance, plan networking events, offer
courses, and in some cases are able to hire subject matter experts to assist business owners with
specialized needs. They are tremendous assets to African-American entrepreneurs, whether they
are chambers of commerce or government-funded technical assistance providers, connecting
them to business resources and key individuals. It was also reported that technical assistance
delivery has not changed in 30 years. Opportunity exists among this branch of the financial
services provider ecosystem to create new educational courses, to deliver them in more flexible
ways, and to collaborate among the network to assist African-American entrepreneurs.
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This scenario suggests that understanding what is the best loan product for a company’s
needs must ultimately rest in the hands of the entrepreneur. In order to make the appropriate
choices, however, the entrepreneur must understand the elements of finance well enough to
know what products make sense for which situations. He/she must also have full knowledge of
the products that are available in the marketplace, through their own research. He/she must
allow sufficient time in the search process to seek and evaluate multiple options. This pre-
supposes a level of transparency that does not currently exist. A database of resources would be
helpful in this effort. Other approaches could be exploring teaching methods that integrate more
than one business discipline, as showing how they relate could be helpful.
A number of the African-American entrepreneurs interviewed talked candidly about not
having a strong enough background or educational focus on the disciplines of business prior to
starting their business. One in particular was very articulate about the quest to increase her
knowledge.
“The biggest challenge was—to this day, it’s still a challenge for me—is that I didn’t
have the education of the structure of the business. And how to operate as a business. I
didn’t see that. I didn’t see my parents paying bills, or filing taxes, or saving money.
From that side of entrepreneurism, it’s always gotten me to a level of excitement for the
consumer. But then to sustain that and then expand, I had to rely on being able to hire
people to bring me that knowledge. There’s still going to be gaps, and you have to give
up pay to very qualified people that can do it. Or then you go the route that I did, which
was to utilize the community support system, the business development centers…You
might take a class on marketing but, if you’re getting your marketing, you still don’t
know what to do with your finances at the same time. You’re learning in pieces. But I’m
operating a business. I’m not in school, where I have a four year period to learn all of
this. No, my livelihood, how my kids eat, depends on this business, and I’m getting it little
tiny pieces at a time. So, by the time I’d mastered that piece, the other pieces are in
jeopardy. And then you go with that piece that you learned, and you’re attacking these
pieces that are in jeopardy, and everything that you’ve learned is not utilized, because
you weren’t able to utilize it at the same time. So that has been a struggle. And the
solution to the situation is the capital. If I had the capital to hire even a small team of
people, that were fully dedicated, even if it were for 20 hours a week. But if they were
fully committed because they were being compensated for their relevant value for what I
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need, well then, all of a sudden, I can make all five pieces work at the same time.”
[Subject 7]

In this situation the entrepreneur recognized that her educational foundation in business
was limited and that it was essential to both gain the knowledge for herself and to hire the
experienced expertise she needed. As an existing entrepreneur, she sought to increase her
knowledge through an extension program and through attending workshops and seminars and
consulting services available through a number of programs set up to help small businesses.
Unfortunately, she encountered challenges of a different nature. Among these: the timing was
off in terms of when the lessons were taught and when the expertise was needed in her business;
the siloed teaching approach of focusing on one aspect of one discipline (such as social media
under marketing) without integrating it within the complete business operational context; and the
abbreviated format of attempting to teach comprehensive business subjects in a one hour
webinar, half day course, or even six months skirts past the issues of what is really required.
Research Question 3, “What information can be shared with African-American
entrepreneurs to shorten their journey to success by improving their potential to secure the
capital they need?” summarized the results of the quantitative and qualitative analyses. The
statistical analysis portion of this research question identified three dependent variables from the
survey responses, worth noting. First, that
I consider the advice from the AAEs as very important because it comes from peers.
These are individuals who have experienced many of the same challenges and have passed on
their advice, lessons learned, and what they would do differently in raising capital if they knew
in the past what they know now. To my knowledge, this is the first time research has attempted
to capture and share this type of information with AAEs. The information they shared focused
on getting the AAEs’ financial house in order and the importance of building relationships, with
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bankers and others. They also stressed management, leadership, and resilience. Their messages
were congruent with the information provided by bank and CDFI lenders, but from an AAE
perspective. In this sense, I believe their advice will be trusted and more readily received by
AAEs than similar messages from banks. The other findings from the AAEs worth noting
involve their focus on being driven by a higher purpose, specifically, with a spiritual grounding,
and actively giving to others and their communities. These two elements permeated the
experiences of the participants in this study, driving them to persevere, excel and achieve success
despite challenges securing the capital they needed for their businesses.
Contributions to Practice
Making It: A Strategies Primer for African-American Entrepreneurs Seeking Capital in
Los Angeles contributes to practice in a number of unique ways. First, it examined the issue of
lack of access to capital for African-American entrepreneurs from the inside out from five
stakeholder perspectives (AAEs, banks, chambers of commerce, non-depository lenders, and
technical assistance providers). It shared their stories openly in their own voices, through the
promise of anonymity in the case of survey data, and confidentiality in the case of interview data.
Second, it captured useful advice and lessons-learned from African-American entrepreneurs who
have stayed the course of business while shouldering the issues and decisions that must be made
when capital is not readily available. Third, it brought focus to the attitudinal and behavioral
aspects that influence why so few loans are approved for African-American businesses. Fourth,
it provided an academic analysis on a phenomenon that many professionals grapple with daily,
with limited resources. Fifth, it identified gaps and holes in the current financial services
infrastructure that result in a fragmented system with many outstanding organizations essentially
operating in siloes although it seems there are numerous relationships among the various actors
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in this ecosystem. Sixth, it identified distinctive competencies within the financial services
provider ecosystem that should be exploited. Some organizations enjoy competitive advantages
in servicing the financial needs of African-American entrepreneurs. These best practices could
be shared and leveraged in partnership with other organizations. The impact of these new
partnerships could be much better system-wide loan results. The key leaders know one another
well, but not so much what they do, how they do it, and how well they do it.
This research also revealed some unexpected contributions to the learning about African-
American entrepreneurs that could also be useful in building a systemic approach to address the
lack of access to capital. The AAEs included in this study reflect a resilience that appeared in
their stated responses that “quitting is not in their DNA” and that proved accurate by their
longevity in business. The majority of them started their business from scratch, and 71 percent
were in business for more than 10 years. They also reported having a higher purpose for being in
business beyond financial gain, and the overwhelming number of them attribute the higher
purpose to a spiritual grounding that helps shepherd them through difficult times.
Although I offered an historical view of some of the issues faced today that have roots in
discriminatory practices, the data collected from the study participants does not place a major
focus on the inherent problems of racism. Instead, what I learned is that the compelling need for
finances requires them to focus on alternatives rather than system-wide disparities. They find
other ways to address their needs.
Previous studies have focused on borrowers or lenders and have offered or supported
theories of why and how the serious disparities exist. My research acknowledged the fact that
there are two realities in this issue that must be explored in tandem in order to bring about
significant change in what has been the state of affairs for generations. To this end, my research
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shows that the solution to the problem is not just that AAEs need to step up their game, nor that
lenders need to offer more products that meet their needs, although the solution assuredly must
involve both of these areas. Instead, the research suggests that a financial services provider
infrastructure exists, with well-experienced members who have been working on this issue for 50
years. The system, however, is fragmented. Each entity is doing its part to carry out its mission
within the contexts of regulations and limited resources, but the heart of the problem exists
outside of the individual siloes.
My research strongly suggests that in order to effect meaningful change in loan
performance to AAEs, all stakeholders must come together to create a first-ever strategic action
plan that takes a systemic view of the issue. Banks must do more to redress the issues of
discrimination that have plagued their industry for generations. Whether these issues result from
benign neglect, the need to maximize shareholder profits, market positioning or regulatory
constraints, banks have participated in the discriminatory practices we see now and have allowed
them to continue. Consequently, JP Morgan Chase, the largest bank in the United States, and
Wells Fargo, the largest mortgage lender in the United States paid cash settlements of $55
million and $175 million, respectively, for various discriminatory practices that harmed African-
American borrowers.
This research calls for new ways of approaching the work that takes a systems approach
to helping African-American entrepreneurs prepare for when they need financing, providing
open source training as well as in-person training, providing intervention when needed with
subject matter experts, and identifying strengths within the broader system that AAEs can avail
themselves of at the organizational level and at the individual level.

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Implications and Recommendations
A systemic approach is needed to get AAEs ready, but also to get financial services
providers ready as well. This approach should bring together all of the key stakeholders in the
financial services provider ecosystem, along with AAEs, to develop a system-wide infrastructure
for supporting the financial needs of African-American companies with a focus on a readiness
for investment program. The planning horizons would include short term, mid range, and long
range. In the short term, low hanging fruit would be pursued, for example a goal to generate a 10
percent increase in approved loans to African-American firms over the next 12 to 18 months.
Companies that meet or nearly meet credit and collateral requirements would be targets for
assistance within the first group. Lenders that choose to participate would be among the group
actively participating in generating early successes.
A readiness for investment program (Figure 6.2) would include the following:
Readiness for Investment Program
Stakeholder What is Needed
African-American
Entrepreneurs
Willingness to be coached and to
invest time in learning
Connection with a technical service
provider to assist in identifying
receptive banks and beginning a
banking relationship
Settle on a spiritual home to build
faith for challenges that will come
Figure 6.2. Readiness for Investment Program

