U.S. GOVERNMENT PUBLISHING OFFICE

32–693 PDF WASHINGTON : 2019

S. HRG. 115–566 

STRENGTHENING ACCESS TO CAPITAL FOR 

MINORITY-OWNED SMALL BUSINESSES 

FIELD HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 14, 2018 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.govinfo.gov 

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(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FIFTEENTH CONGRESS 

JAMES E. RISCH, Idaho, Chairman 

BENJAMIN L. CARDIN, Maryland, Ranking Member 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

JONI ERNST, Iowa 

JAMES M. INHOFE, Oklahoma 

TODD YOUNG, Indiana 

MICHAEL B. ENZI, Wyoming 

MIKE ROUNDS, South Dakota 

JOHN KENNEDY, Louisiana 

MARIA CANTWELL, Washington 

JEANNE SHAHEEN, New Hampshire 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

TAMMY DUCKWORTH, Illinois 

SKIFFINGTON E. HOLDERNESS, Republican Staff Director 

SEAN MOORE, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS

Page 

Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator From Maryland . 1 

WITNESSES

Panel 1 

Manger, Mr. Bill, Associate Administrator, Office of Capital Access, U.S. 

Small Business Administration, Washington, DC ............................................. 6 

Medley, Ms. Dawn R., Vice President of Business Finance Programs, FSC 

First, Largo, MD .................................................................................................. 12 

Lewis, Mr. John, Executive Vice President–Chief Administrative Officer, The 

Harbor Bank of Maryland, Baltimore, MD ........................................................ 18 

Bilonick, Ms. Marla, Executive Director, Latino Economic Development Center, Washington, DC ............................................................................................ 26 

Wilson, Dr. David, President, Morgan State University ...................................... 31 

Panel 2 

Clark, Mr. Kenneth E., Business Consultant, MBDA Business Center—Capital Region, Capital Region Minority Supplier Development Council, Silver 

Spring, MD ........................................................................................................... 40 

Smoot, Sr. Mr. Tim, Vice President, Chief Financial Officer, Co-Founder, 

Meridian Management Group, Inc., Baltimore, MD ......................................... 46 

Miller, Ms. Mary, Senior Fellow, 21st Century Cities Initiative, Johns Hopkins University, Baltimore, MD .......................................................................... 51 

Holmes, Mr. Will, Director of Outreach, Goldman Sachs 10,000 Small Businesses, Morgan State University, Baltimore, MD ............................................. 57 

ALPHABETICAL LISTING

Bilonick, Ms. Marla 

Testimony .......................................................................................................... 26 

Prepared statement .......................................................................................... 29 

Cardin, Hon. Benjamin L. 

Testimony .......................................................................................................... 1 

Prepared statement .......................................................................................... 72 

Clark, Mr. Kenneth E. 

Testimony .......................................................................................................... 40 

Prepared statement .......................................................................................... 43 

Supplemental Testimony ................................................................................. 95 

Addendum 1: Minority Business Development Agency Link: NMSDC By 

the Numbers .................................................................................................. 184 

Holmes, Mr. Will 

Testimony .......................................................................................................... 57 

Prepared statement .......................................................................................... 59 

Lewis, Mr. John 

Testimony .......................................................................................................... 18 

Prepared statement .......................................................................................... 21 

Addendum 1: Milken Institute Phase I Summary ......................................... 99 

Addendum 2: Milken Institute Phase II Summary ....................................... 156 

Manger, Mr. Bill 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 9 

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IV 

Medley, Ms. Dawn R. 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 15 

Miller, Ms. Mary 

Testimony .......................................................................................................... 51 

Prepared statement .......................................................................................... 53 

Risch, Hon. James E. 

Prepared statement .......................................................................................... 92 

Smoot, Sr. Mr. Tim 

Testimony .......................................................................................................... 46 

Prepared statement .......................................................................................... 48 

Addendum 1: 2016 Small Business Credit Survey Report on Minority 

Owned Firms ................................................................................................. 191 

Wilson, Dr. David 

Testimony .......................................................................................................... 31 

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STRENGTHENING ACCESS TO CAPITAL FOR 

MINORITY-OWNED SMALL BUSINESSES 

FRIDAY, SEPTEMBER 14, 2018 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Baltimore, MD. 

The Committee met, pursuant to notice, at 10:04 a.m., at Morgan 

State University Earl G. Graves School of Business and Management, Martin D. Jenkins Hall, Behavioral Science Center, Room 

514, 1600 Havenwood Road, Baltimore, Maryland, Hon. Ben 

Cardin presiding. 

Present: Senator Cardin. 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

RANKING MEMBER, A U.S. SENATOR FROM MARYLAND 

Senator CARDIN. Good morning, everyone. Let me thank you all 

for being here. 

Let me call to order the meeting of the Senate Small Business 

and Entrepreneurship Committee in this field hearing