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Banks Outreach to churches - technical
assistance through churches
Determine minimum financing levels
and consistent underwriting criteria
Stronger support of CDFIs and other
non-depository lenders through
multiple funding avenues
Marketing support for this initiative
Group A short-term plan development for the
next 18 months
A mid-range plan developed for the
next 3 years
A long range plan developed for a five
to 10 year planning horizon
A financial services database with
information on services and resources
offered as well as client capacity
Recruitment of members - MOUs
Creation of a steering committee
A marketing plan to connect all
participants under a working structure;
disseminate information about the
plan, its purpose, goals and
community benefits
Creation of a speaker's bureau to get
the message out on how this approach
builds on previous efforts
Figure 6.2. Readiness for Investment Program
Clearly, addressing the intractable issue of lack of access to capital for African-American
entrepreneurs requires a systemic approach to prepare them for the requirements of accessing
capital and to prepare the financial services provider ecosystem for meeting their financial needs.
The widening wealth gap has tremendous consequences for African-American
entrepreneurs. Shapiro et al. (2013) completed a longitudinal study of black and white families
to determine what factors contribute most to the differences we see in the accumulation of
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wealth. Accordingly, their results show that “policy shaping opportunities and rewards where
we live, where we learn, and where we work propels the majority of the widening racial wealth
gap” (p. 2).
Entrepreneurship – Connect funding and program promotion to spiritual sources to
ensure effective use of the funding and to instill greater trust.
Public Policy – Focus efforts on providing support that bridges the divide between the
capital needs of African American entrepreneurs and the various options for addressing those
needs. Significant amount of funds need to be allocated to the right stakeholders to create the
studies and to provide the flexible capital needed to address the major gaps.
Banks – Must invest more in CDFIs to develop more robust technical assistance.
Integrated, open source courses rather than one subject at a time. Capabilities maturity model
designed.
Recommendations for Future Research
In my ambitious hope I wanted to examine the real financial networks that exist within
the African-American entrepreneurial enclave of Los Angeles, and to begin to map the centrality
and cohesiveness of the network and several of its key subnetworks. A few organizations seem
to be major players in this important space in the greater Los Angeles area, like the CDFIs,
SBDCs, Black Business Association (BBA), and the Greater Los Angeles African-American
Chamber of Commerce (GLAAACC), by virtue of their longevity and visible integration among
the stakeholders, large and small, seeking an inroad into the African-American entrepreneurial
space. I was not able to collect sufficient data for such an analysis and mapping, however,
conducting a full-fledged social network analysis would be important research to better
understand the issue of access to capital for African-American entrepreneurs. Once this network
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was graphed, I would be interested in learning how it linked with networks outside Los Angeles
County to pull in the resources and expertise needed to elevate the success of African-American
firms. This would be important because in the networked world we live in, resources and
expertise flow freely from around the globe with a push of a button.
Another area that should be carefully studied is the current and potential role of churches
in supporting the entrepreneurs in their congregation and in the region. The majority of the
entrepreneurs I interviewed mentioned that what kept them going when things got hard was a
higher purpose of a spiritual nature. Although not studied within the context of this research, it
is a generally accepted cultural phenomenon that a significant number of African-Americans are
grounded spiritually. And true to this phenomenon, many of the people I interviewed reiterated
that their faith, belief in God, and spiritual grounding helped them persevere and access
opportunities. In the context of church organization and affinity groups, a focus on supporting
the entrepreneurs of the congregation is sometimes referred to as marketplace ministries. These
marketplace ministries are implemented a number of different ways in the various churches in
Los Angeles County. Some offer ongoing programming, church-specific resource directories,
once a year programs, conferences, seminars, workshops, and a host of other strategies in
between.
One of the more formal ways churches have gotten involved is through creating CDFIs in
Community Development Corporations (CDCs) that may have a focus on supporting the
individuals and organizations that provide jobs and housing for their members and the broader
community. I would be curious to know how they work in the area of access to capital, whether
the role is in increasing awareness or creating network opportunities to match entrepreneurs with
sources of capital, or technical assistance.
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Also, in need of significant research attention is the plight of African-American women
entrepreneurs. In this study, I did not attempt to parse the data by gender and draw conclusions
about how they addressed challenges in securing the capital to start and grow their businesses.
Research compiled by the U.S. Women’s Chamber of Commerce suggests that, though many
more women are starting businesses, they are not witnessing commensurate revenue growth. As
many as 70 percent register annual sales of $25,000 or less, and as few as 10 percent have
employees (“Wake Up Call,” 2016). Among African-American women, the data reflects an even
more troubling reality. They own 15.4 percent of the businesses in the U.S., but generate less
than three percent of the revenues. Their average annual revenue ($27,753) ranks substantially
lower than other racial or ethnic female groups, i.e., Whites ($170,587), Asians ($181,096), and
Hispanics ($53,524). One conjecture is that many of the same issues of lack of access to capital
that plague African-American and women entrepreneurs hit African-American women with
greater intensity.
Little scholarly research focuses on the particular challenges and workarounds of
African-American women, but given the fact that this group registered the fastest growing
segment of small businesses, more research should be done that could help them. Finney (2015)
found this to be true in her efforts to identify African-American women in the tech industry. Her
research, titles “Project Diane,” represented the first study to collect data on African-American
women receiving venture capital in the tech industry (Finney 2015). Another strong reason for
delving into this area became apparent to me when analyzing the loan performance data for Nor
Cal Financial Development Corporation. This organization generated by far the most loans to
African-American entrepreneurs in California’s guarantee program. Sixty four percent (64%)
went to African-American women.
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Another contribution to practice involves sharing copies of this dissertation widely. The
information obtained and analyzed from African-American entrepreneurs and financial services
providers in this dissertation will be distributed electronically to:
 People and organizations that participated in the research phase—who agreed to being
interviewed;
 News publications through press releases;
 Local municipalities;
 City, County and State Policy-makers;
 Greater Los Angeles African American Chamber of Commerce;
 Black Business Association;
 The U.S. Small Business Administration;
 Crenshaw Chamber of Commerce;
 Pacific Coast Regional Small Business Development Corporation;
 City of Los Angeles Minority Business Development Center;
 USC Minority Business Development Center;
 USC Center for Economic Development;
 The Greenlining Institute;
 The Economic Development Administration;
 Los Angeles Local Development Corporation;
 U.S. Black Chamber of Commerce;
 Recycling Black Dollars;
 JP Morgan Chase;
 Valley EDC;
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 US Bank;
 Wells Fargo Bank;
 The Milken Foundation; and
 Comerica Bank.

Limitations

This research is exploratory in nature because of the small size of the sample, but it
provides a foundation for more comprehensive research that can be done on the experiences of
African-American entrepreneurs and or the financial services provider ecosystem to enhance the
access to capital for African American entrepreneurs, particularly those with the potential to
strengthen their communities by creating jobs—what I have come to believe is the fundamental
unit of community development. When we provide jobs we inject hope, energy and purpose
where there was none.
The study is intentionally limited in scope. The majority of the survey respondents met or
exceeded $500,000 in annual sales, or have operated their business for at least five years. In this
sense it is prone to what some refer to as “survivorship bias.” Survivorship bias occurs “...when
you focus too heavily on the ‘survivors’ of a given population, you ignore important qualities
about the rest of the population” (DeMers, 2017, par. 3). It refers to the tendency to focus on the
entrepreneurs who have passed through the difficult first few critical years in the life of a
business and survived to tell their stories, to the exclusion of those who did not. In reality, both
groups offer potentially valuable insights about their success and experiences. In this case, more
comprehensive information could be learned about the phenomenon of disparities in access to
capital and their impacts on African-American entrepreneurs if data were collected from the full
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spectrum of firms, including those who failed along the way, were in business for less than five
years, or registered sales of less than $500,000.
Identifying this contingent of African-American entrepreneurs would have been time-
consuming and well beyond the scope of this research. I deliberately chose entrepreneurs who
had some time under their belt, had some skin in the game, and had achieved a measure of
financial success. These are the entrepreneurs with the shortest path to growth and, hence, job
creation.
Although secondary data is provided in this study on capital access for non-African
American entrepreneurs, I did not conduct any primary research on non-African-American
entrepreneurs in order to provide a control group for the study and to compare their experiences
seeking capital. Future research should broaden the scope to incorporate interviews and surveys
of Asian, Latino, and Caucasian small businesses to uncover a deeper level of analysis about
disparities in access to capital—whether their effects are positive or harm-inducing. Without this
additional component to the research, we do not really know what their experiences are or how
their experiences compare to African-American entrepreneurs in Los Angeles County.
The majority of the participants in this study were identified from the U.S. Small
Business Administration’s search database comprised of firms certified in the 8(a) minority
contracting program, as well as those that have connected to the SBA through their financing
programs or technical assistance programs. At least four of the companies in the study were 8(a)
certified. The SBA database also includes firms with aspirations of doing business with the
government or seeking financing through banks and Community Development Financial
Institutions (CDFIs) connected with the SBA. In this sense, there may be certain common
characteristics of companies who do business with the government or seek SBA financial and or
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technical assistance that exclude retail businesses—a significant sector of the economy and one
which I imagine includes large numbers of African-American entrepreneurs.
The SBA database is also based on self-reported information, which may or may not be
accurate. Some companies may have indicated higher sales volumes than actually exist.
Changes may have also occurred in their sales performance since they were first included in the
SBA database.
I have used a measure of success that was defined as sales/revenue of at least $500,000 or
five years in business. This number then defines a business as a “high sales enterprise”
according to the U.S. Department of Commerce’s Minority Business Development Agency
(MBDA website). In reality, this number may or may not be the correct sales figure to describe a
successful enterprise. For some businesses, a much lower number is sufficient to define success
and a much larger number is appropriate for others. Success clearly depends on many more
factors, such as profitability. To moderate this weakness, I included an interview question that
specifically asks the entrepreneurs how they defined success.
The study also focused only on capital access and its impact, whereas clearly other
factors contribute to success or failure in business, including market forces such as barriers to
entry beyond capital, access to skilled labor to fill positions, regulatory environment, political
climate, and taxes, to name a few.
This study also does not make a distinction between the nuances that exist when an
entrepreneur starts a business from scratch, acquires an existing business, or buys into a
successful franchise system. There may be significant differences among the types of businesses
related to customer familiarity, starting revenue and revenue stability, and how the entrepreneur
started his/her journey in business. I did ask this question and learned that the vast majority of
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study participants started their businesses. Whether or not this means that across the full
spectrum of African-American businesses there exists a preponderance to begin from scratch
remains to be studied. At the very least, given findings that African-American entrepreneurs
have experienced difficulties securing capital, there would be a natural bias against acquiring
existing businesses presumably due to the perception of higher costs of entry. Purchasing an
ongoing concern, however, could potentially bring lower risks as the historical cash flows would
be known, and could generate immediate resources.
Finally, while this study focuses a great deal on the size of the company and its
ownership, it does not attempt to segment the experiences of the entrepreneur by differences that
may be attributable to the industries or markets in which the firms compete. There may be
distinct differences across the various businesses types —wholesale businesses may be more
complex than retail, which may be easier than construction. Further research into these
intricacies with a larger sample size could provide further information about important factors
related to access to capital or the lack thereof.
Conclusion
We are in a sorry state of affairs. No one is looking at the total picture of limited capital
access for African-American firms and its affect on the broader African-American community.
AAEs continue to do the best they can with the available resources at their disposal; banks
continue to operate within the confines of regulation and the profit motive, sufficing when it
comes to support for African-American firms; CDFIs continue to do the best they can to lend to
the most capable AAEs; technical assistance providers offer services but do not have the
resources to market the programs or to scale up to effect change. Yet clearly, something is
wrong and it can only be changed by taking a new, strategic approach that crosses the boundaries
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of borrower versus lender. There are clear roles for both sides to play that have been absent from
previous approaches. Why not create a comprehensive strategic plan that tears down the silos
between borrowers and lenders and CDFIs to create a collective mission that all stakeholders buy
into and get to work on? Why not as a permanent way of doing business rather than a task force
approach or a short-term response to a crisis. Why not create a massive push to educate AAEs
on the issues that have held them back for generations with a full-on media campaign? Why not
make the means of delivering that education open source so that they can access the training 24/7
rather than during the day when business demands may not allow them to attend a scheduled
training session? Why not create a community-wide capabilities maturity model that allows
them to assess where they are and begin to work towards major improvements in their record-
keeping, credit scores and collateral in a stepwise fashion? Doing so will require strengthening
the organizations that now provide the technical assistance; identifying specific unique
competitive advantages within each organization; exploring opportunities to joint venture on
financing deals across organizational boundaries; contracting with private sector individuals and
organizations that are top subject matter experts in the areas identified as weak to help strengthen
the AAEs; and joint marketing of this initiative with multiple portals of access for AAEs. It will
also require new courses to be offered, recruiting the expertise of law firms and others that
already offer pro bono assistance to address what have been intractable issues.
The three research questions queried in this dissertation provide a starting point for
changes in the attitudes/perceptions, beliefs and and behaviors of AAEs and the financial
services provider ecosystem in Los Angeles in order to effect measurable change. For the AAEs
who won't try, or don't trust the system or believe the emotional and actual time invested will not
reap positive results, a better understanding of the system and what they can do to better prepare
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is needed. The status quo is no longer acceptable. The fact that they do not apply also provides
a built in excuse for the lending institutions about why so few loans are approved for African-
American business owners. Tax statements that show losses make it difficult for firms to qualify
for a loan. Special programs for minorities follow the same requirements for approval as
conventional loans with only slight concessions that sometimes do not cut deep enough to open
the door to funds. Changes need to occur on both sides of the process.
A thin line often exists between the entrepreneurs' business and personal financial well-
being, even when the organizations are structured to protect their personal assets. Net exposure
to that particular liability is the same as if they had organized as a sole proprietorship, except it
was done with a signature rather than a structure.
Within the survey population, the majority of firms included in this study were first
generation owners, meaning they started their business from scratch, yet 71 percent were also in
business over 10 years. Another 94 percent had never defaulted on a loan or filed for
bankruptcy, and 88 percent had never defaulted on a commercial loan.
Many compelling reasons exist for giving up—in life, but particularly in business.
Situations are hard—much tougher than people realize. There seems to be no way out.
Everything seems to be stacked against success. Businesses cannot get the funding they need
and financial obligations place severe pressure on the entrepreneurs. Others have been there,
many times. They survived, with determination, ingenuity, and an unshakeable desire to
overcome despite the odds. Victor E. Frankl, in his seminal book, Man’s Search for Meaning,
expressed this in very simple terms, “You cannot control what happens to you in life, but you
can control what you will feel and do about what happens to you” (Frankl, 2006, p.x). African-
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American entrepreneurs must continue to be scrappy. Terri L. Sjodin in, Scrappy: A Little Book
About Playing Big (2016) defines scrappiness in the following very vivid terms:
To be scrappy is to have the determination of a street fighter, to work smarter, to be
willing to work harder when you need to, to take risks and play big, no matter what the
obstacles or opposition. The notion of “getting scrappy” is bound up in the effort, it
means to get around an obstacle or challenge an obstacle, faster, smarter—in a clever
way, “even against the odds.” Scrappiness is not just about doing something difficult,
though at times that’s part of it. Getting scrappy is also about getting something done
despite opposition. It’s about the platoon outflanking the army. David slaying Goliath
with a slingshot—punching above your weight (Sjodin, 2016, pp. 11-12).

And then, the African-American entrepreneurs, to navigate the choppy waters of securing
capital, must develop active and growing financial networks. They must make time to interact
with others in settings where information and support can be shared safely and freely, and where
the people with broad experience and expertise can be approached.
From examining all of the information shared with me in this research I have come to the
following conclusions. First, we are truly operating in a sorry state of affairs and no one is
jumping up and down declaring that enough is enough! African-American businesses are
suffering greatly from limited access to capital across all platforms except the most expensive
ones and the prospects for change do not appear anywhere on the horizon. Meanwhile, the jobs
they cannot support keep unemployment rates high within the African-American community.
The sizes of African-American firms consistently rank the lowest on the totem pole, by a lot. A
clarion call for change must be issued immediately and it must start from within, among the
stakeholders who care deeply about this issue. It is not an issue of funding, although funding is
250

certainly needed. It is an issue of designing the system that will produce the intended results.
And that starts with the “will” to get it done.
Building stronger African-American businesses through greater access to the capital they
need is critical. It is community development at its highest level. What I propose is akin to a
process espoused by Robertson et al. about networking within a community for significant
improvements. “…[T]he process of community development can be facilitated by the creation
of community capacity-building networking (Milward & Provan, 2006) in which community-
based organizations - local government agencies, businesses and non-profit organizations –
work together to plan and implement a more comprehensive, coordinated approach to
community improvement than is possible when those various organizations pursue their own
objectives independently” (Robertson, et al, 2012, p. 188).
There must be widespread, coordinated systemic changes in the way financial services
are delivered to African-American entrepreneurs—a veritable reordering of every component
member into strategic alignment.

251

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270

Program
Maximum
Loan
Amount
Percent of
Guaranty
Use of
Proceeds

Maturity
Maximum
Interest Rates

Guaranty Fees

Who Qualifies
Benefits to
Borrowers
7(a) Loans $5 million gross 85% guaranty for
loans of $150,000
or less;
75% guaranty for
loans greater than
$150,000
(up to $3.75 million
maximum
guaranty)
Term Loan. Expansion/
renovation; new construc-
tion, purchase land or
buildings; purchase
equipment, fixtures,
lease-hold improvements;
working capital; refinance
debt for compelling rea-
sons; seasonal line of
credit, inventory or start-
ing a business
Depends on ability to
repay. Generally,
working capital &
machinery &
equipment (not to
exceed life of
equipment) is 5-10
years; real estate is
25 years.
Loans less than 7 years:
$0 - $25,000 Prime + 4.25%
$25,001 - $50,000 P + 3.25%
Over $50,000 Prime + 2.25%

Loans 7 years or longer:
0 - $25,000 Prime + 4.75%
$25,001 - $50,000 P + 3.75%
Over $50,000 Prime + 2.75%
(No SBA fees on loans
of $150,000 or less
approved in FY 2014.)
Fee charged on guaran-
tied portion of loan only.
Maturity: 1 year or less
0.25% guaranty fee; over
1 year: $150,001-
$700,000 = 3.0%; over
$700,000 = 3.5%; 3.75%
on guaranty portion over
$1 million.
Ongoing fee of 0.52%.
Must be a for profit business
& meet SBA size standards;
show good character, credit,
management, and ability to
repay. Must be an eligible type
of business.

Prepayment penalty for loans
with maturities of 15 years or
more if prepaid during first 3
years. (5% year 1, 3% year 2
and 1% year 3)
Long-term financing;
Improved cash flow;
Fixed maturity;
No balloons;
No prepayment penalty
(under 15 years)
Small Loan
Advantage (SLA)
Is now the 7(a)
$350,000 and under
model.
$350,000 Same as 7(a) Same as 7(a) The SLA
name is for transition
purposes, but it covers all
loans $350,000 and
under, except the express
programs.
Same as 7(a) Same as 7(a) Same as 7(a) Same as 7(a) plus all loan
applications will be credit
scored by SBA prior to loan
approval or loan number . If not
acceptable the loan can be
submitted via SBAExpress.
Same as 7(a)
SBAExpress $350,000 50% May be used for revolving
lines of credit (up to 7
year maturity) or for a
term loan (same as 7(a)).
Up to 7 years for
Revolving Lines of
Credit including term
out period. Other-
wise, same as 7(a).
Loans $50,000 or less; prime+
6.5%;
Loans over $50,000; prime +
4.5%
Same as 7(a) Same as 7(a) Fast turnaround;
Streamlined process;
Easy-to-use line of credit
SBA Veterans
Advantage
01/01/14 - 09/30/14
Same as
SBAExpress
Same as
SBAExpress
Same as SBAExpress Same as
SBAExpress
Same as SBAExpress No guaranty fee
Ongoing fee of 0.52%.
Same as 7(a). Plus, small
business must be owned and
controlled by one or more of
the following groups: veteran,
active-duty military in TAP,
reservist or National Guard
member or a spouse of any of
these groups, or a widowed
spouse of a service member
or veteran who died during
service, or a service-
connected disability.
Same as SBAExpress
No guaranty fee
CapLines:
1. Working Capital;
2. Contract ;
3. Seasonal; and
4. Builders
$5 million Same as 7(a)
.
Finance seasonal and/or
short term working capital
needs; cost to perform;
construction costs;
advances against existing
inventory and receiva-
bles; consolidation of
short-term debts. May be
revolving.
Up to 10 years,
except Builder’s
CAPLine, which is 5
years
Same as 7(a) Same as 7(a) Same as 7(a), plus all lenders
must execute Form 750 &
750B (short term loans)
1. Working Capital - (LOC)
Revolving Line of Credit
2. Contract - can finance all
costs (excluding profit).
3. Seasonal - Seasonal
working capital needs.
4. Builder - Finances direct
costs with building a
commercial or residential
structure
271

Program
Baltimore
Maximum
Loan
Amount
Percent of
Guaranty
Use of
Proceeds

Maturity
Maximum
Interest Rates

Guaranty Fees

Who Qualifies
Benefits to
Borrowers
International Trade $5 million 90% guaranty
(up to $4.5 million
maximum
guaranty)
(Up to $4 million
maximum guaranty
for working capital )
Term loan for permanent
working capital, equip-
ment, facilities, land and
buildings and debt
refinance related to
international trade
Up to 25 years. Same as 7(a) Same as 7(a) Same as 7(a), plus
engaged or preparing to
engage in international trade
or adversely affected by
competition from imports.
Long term financing to allow
small business to compete
more effectively in the inter-
national marketplace
Export Working
Capital Program
$5 million 90% guaranty
(up to $4.5 million
maximum guaran-
ty)
Short-term, working-
capital loans for export-
ers. May be transaction
based or asset-based.
Can also support standby
letters of credit
Generally one year or
less, may go up to 3
years
No SBA maximum interest rate
cap, but SBA monitors for
reasonableness
Same as 7(a) Same as 7(a), plus need short
-term working capital for
exporting.
Additional working capital to
increase Export sales without
disrupting domestic financing
and business plan
Export Express $500,000 90% guaranty for
loans of $350,000
or less;
75% guaranty for
loans greater than
$350,000
Same as SBAExpress
plus standby letters of
credit
Same as
SBAExpress
Same as SBAExpress Same as 7(a) Applicant must demonstrate
that loan will enable them to
enter a new, or expand in an
existing export market. Busi-
ness must have been in
operation for at least 12
months (though not necessari-
ly in exporting).
Fast turnaround;
Streamlined process;
Easy-to-use line of credit
504 Loans
Provided through
Certified Development
Companies (CDCs)
which are licensed by
SBA
504 CDC maxi-
mum amount
ranges from
$5 million to
$5.5 million,
depending on
type of business.
Project costs
financed as fol-
lows:
CDC: up to 40%
Non-guaranteed
financing:
Lender: 50%
Equity: 10% plus
additional 5% if
new business and/
or 5% if special
use property.
Long-term, fixed-asset
loans; Lender (non-
guaranteed) financing
secured by first
lien on project assets.
CDC loan provided from
SBA 100% guaranteed
debenture sold to
investors at fixed rate
secured by 2nd lien.
CDC Loan: 10- or
20-year term fixed
interest rate.

Lender Loan:
Unguaranteed
financing may have a
shorter term. May be
fixed or adjustable
interest rate
Fixed rate on 504 Loan
established when the
debenture backing loan is
sold.
Declining prepayment
penalty for 1/2 of term.
.5% fee on lender share,
plus CDC may charge up
to 1.5% on their share.
CDC charges a monthly
servicing fee of 0.625%-
1.5% on unpaid balance
Ongoing guaranty fee
is 0.9375% of principal
outstanding.
Ongoing fee % does not
change during term.
Alternative Size Standard:
For-profit businesses that do
not exceed $15 million in
tangible net worth, and do not
have an average two full fiscal
year net income over $5
million.

Owner Occupied 51% for
existing or 60% for new con-
struction.
Low down payment - equity
(10%-20%)
(The equity contribution may
be borrowed)
Fees can be financed;
SBA Portion:
Long-term fixed rate
Full amortization
No balloons
Non-7(a) Loans
Microloans Loans
through nonprofit
lending
organizations;
technical assistance
also provided.
$50,000 Not applicable Purchase machinery &
equipment, fixtures,
leasehold improvements;
working capital.; etc.
Cannot be used to repay
existing debt.
Shortest term
possible, not to
exceed 6 years
Negotiable with intermediary.
Subject to either 7.75 or
8.5% above intermediary
cost of funds.
No guaranty fee Same as 7(a) Direct loans from nonprofit
intermediary lenders;
Fixed-rate financing;
Very small loan amounts;
Technical assistance
available
U.S. Small Business Administration 10 S. Howard Street, Suite 6220 Baltimore, MD 21201
Baltimore District Office (410) 962-6195. www.sba.gov/md

Information current as of January 2014
SBA Programs and services are provided on a
nondiscriminatory basis.

272

273

Appendix B
Making It - III

Start of Block: Block 1

INTRO
Sol Price School of Public Policy
Ralph and Goldy Lewis Hall, 202
Los Angeles, CA 90089

INFORMATION SHEET FOR
EXEMPT NON-MEDICAL RESEARCH Making It: A Strategies Guide for African
American Entrepreneurs Seeking Capital in Los Angeles You are invited to participate in
a research study conducted by Arlene Williams as part a requirement for a Doctorate degree in
Policy, Planning and Development at the Sol Price School of Public Policy at the University of
Southern California. Although I hope you will agree to participate, participation is purely
voluntary. This document explains information about the exciting study and its implications for
African-American entrepreneurs and business owners. Please feel free to ask questions about
anything that is unclear to you.
PURPOSE OF THE STUDY The purpose of the study is to better understand the experiences
of African-American entrepreneurs and business owners who have faced challenges in
accessing the capital needed to start and grow their businesses; the impact it has had on them;
and the personal and financial support networks that were most important along the way. A
further purpose is to illuminate the strategies they employed to overcome the difficulties they
faced securing capital. The findings from the study will be summarized in a Strategies Guide.
PARTICIPANT INVOLVEMENT If you choose to take part in this study, you will be asked to
complete the attached ANONYMOUS online survey which will take about 15 minutes. You do
not have to answer any questions you don’t want to answer. Simply move to the next question.

You may also choose to continue with the study following the online survey by participating in
Phase 2, which includes a 45 minute audio-taped interview (conducted to fit your schedule, in-
person, or by telephone). For this part of the study, you also do not have to answer any
questions asked during the interview that you don’t want to; if you prefer not to be taped during
the interview, handwritten notes will be taken.

If you would like to participate in Phase 2, please select "Yes" at the end of the survey and
call or email Arlene at: 323 204-2503 or awarmack@usc.edu. I will contact you with additional
details and to schedule the next steps. Everyone who participates in Phase 2 will receive a copy
of the Strategies Guide which summarizes the findings of the research. As a thank you for
participating in Phase 2 and for sharing the lessons you learned in your entrepreneurial journey,
you may also request an electronic copy of the final dissertation. CONFIDENTIALITY The
274

online survey is an ANONYMOUS questionnaire.

If you choose to participate in Phase 2, your responses will be held in confidence and any
information you share as part of the study will not be linked back to you or your company in the
dissertation or other published study results. We will transcribe the interview and comments of
the focus group members, and will remove any and all references to you or your company. You
have the right to review/edit the audio recordings or transcripts which will be accessible to the
transcribers, principal investigator, and faculty advisor. Any identifiable information obtained in
connection with this study (of the interviewee and your company name) will remain
confidential. Your responses will be coded with false names (pseudonyms) and maintained
separately. The audio-tapes will be destroyed once they have been transcribed. The data will
be stored on a password protected computer in the researcher’s office for three years after the
study has been completed and then destroyed.
The members of the research team and the University of Southern California’s Human
Subjects Protection Program (HSPP) may access the data. The HSPP reviews and monitors
research studies to protect the rights and welfare of research subjects. When the results of the
research are published or discussed in conferences, no identifiable information will be
used. INVESTIGATOR CONTACT INFORMATION Principal Investigator: Arlene W.
Williams via email at awarmack@usc.edu or phone at (323) 204-2503 or Faculty Advisor: Peter
Robertson at robertso@price.usc.edu or (213) 740-0353.
IRB CONTACT INFORMATION University Park Institutional Review Board (UPIRB), 3720
South Flower Street #301, Los Angeles, CA 90089-0702, (213) 821-5272 or upirb@usc.edu.
Thank you for moving forward to take this brief survey!

Qual1 Is your business at least 51% owned by African-Americans?
o Yes (1)
o No (2)

Skip To: End of Survey If Is your business at least 51% owned by African-Americans? = No

Qual2 Please indicate your level of annual sales
o Less than $500,000 per year (1)
o More than $500,000 per year (2)

275

Qual3 Primary location of your business
o Los Angeles County (1)
o Outside Los Angeles County (2)

Have you ever experienced challenges in seeking or obtaining capital for your business?
o Yes (1)
o No (2)

EdBkg What was the highest educational level completed when you started your business?
o Less than high school (1)
o High school graduate (2)
o Some college (3)
o 2 year degree (4)
o 4 year degree: Major (5) ________________________________________________
o Professional degree: Discipline (6)
________________________________________________
o Master's degree: Major (7) ________________________________________________
o Doctorate: Field (8) ________________________________________________
o Other. Please specify: (9) ________________________________________________

TechTr What technical training or expertise did you have prior to starting your business?
________________________________________________________________

276

FamFBus Did you have a family member or close family friend who operated a business when
you were growing up?
o Yes (4)
o No (5)

Skip To: WrknB If Did you have a family member or close family friend who operated a business when
you were growing... = Yes
Skip To: BusAge If Did you have a family member or close family friend who operated a business when
you were growing... = No

WrknB Did you work in that business?
o Yes (5)
o No (6)

BusAge
Age of your business (in years)1
0 to 3 (1)
4 to 5 (2)
6 to 10 (3)
11 to 20 (4)
21 to 30 (5)
31+ (6)

OwnAge Owner's Age1
Under 21 (1)
22-34 (2)
35-44 (3)
45-54 (4)
55-64 (5)
65+ (6)

277

Bgrwth How do you feel the growth of your business will proceed over the next 2 years?1
o Will go down (1)
o Will go down slightly (2)
o Will hold steady (3)
o Will go up slightly (4)
o Will go up (5)

BusStr What is the current organizational structure of your business?1
o Limited liability company (1)
o Limited liability partnership (2)
o Franchised business (3)
o Sole proprietorship (4)
o S corporation (5)
o Corporation (6)

Gender Gender of Owner(s)1:
o Male (1)
o Female (2)
o Male and Female (3)

278

1stBus Is this your first business?
o Yes (1)
o No (2)

OnlyBus Is this your only business?
o Yes (1)
o No (2)

#BOwn How many businesses have you owned before this one?
o 0 (1)
o 1 (2)
o 2 (3)
o 3 (4)
o 4 (5)
o 5 (6)
o 6+ (7)

StrCap How much capital did you have to start your business?
________________________________________________________________

279

SrcCap What was or were the sources of that initial capital?
o 1 (1) ________________________________________________
o 2 (2) ________________________________________________
o 3 (3) ________________________________________________
o 4 (4) ________________________________________________
o 5 (5) ________________________________________________

BegBus How did you begin in this business?
o Started it (1)
o Purchased it (2)
o Inherited it (3)
o Other (4) ________________________________________________

280

StrWk From the list below, please rate the strengths of your business1
Excellent (1) Good (2) Moderate (3) Not Good (4) Very Poor (5)
Selling price
(1)
o o o o o
Product or
service quality
(2)
o o o o o
Specialized
expertise or
products (3)
o o o o o
Creativity (4)
o o o o o
Distribution
channels (5)
o o o o o
Customer
service (6)
o o o o o
Costs (7)
o o o o o
Quality of staff
(8)
o o o o o
Reputation (9)
o o o o o
Environmental
friendliness
(10)
o o o o o
Other: (11)
o o o o o

281

MnCus Who are your main customers? (Check all that apply)1
o Retailers and wholesalers (1)
o Manufacturers (2)
o Other non-manufacturing firms (3)
o Local government (4)
o Federal government (5)
o Direct to the public/consumers (6)
o Other (7) ________________________________________________

GeoMkts What geographic markets do you serve? (Check all that apply)1
▢ Local markets (1)
▢ Regional markets (2)
▢ National markets (3)
▢ International markets (4)

282

PriBusO What is your primary business objective over the next five years?1
o To close it down (1)
o To sell the business (2)
o To downsize/consolidate the business (3)
o To remain about the same size (4)
o To expand moderately (5)
o To grow rapidly (6)
o To hand on the business/succession (7)
o Other (8) ________________________________________________

283

BenSup In what areas of support have you received beneficial assistance? (Check all that
apply)1
▢ Raising capital (1)
▢ Increasing sales (2)
▢ Reducing costs (3)
▢ Improving supply chain operations (4)
▢ Improving existing products or services (5)
▢ Introducing new products or services (6)
▢ Finding new markets (7)
▢ Improving contacts (8)
▢ Improving skills (9)
▢ Improving overall capacity (10)
▢ Increasing confidence (11)
▢ Business recovery (12)
▢ Improving management skills (13)
▢ Environmental legislation (14)
▢ Other (15) ________________________________________________

284

PreFin Please check the sources of financing you have received during your time in
business. (Check all that apply)1
▢ Friends/family (1)
▢ Inheritance (2)
▢ Personal credit card(s) (3)
▢ Pension (4)
▢ Savings (5)
▢ Second job (6)
▢ Redundancy pay (7)
▢ Second mortgage (8)
▢ Company credit card (9)
▢ Retained profit (10)
▢ Bank overdraft (11)
▢ Financial factoring (12)
▢ Unsecured bank loan (13)
▢ Secured bank loan (14)
▢ Financial leasing (15)
▢ Small business loan guarantee (16)
▢ Venture capital (17)
▢ Business angel (18)
▢ Supplier credit (19)
285

▢ Government grants (20)
▢ Government loans (21)
▢ Government guaranteed loans (22)
▢ Other (23) ________________________________________________

End of Block: Block 1

Start of Block: Block 2
286

FTEs How many total full-time personnel are currently employed by your business?2
o None (1)
o 1 to 5 (2)
o 6 to 9 (3)
o 10 to 19 (4)
o 20 to 99 (5)
o 100 to 499 (6)
o 500+ (7)

PTEs How many total part-time personnel are currently employed by your business?
o None (1)
o 1 to 5 (2)
o 6 to 9 (3)
o 10 to 19 (4)
o 20 to 99 (5)
o 100 to 499 (6)
o 500+ (7)

BusSec Which of the following best describes the industry or sector in which your business
operates?2
o Manufacturing (1)
o Construction (2)
o Professional Services (3)
o Technology (goods or services) (4)
287

o Retail (5)
o Distribution (6)
o Professional (7)
o Transportation (8)
o Agriculture (9)
o Insurance (10)
o Finance (11)
o Engineering (12)
o Health Care (13)
o Real Estate (14)
o Software (15)
o Fabricated Products (16)
o Food Service (17)
o Biotech (18)
o Printing & Publishing (19)
o Chemicals (20)
o Defense (21)

288

GrRev What were your gross sales or revenues for your most recent fiscal year?2
o Less than $99,999 (1)
o $100,000 - $249,999 (2)
o $250,000 - $499,999 (3)
o $500,000 - $999,999 (4)
o $1 Million - $4,999,999 (5)
o $5 Million - $24,999,999 (6)
o $25 Million - $74,999,999 (7)
o $75 Million - $149,999,999 (8)
o More than $150 Million (9)

TotPR What was your total payroll for the most recent fiscal year?2
o Less than $99,999 (1)
o $100,000 - $249,999 (2)
o $250,000 - $499,999 (3)
o $500,000 - $999,999 (4)
o $1 Million - $4,999,999 (5)
o $5 Million - $24,999,999 (6)
o $25 Million - $74,999,999 (7)
o $75 Million - $149,999,999 (8)
o More than $150 Million (9)

289

CapNds Have you needed funds for your business and been unable to find any one to lend to
you in the past five years?2
o Yes (1)
o No (2)

CapEfBus If capital availability is a problem for your business, what is the effect on your
operations? (Check all that apply)2
▢ Unable to grow business to expand operations (1)
▢ Not a problem/No effects (2)
▢ Reduced the number of employees (3)
▢ Unable to finance increased sales (4)
▢ Reduced benefits to employees (5)
▢ Unable to increase inventory to meet demand (6)
▢ Closed stores or branches (7)
▢ Other. Please specify: (8) ________________________________________________

290

CapUsed What types of financing has your company used within the last 12 months to meet
your capital needs? (Check all that apply)2
▢ Revolving line of credit from a bank (1)
▢ Credit cards (2)
▢ Earnings of the business (3)
▢ Bank loan (4)
▢ Vendor credit (5)
▢ Private loan (friends or family) (6)
▢ Used no financing (7)
▢ Leasing (8)
▢ Credit union loan or line of credit (9)
▢ Small Business Administration loan (10)
▢ Private placement of debt (11)
▢ Private placement of stock (12)
▢ Selling/pledging accounts receivable (13)
▢ State/Regional loan and incentive programs (14)
▢ Payday loans (15)
▢ Prepaid debit cards (16)
▢ Other. Please specify: (17) ________________________________________________

291

TrnDwnR If you have been turned down for a loan or line of credit during your time in business,
what were the reasons given (Check all that apply)2
▢ I have not applied for any financing (1)
▢ I didn't have enough collateral (2)
▢ I applied for financing and was approved (3)
▢ My credit score was too low (4)
▢ They didn't lend to my industry (5)
▢ I have no idea (6)
▢ I didn't have time to complete or didn't understand the loan package (7)
▢ Other. Please specify: (8) ________________________________________________

292

Sec4Fin What kind of assets/equity have you used to secure any business loans or other
financing you have received to support your business. (Check all that apply)2
▢ Business property (1)
▢ Accounts Receivable (2)
▢ Inventory/Assets (3)
▢ Personal savings (4)
▢ Personal property (such as a second mortgage) (5)
▢ Personal or business credit cards (6)
▢ Business savings (7)
▢ Other. Please specify: (8) ________________________________________________
▢ Not applicable (9)

HomeEq Have you ever taken out a second or refinanced you home to support your business?
o Yes (4)
o No (5)

Skip To: HEImpt If Have you ever taken out a second or refinanced you home to support your business?
= Yes
HEImpt What was the impact or experience of that decision?
________________________________________________________________

RealEst Have you now, or in the past, pledged non-business, real estate assets as collateral for
a business loan?
o Yes (6)
o No (7)

293

Skip To: REImpt If Have you now, or in the past, pledged non-business, real estate assets as collateral
for a busine... = Yes

REImpt What was the impact or experience of that decision?
________________________________________________________________

PerGuar Have you ever had to give a personal guarantee to secure a loan?
o Yes (1)
o No (2)

Skip To: PGImpt If Have you ever had to give a personal guarantee to secure a loan? = Yes

PGImpt What was the impact or experience of that decision?
________________________________________________________________

LoanBal What is the balance on your loan/line of credit?2
o Less than $99,999 (1)
o $100,000 - $499,999 (2)
o $500,000 - $999,999 (3)
o $1 Million+ (4)
o Not applicable (5)

NoAppl Have you ever decided against applying for funds because you felt you would be
declined?
o Yes (4)
o No (5)

Skip To: WyNoAp If Have you ever decided against applying for funds because you felt you would be
declined? = Yes

294

WyNoAp Why did you feel that way?
________________________________________________________________

Bkrtcy Have you ever filed bankruptcy for a business?
o Yes (1)
o No (2)

DfColo Have you ever defaulted on a commercial loan?
o Yes (4)
o No (5)

Typsbks Which of the following kinds of banking institutions do you use? (Check all that apply)2
▢ Large bank (1)
▢ Small community bank (2)
▢ Credit cards (3)
▢ Credit union (4)
▢ Prepaid debit cards (5)
▢ Non-traditional lenders (6)
▢ Payday lenders (7)
▢ Other. Please specify: (8) ________________________________________________

295

RnkBusS Please rank the following lending institutions in terms of which you have observed
best serve the needs of the African-American business community (1=best 5=worst)2
______ Small community banks (1)
______ Credit unions (2)
______ Large banks (3)
______ Credit cards (4)
______ Non-traditional lenders (5)
______ Don't know (6)

SrvcRate Please rate the services and finance offerings you have received from the following
banking institutions2
Excellent (1) Good (2)
Moderate
(3)
Poor (4)
Very Poor
(5)
Not
Applicable
(6)
Large Bank
(1)
o o o o o o
Small
Community
Bank (2)
o o o o o o
Credit Union
(3)
o o o o o o
Non-
Traditional
Lenders (4)
o o o o o o
Credit Cards
(5)
o o o o o o

CrCrdBal Thinking about the credit cards you use for business...Do you2
Carry a balance of less than $10,000 (1)
Carry a balance of $10,000 - $24,999 (2)
Carry a balance of more than $25,000 (3)
Pay off your credit card bill each month (4)
Don't use credit cards (5)

Skip To: BusInv If Thinking about the credit cards you use for business...Do you2 = Don't use credit cards
296

CrCrdInt What is the approximate interest rate you are charged on your primary credit card?2
Less than 10% (1)
10% - 14% (2)
15% - 19% (3)
20% or more (4)

BusInv Do you currently have, or have you ever had, any of the following investors in your
company? (Check all that apply)2
Friends & Family (1)
Angel or Venture Capital (2)
Other businesses (3)
Small individual investors (4)
No investors (5)

%OnInv Approximately how much of your company is owned by outside investors?2
1 to 4 percent (1)
5 to 9 percent (2)
10 to 19 percent (3)
20 to 49 percent (4)
50 percent or more (5)
None - I do not have investors (6)

End of Block: Block 2

Start of Block: Block 3
297

StrWk List your top 4 personal Strengths and Weaknesses:
STRENGTHS (1) WEAKNESSES (2)
1 (1)
2 (2)
3 (3)
4 (4)

End of Block: Block 3

Start of Block: Block 4

298

BootStr Which of the following bootstrapping methods have you used to help your business
survive lack of sufficient capital (Check all that apply)3
▢ Withhold owner's/manager's salary for some time (1)
▢ Shared premises with other businesses (2)
▢ Bought on consignment from suppliers (3)
▢ Obtained loans and contributions from family and friends (4)
▢ Minimized inventory (5)
▢ Sought out the best conditions possible with suppliers (6)
▢ Deliberately delayed payments to suppliers (7)
▢ Offered customers discounts if paying in cash, in order to get paid earlier (8)
▢ Deliberately chose customers who pay quickly (9)
▢ Occasionally hired personnel for a shorter period instead of employing permanently (10)
▢ Contributed capital via other projects the owner got paid in (11)
▢ Used float to meet short term cash shortages (12)
▢ Got payments in advance from customers (13)
▢ Used manager's private credit card for business expenses (14)
▢ Gave the same terms of payment to all customers (15)
▢ Bought used equipment instead of new (16)
▢ Allowed checks to be returned to buy additional time to pay (17)
▢ Coordinated purchases together with other businesses (for better agreements) (18)
▢ Employed relatives and or friends with non-market salary (19)
299

▢ On any occasion ended a business relation with a customer for frequently paying late
(20)
▢ Used routines in order to speed up invoicing (21)
▢ Borrowed equipment or machinery from other businesses (22)
▢ Used sales tax money to meet cash shortages (23)
▢ Shared equipment with other businesses (24)
▢ Ran the business completely from the home (25)
▢ Carried out barter instead of buying products/services (26)
▢ Used bank overdrafts as a means of financing cash flow gaps (27)
▢ Shared employees with other businesses (28)
▢ Leased equipment from leasing businesses (29)
▢ Used interest on overdue payment as a way to speed up payments from customers (30)
▢ Deliberately delayed payments of value-added (31)
▢ Used employee withholdings to meet cash shortages (32)
▢ Raised capital from a factoring company (33)
▢ Obtained some kind of subsidy (34)

Phs2Part Phase 2 will involve in-depth interviews and focus groups to explore the stories of
African-American entrepreneurs and business owners and their experiences with accessing
capital. Would you be interested in participating in Phase 2 of the study? Please note,
300

individuals who participate in Phase 2 will receive a copy of the Strategies Guide and may
request an electronic copy of the dissertation.
o Yes (1)
o Maybe (2)
o No (3)

THKS Please contact Arlene Warmack Williams at awarmack@usc.edu or (323) 204-2503 to
receive more information and schedule the next steps.

Thank you for participating in this important research project!

FtNts _____________________________Footnotes:
1Survey question from "Small Business Access to Capital Survey" conducted in 2012 by the
National Small Business Association (NSBA).
2Survey question from "Lifting the Barriers to Growth of UK Small Businesses," the 2004
Biennial Survey of the members of the Federation of Small Business.
3Survey question adapted from Bootstrapping Strategies (Table 1 from Olawale Fatoki 2014,
“The Financial Bootstrapping Methods Employed by New Micro Enterprises in the Retail Sector
in South Africa.” Mediterranean Journal of Social Sciences, Vol. 5, No. 3, March 2014).

End of Block: Block 4

301

APPENDIX C

INTERVIEW QUESTIONS FOR ENTREPRENEURS

A. THE BEGINNING OF THE JOURNEY
1. When did it first hit you that you wanted to own your own business?
2. Why did you decide to go into business in the first place?
3. Tell me about how you got started in business.

B. PERSONAL ORIENTATION
4. What energizes you in business? What drains you?
5. How do you cope with barriers and set-backs that inevitably come up in business? Do you
have a particular philosophy, or way of sense-making that keeps you focused on your
ultimate goal?
6. Have you ever experienced a time when you believed you were treated differently because
your company was African-American-owned. Describe the situation. Were there others?
7. Do you have a higher purpose that drives you? What is that purpose?

D. CAPITAL
19 When you started your business did you have enough capital? Please explain.
20 Tell me about your first experience seeking capital for your business. How have your
experiences changed as your business has grown?
21. Thinking about the times you were unsuccessful in obtaining the funds you needed from
banks or other conventional sources, what did you do to get the funds you needed or to
address the issues?
22. What were some of your more unconventional/creative/risky ways of getting the capital you
needed for your business?
23. Have you found it more or less difficult to raise growth capital as your business has
matured? Please explain.
24. Has being an African-American owner of an African-American business been mostly
positive, mostly negative, or neutral in your efforts to raise capital for your business? What
impact would you say it has had on your fundraising needs?
25. What have been your most difficult challenges regarding securing and deploying capital in
your business? Did you overcome this challenge or is it ongoing?
26. What are the challenges and triumphs you face today in accessing the capital you need to
sustain and grow your business? Is it easier or more difficult? Was there a point in your
growth where things changed dramatically—for better or worse?
27. What have been your experiences with bootstrapping your business when conventional
financing avenues may not been available to you?
28. Is your personal assessment of your bankability today better or worse than when you started
in business? Please explain.
29. How is your credit score? Would you say it is better or worse than it was when you started
your business? Please explain.
302

30. If you have received a loan or other financing, did an existing relationship help make it
possible? What was the key relationship and how long did you have it before the financing
closed?

E. SUCCESS/LESSONS LEARNED
31. How do you define and measure success in your business? Is it an ongoing journey, or a
destination?
32. Do you consider your business successful? Why?
33. Has being an African-American owner of an African-American business been mostly
positive, mostly negative, or neutral in your business experience? What impact would you say
it has had on your success?
34. What business successes or accomplishments are you most proud of? Why?
35. What kept you fighting when things got hard…the driving motivation or focal point that
provided purpose to your journey?
36. Most successful people have had experiences failing. What were some of your major
opportunities to learn, masquerading as failures, that you have encountered?
37. Tell me about a situation where you felt failure was inevitable or you felt like giving up?
What happened and how did you move past the fear?
38. Did you ever seriously consider quitting? Why? Describe the situation. Why didn’t you quit?
Or did you quit?

F. SUMMARY
39. Thinking back over your business, tell me about the individuals in your financial support
network. This could be people who encouraged you, provided funds when you needed it,
pointed you in the right direction or gave good advice. How have they helped you?
40. How has your financial support network (which may or may not include accountants,
lenders, investors) changed since you started in business?
41. What were the moments or experiences that you feel helped define who you are?
42. What do you know now that you did not know when you started that might change how you
approached raising capital for your business?
43. What lessons have you learned that could be helpful to other African-Americans seeking
capital to start or grow their businesses in Los Angeles County?

303

APPENDIX D

INTERVIEW QUESTIONS FOR FINANCIAL SERVICES PROVIDERS

1. What were you doing before you took this position?
2. What programs do you have for small businesses seeking capital?
3. Do you have any special programs to provide capital for minority firms?
4. How does your institution use the Community Reinvestment Act to address access to capital
for small businesses in general and African-American businesses in particular?
5. What do you feel is the role of relationship lending in your organization? What is your best
advice on how an African-American entrepreneur should go about establishing a banking
relationship with your organization?
6. What are the guidelines/underwriting criteria?
7. What have been your experiences with African-American firms seeking capital?
8. What have you observed about the African American firms that have been successful in
obtaining capital to start or grow their businesses?
9. What seasoned advice would you give to African-American firms in their efforts to obtain
capital for their businesses?
10. What are the regulatory issues that may negatively impact African-American firms in their
efforts to seek capital?
11. Who do you refer firms to when they do not qualify for credit or assistance from your
organization?
12. What changes would you recommend to improve capital access for African-American
businesses?

304

APPENDIX E
INTERVIEW QUESTIONS FOR
CHAMBER OF COMMERCE REPRESENTATIVES

1. What are your thoughts on capital access for African American firms?
a. From the firm’s perspective?
b. From the lender’s/investor’s perspective?
2. Do you feel lack of access to capital affects your members? How so?
3. Do you have financial representatives involved in a board or advisory capacity?
a. What are they saying when asked about capital access for your members?
4. Who do you most often refer your members to when they say they need capital? Why?
a. Are the subsequent reports favorable?
5. Does the chamber have any special programs that help your members’ access capital?
a. If so, what are they?
b. Are they well attended?
c. How often are they offered?
6. What do you feel are the top five issues or challenges facing your members in their efforts to
secure capital for their businesses?
7. What do you feel are the impediments AA firms encounter when seeking the capital they
need?
a. From the firm
b. From the lender/investor
8. What changes would you recommend to improve capital access for African-American firms?

Can you recommend firms that I can interview and or complete an anonymous survey as part of this
study?

305

APPENDIX F
INTERVIEW QUESTIONS FOR BUSINESS CONSULTANTS

1. How many AA firms would you say you have worked with to help them get capital?
2. How many are ready to go after external capital?
3. What challenges do they face?
4. How much of the challenges do you feel are the fault of the borrower or of the system?
5. What programs do you most refer your clients to for financing? Is it debt or equity financing?
6. Where are they getting the most traction? Is the reason because of the mission programs of the
institution or of the individuals who interface with them?
7. Are you seeing constraints or barriers that routinely impact the African-American firms?
8. What disparities do you see in the financial marketplace as it pertains to African-American firms?
9. What changes on both the borrower and lender side do you feel need to happen to close the
gaps?
10. What are some success strategies that you have seen used by AA firms when they cannot get
traditional financing?
11. What role do you think relationships have in securing capital?
12. What recommendations do you have for developing a company’s financial network?
13. Have you seen more difficulties for firms to receive the capital they need at the early, start-up
stage or as they grow to reach a high level of revenue?
14. Have you seen programs that are more successful than others in servicing the needs of African-
American firm? Which programs are they and why do they succeed when others fail?
15. There seems to be a disconnect between the programs that say they have money and the actual
disbursement of those funds. How do you think lenders can overcome the mistrust in the
financial services providers?

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APPENDIX G
Advice and Lessons Learned From AAEs

From Subject One
Accounting practices have to be top notch.
Fastidious about record keeping.

First of all, your accounting practices have to be top notch. Don’t even try it if your accounting,
your book keeping, your accounts, your financial statements, your tax documents are not in
order. Don’t even waste your time. That is extremely important—that you have a financial
manager, in your office. Fastidious about their record keeping. That’s extremely important.
That would be the first thing that I would say. It starts from there.
What you know now
I would have engaged the political system. I definitely would have. And I would have been
aware of more economic opportunities than what I know now.

From Subject Three
You’ve got to have a relationship with a banker.
Exposure, relationships, visibility.
Set you books up properly. No shortcuts.

You’ve got to have a relationship with a banker. I think having big clients on the books is
impressive. Everybody’s impressed by big corporations. That’s very impressive, so, when
people are looking at you, even if they’re going to do a valuation on your business if you’re
considering selling your business, they’re going to look at how you pay your bills, what kind of
money you have in the bank, who are your clients. Who are you doing business with? And
again, it’s crucial to initially establish your relationship with a banker. Talk to them. Let them
know your successes. Invite them to things. When I get awards, or nominated for things, I ask
them for their letters.

Exposure, relationships, visibility. All of this is really, really crucial and important, I think. Pay
your bills on time. Do not get in the red. I’ve run my personal business just like I run my
business. I never want to bounce checks. Don’t shortcut anything. Just be moral and ethical.
No shortcuts in business. No shortcuts.

Set your books up properly, get financial advice from the proper people, and no shortcuts in
relationships with the bank. Start talking to them—about your vision, about what you’re doing,
who you’re doing business with, about your successes. Tell them when you got another contract.
On my website, I like to put our successes. We got a contract with a big this or a big that, or an
award. It’s like being transparent, and having conversations, and letting everybody know kind of
what you’re into.

And also, it’s interesting once you get a certain point in the business, do not forget to give back
and be present. Help the community. You’re not just in this to make money and stuff it in your
pockets. You’re supposed to give back, because we’re role models. I don’t think of myself as a
307

role model, but I am. Maybe I’m not, I’m just a person here, doing this, but I am, out there to the
world.
What you know now
Well, if I were to do things differently, and be further ahead, monetarily with my business, I
would have hired a manager early in the game, and I would have hired more employees early in
the game. Instead of being conservative, I would have done that. And, of course, I know now
that you get money, and you ask for money, not when you need it, but well in advance. That’s
really, really important.

From Subject Four
The most important thing is credit.
Invest in real estate. Always have your own.

Well, we’ve always had a good credit. So, I think the most important thing is credit. I think if
you teach anybody about anything, then it’s credit. Then I would say invest in real estate along
with it. Real estate is the best thing for anybody. But I’ll say we as a race of people, we should
all, and any woman that’s independent, should have their own. Always have your own. Your
own money, your own checkbook, your own purse.
What you know now
I think credit is the most important thing, and I think if you can establish credit then establish….
First if you can save then buy your real estate. Real estate will keep you always afloat. People
may not always need clothing, but people will always need somewhere to sleep.

From Subject Five
Know your business, customers and cost accounting

I think knowing your business, knowing your market, knowing your customers. It’s very
important. I would say, “Know your business, know your customers, know cost accounting.
Know your GMA. Know your overhead.” That is very important. If you don’t know what,
you’re just working empty. To know those numbers, it’s very, very important. Yes. You know
when you’re going to gain, and when you’re going to lose. Unless you have a good financial
statement. We use [name of financial computer software]. Every small business uses [that
software]. But what happens is interpretation of that [software]. It’s garbage in, garbage out.

Our business, is an ARAP (Accounts receivable, accounts payable) business. They extend us 30
days, 60 days. We need chemicals. Our source of working capital is vendors. The vendors, they
carry us. If it weren’t for the vendors, we’d be dead. And vendors, you know. No matter how
much cash you have, if your vendor doesn’t support you, you’ll be out of business.
What you know now
I know a lot. Even though I came from the financial, lending world, I underestimated the need
for capital. The need for working capital. I was naïve about it.
That’s one. Secondly, cost accounting. That’s one thing I failed [to do]—not introducing the
measure of cost accounting. How much does it cost me per gallon, per drum, for this? Ten years
ago, I had an accountant that tried to do it, but we didn’t get, didn’t receive, per week. He didn’t
308

some to me and say how much it costs . . . it seems like in a business, when somebody knows
how much the chicken [costs], how much the . . .

From Subject Six
Credit score. Strategic plan

I would recommend credit score. I would recommend writing a strategic plan.
What you know now
Get a 700 or better credit score, number one. That’s the first major hurdle. If I’ve had that at the
beginning? Oh, my gosh.

From Subject Seven
Relationships trump capital needs.

Don’t think relationships don’t trump capital needs. I think relationships are more important
than capital needs. So don’t let the lack of capital, immediate capital, deter you from whether
you …. Things just seem to work out.

From Subject Eight
Network. Build personal relationships. People won’t open up to stragers

Network. Network. To build a personal relationship with folks. A personal relationship helps.
Join social groups. You learn to play golf. Tennis. Active in your church. When people know
who you are, they’re more willing to open up and tell you what is happening. They won’t open
up to strangers.
What you know now
Except the only thing that I would have changed is I would have pursued projects that are funded
by the government. I would do . . . the same that the big guys do. Like Donald Trump, his son-
in-law, people like that. All of them use [the] government to build each project.

From Subject Nine
Have a solid plan.

You can have a solid plan, and you need to be able to articulate that vision, be able to sell that
vision, such that people will move on it. It’s a really difficult thing. That’s why a lot of
businesses don’t start, and can’t get off the ground.
What you know now
“That strict, strict, strict forecasting is vital in your survival. You need to be able to have the
capital to pay someone to forecast what you’ve articulated financially so that you can weather
the storm. Even unforeseen things. It’s one thing to have the operating capital, and it’s another
thing to have the reserves for those unforeseen things.”
309

From Subject Ten
Don’t wait until you need money.
Get it when you don’t need it.

The one think I will say is that, when I started the business, I wanted to do it debt-free. Actually,
[name] told me this: “You don’t wait ‘til you need money. You get money when you don’t need
it.” The smart thing is, if you’re doing well, and you’re profitable, don’t think about being debt
free. Think about getting a line of credit that you don’t have to use, or, if you use it, just keep it
so that you always have it, because they you’re establishing credit for your business.
What you know now
You’ve got to watch your bottom line a lot better than I did. You have to measure out risk
differently. You have to be prepared for a downturn. And you really have to scrutinize the
people that you have business relationships with.

From Subject Eleven
Take out a loan. Don’t spend all of your money.

If I was to start a business, opening my own business and looking for capital, I would definitely
do things a lot different because I have the experience now. I know better. I know it’s out there.
In order to help businesses now, you have to show them, teach them, remind them, encourage
them why they don’t want to do it this way, you want to do it that way. I wouldn’t hire a
contractor to come in and do work on my bathroom, and then take the money I just made
yesterday and pay him all, and then I’m broke again. I would have rather taken out a loan, had
all the work done at one time, opened up, and then taken a portion of that money and made
payments, versus all the money, and now I’m broke.
What you know now
But I never really went after the funding, which is something that I said, if I ever did it again, I
would go after the funding, because it makes it easier.

From Subject Twelve
First, get your foundation together. Your credit score is your backbone.
Don’t let anybody stop you. The fight is to accomplish.

“First you got to get your foundation together. You’re going in with … you got 750 or 720, I
don’t think anybody can like turn you down. You know what I mean? A lot of people don’t
understand that. You know what I’m saying? I was just lucky enough to be around a lot of
people that explained to me that your credit is your backbone. If you keep your name and your
credit good, you can do pretty much anything you want.

“Some people think like, stuff of old … people think they’re supposed to do this. You go to a
bank because you’re equal and you’re supposed to get this and stuff like this. But really I try; I
try not to borrow money from banks anymore because like I said I went to a different level. You
know like I can work on, I can work on my, like a branch of people around me but as I was
coming up, I saw a lot of people that were trying to start businesses. They were like I’m going in
310

here but they had animosity towards them with a FICO score at 550 or 650, and they’d be mad at
the bank because they couldn’t get any money out.”

“The thing … the fight issue for anybody … like you …. When you’re young, you have a child.
You have goals in your life, the accomplishments …. The fight is to accomplish. Don’t let
anybody stop you. That’s the most important … that’s the thing as a black person, a minority
person. There are so many obstacles in your way that most people give up, and you just got to
fight through them. You just got to say nobody’s going to stop me.”
What you know now
Well when you’re young you’re thinking you’ve got plenty of time. Time is always … 20 or 30
years old, you figure you’ve got 50 years to do this. Lot of people don’t realize time, it goes by
really fast. I would have saved a lot more money and invested a lot more money. You know
instead of …. I was at that point that I was interested in cars and things and stuff like which I
should have put my money to invest in property and stuff like that. You know if I had a chance I
would have a lot more property and stuff than I have now. But that comes with … when you’re
a black man … if you’re a person that is poor and never had anything and being able to buy
things, the first thing you’re going to want to buy as a young man is a nice car. You want to have
nice jerseys. It’s just the way it is. I did not have … and I did not have a person to say hey that’s
all fine but you … that’s not going to be fine. You need to get yourself something you can build
on as you get older.

From Subject Thirteen
Just have thick skin. Don’t be quick to give up.

“I would say, just have thick skin. That sounds cliché, but that’s still true today. Yeah. You
cannot. And don’t be quick to give up. You can’t be quick to give up. You can’t. You have to
just stay there. Fight it to the end. What’s the end? The end for you might be shorter than the
end for me, whatever that is, then it is. But the longer you can search, and find out, and knock on
doors, the more you’ll learn. You may win. That’s all I can say, because there aren’t any
guarantees. But there aren’t any guarantees in anything. I still say it’s better than punching the
clock. ”
What you know now
That I can’t depend on one thing. Earlier, I would depend on one thing. Somebody would say,
“Go here,” and I’d go there, and I’d fill out the application, and I’d wait. Then they’d say know,
and I’d be like, “Aw, shhh. I don’t know what I’m going to do. I need this money. But now,
right away, when I go to one bank, I’m going to five. And I have all the documents all ready. I
have all the documents that they want at the first bank, I’ve got multiple copies.

311

From Subject Fourteen
Don’t look for permission. Really understand what you’re doing.
Know what you stand for.

“The biggest thing that I needed to learn was that what I’m doing, I’m going to do regardless,
and I’m not looking for permission. That’s really the biggest thing. And I have this thing: “The
train is moving. Whether or not you’re going to buy a ticket to get on, whether or not you’re
going to get off, it’s OK, because the train is moving, regardless.”

“The reason why that’s one of the biggest tools that you can learn is, when people feel that your
success is contingent upon their answer, they will drag your feet every time. They feel like they
need to be an expert in your life, and they have to give you some sort of advice, because that’s
what they feel like they should do. When people understand that, regardless of whether or not
they give you advice, whether or not they partner with your company, you will continue on, then
it’s a great thing. Then it’s “Oh, she’s doing this. How can I be involved? How can I work with
her?”

“The biggest thing is to really understand what you’re doing, so that when you walk into a room,
they can’t excuse you from your own business, because you know what you’re talking about.
That’s the biggest thing—understanding your vision, understanding your brand, understanding
where you want to go.

Understand what your “No’s” are. People get so excited about the fact that they have an
opportunity to do something. OK. Big deal. But tell your agent what you won’t do. Tell your
partner who might be funding your company what you won’t do. Identify your values so that
you’re so clear that you can make a yes or a no. Every meeting is not a yes. Is this right for me?
You won’t know what’s right, so take that time for self-assessment for your business and figure
out what your standards are. If you don’t know what your standards are, especially if you’re
hungry. You will be so hungry that you’re going to come on out with this deal that’s not good,
and you’ll take that deal, and the fine print will be terrible, and you’ll be stuck.

I would say to African-American business owners, especially new African-American business
owners, know what you’re talking about. Know who you are. Do your own research.

Do the self-assessment. Nobody can tell you what you should be thinking. Already have that
information. So if you take a little longer to get it down, or do something extra, or at least
solidify the structure of your business in advance, do that, so that you have taken the time to
really assess your thoughts, and you know what you’re talking about, what you stand for.”
What you know now
I know now, I have an expanded viewpoint of what the business is. Even though I had the brand,
and I knew I had the deck, and I knew it’s books and cartoons and sessions and workshops and
ABC. I knew that, but I didn’t know exactly how I could use the funding, or what would be
needed. I didn’t know that until we’re going into this particular space. For a branding entity,
you need overhead.

312

From Subject Fifteen
Understand the importance of credit scores.
Learn how to put yourself and your
company on paper so that you look viable.

“Understand the importance of credit scores, how to prepare proposals and things like that to go
after funding. How to put yourself and your company on paper that that they are looked at as
viable. To really put yourself together on paper, so that you’re looked at in the right type of way,
to get funding. You look at the requirements, and then you go back, and you analyze how can
you make that work for you.”
What you know now
“More ways to line myself up to get funding. Knowing how important things are like credits
scores, how to prepare proposals and things like that, to go after funding. How to put myself, and
my company, on paper, so that we’re looked at as viable.”

From Subject Sixteen
Be consistent. Learn how to leverage relationships and how to network.
Surround yourself with people who give you wisdom.

“The lessons that I think they all can learn is, you have to be consistent. You have to stay with
what you’re doing. You have to make the adjustments along the way. You can’t become so
discouraged that you just give up.

The other thing is that we have to know how to leverage the relationships. While I’m talking
about it, networking. You have to learn how to do that. There’s an art to that. As you know,
people are saying “Come to this, come to that” all day long. Small business outreach, blah blah
blah. But you have to figure out if some of those things make any sense to attend. In many
cases, it’s a waste of your time, and you go see the same people over and over and over again.

What I try and teach the young African-Americans, the young businesses, is that, figure out if it
makes sense to you. Figure out if you have the cash to go buy a ticket to something that’s,
really, you don’t even know what you’re attending. Hang out with the more mature business
people, not so much with people who are the same age, because they’re talking the same talk all
the time. Try to get around some people that can give you some wisdom about the world, and all
the good things that you should be doing to make a customer want to do business with you.
Those are important.”
What you know now
What I know now, that I didn’t know then, is that it is more difficult to raise capital today than it
was back then. The change is because of the dynamics of how things are being analyzed. It’s
very difficult for companies, small businesses, to get money these days. Whereas, back in the
old days, if you had collateral that the banks could sink their teeth into, they would give you
money, loan you money. But today, I just now for a fact that it probably would have been a little
more difficult for me to really get going.

313

From Subject Seventeen
Be persistent. Capital of my own.

To be successful, you’ve got to be persistent. I went to Unocal. I should have stayed longer and
filled up a full reserve of capital of my own. Then, I could have cut a deal with Unocal for those
guys [to] subcontract all the servicing of the electronic systems.
What you know now
What I would tell you is that I would have stayed at Unocal. I gained an invaluable experience
my last year at Unocal. I want to work at Unocal. I had an electrical engineering background,
and I also had an FCC license.

From Subject Eighteen
Learn about all of the different financing tools and approaches.
Find a mentor. Be prepared to not give up. You always get knocked down.

“I would say the methodology about some of the financing tools and approaches. They should
teach that. Some of the factors and some of the programs that don’t fall through. That’ll never be
on test. Get your business plan. You put on your best suit. If you go to the SBA or the office,
there’s microloans available for you. All of that is really case by case, but most of all because of
the way some things are right now are dried up. It really depends on the climate, the political
climate in America. That might change for them… I would have gone after credit facilities
instead of just cash. Money, credit, people. That would give me a cushion and use that first.”

“I would say if there’s an industry you think you might want to go into, find who is working in
there. Find some of African-Americans in the community, find out who your competition is.
Know who they are, work for them. Understand the ups and downs. Find a mentor. If they won’t
come to you …. If somebody sees the spirit, they’ll come to you. But it takes years to do that or
you might come across someone initially. Really know your business. Be prepared to not give
up. You’ll always get knocked down. You have to have enough to survive, so you can eat while
you’re doing the start test.”
What you know now
“Through that evolution, I met some people at different levels of banking that I had no idea about
that I know now. If I would have known back then, I would have done things completely
different, I would have gone after credit facilities instead of just cash. Money, credit people. That
would give me a cushion and use that first.”

From Subject Nineteen
Do your homework. Have some of your own money.
When you make your pitch, provide the answers to the questions.

I don’t have a lot of experience raising capital, but I know that you have to have done your
homework and your research and your numbers. And you have to have some of your own
money. People don’t want to invest and be the only money in the deal. They want to be sure
that you have enough confidence in your deal to put whatever money you have. When you make
314

your pitch, make sure that you understand the deal and provide the answers to the questions they
might have, so that you know it better than anyone else, and you have confidence in it, and you
have your own money in it. Because if you’re willing to bet on yourself . . .
What you know now
You gain so much knowledge and experience over time, but I guess the most important lesson is
that I probably should have some outside capital. I don’t know. Because, when I think about it,
when the recession hit, if I’d lost all that money, and it was other people’s money, I would be
feeling so guilty. At least, because it was my own, I might not feel good about it, but at least I
don’t have to be concerned that I hurt a bunch of people who invested with me.

From Subject Twenty
Network. Build relationships.

“That would be my advice to African-Americans, or anybody else. We run into it more times
than most, but we’re not the only ones that run into that. Networking is probably one of the least
things I did. It probably would have helped me along my way better, if I had networked with
people. I think network is another thing that . . . because it’s building relationships. If you build
a relationship with a banker . . . that’s how Donald Trump got his loans. Look how many times
that joker went bankrupt. If I went bankrupt one time, they wouldn’t lend me any more money.
But because of the relationships that he had, they kept loaning him money. And so, networking
is another thing I would say you want to do.”
What you know now
“Now I know that you just need to go in and ask. Just ask. I said the same thing about business.
You just need to continue to do it, and eventually, you’re going to run into somebody that
believes in you, and that’s what it’s all about. It’s really not about whether or not your books are
right, and all that crap. It’s about people that have the money are willing and believe in your
vision to loan you their money. And it’s really not their money.”

“What I know now is that if they want to loan you some money, they will. If they don’t, they’re
going to find everything adverse to keep them from doing it. I learned that from the first loan that
I got. There was no reason, at all, for those people not to loan me that money. None. I had an
impeccable credit record. But they didn’t want to loan it to me. That’s what it was. They didn’t
want to. That’s the lesson that I learned. If they want to loan it to you, they will. If they don’t,
they won’t.

You just have to keep going, from the next one into the next one, and on to the next one, and
keep the aggressiveness, like I did about my business, toward my finances. Just keep going after
it, and keep going after it, until somebody loans you some money.”

315

From Subject Twenty One
Maintain and value relationships. Have a thirst for learning.
Build relationships beyond one group.

“The lessons learned are to continue to maintain relationships, value relationships. Be a great
listener. Have a dying thirst to learn and learn and learn and learn. I’m still to this very day am a
news junkie News is always in my office when I’m here. I read a lot. I just make an assumption
…. When I’m traveling, I read five newspapers a day. That’s when I’m traveling. When I’m
here, unfortunately, it’s just one – the L.A. Times. I have a dying thirst. I always want to better
than what I am. For the most part, I don’t benchmark myself against others but I benchmark
myself against my goals because my goals are the ones that matter more than anybody else’s.

So start with your trade organizations. That’s one. Then start with some black businesses,
whether that’s BBA or some black or whoever and other people. And I’m really, you know,
clear. I would tell African-Americans while you should always have that as your base, you
should not rely 100% on it. You should always build that base and your relationships beyond one
group. Other groups will be helpful to you as well. Don’t put all your eggs in one basket. That’s
for sure.”
What you know now
Work very hard. Be a good listener. Reach out to everyone. Don’t assume no one can provide
you counsel. Those are all the things I did then and I do now.

Abstract (if available)

Abstract African‐American firms play a critical role in strengthening communities by providing jobs and supplying goods and services, but they face serious disparities in securing the capital to start and grow their businesses. Numerous studies focus on the challenges they face and the issues that surround these efforts. Making It: A strategies primer for African‐American entrepreneurs seeking capital in Los Angeles sought to look past the descriptive data on existing conditions to answer three research questions: 1) How have African‐American entrepreneurs in Los Angeles overcome the challenges they faced in accessing capital to build their companies? 2) What challenges do financial services providers face in distributing the necessary capital to African‐American entrepreneurs, and 3) What information can be shared with African‐American entrepreneurs to shorten their journey to success by improving their potential to secure the capital they need? Using a simultaneous mixed methods approach, the study surveyed and interviewed 69 entrepreneurs and financial services providers. The results produced numerous findings when examined together suggest that a collaborative, systemic approach is needed to address known disparities.

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Asset Metadata

Creator Williams, Arlene Warmack (author)

Core Title Making it: a strategies primer for African-American entrepreneurs seeking capital in Los Angeles

School School of Policy, Planning and Development

Degree Doctor of Policy, Planning & Development

Degree Program Policy, Planning, and Development

Publication Date 05/14/2018

Defense Date 05/11/2018

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag access to capital,African‐American entrepreneurs,community development financial institutions (CDFIs),disparities,lack of access to capital,OAI-PMH Harvest

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Robertson, Peter (committee chair), Banerjee, Tridib (committee member), Banner, Michael (committee member), Majchrzak, Ann (committee member)

Creator Email awarmack@usc.edu,vlwilliams09@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c40-503958

Unique identifier UC11268188

Identifier etd-WilliamsAr-6326.pdf (filename),usctheses-c40-503958 (legacy record id)

Legacy Identifier etd-WilliamsAr-6326.pdf

Dmrecord 503958

Document Type Dissertation

Format application/pdf (imt)

Rights Williams, Arlene Warmack

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA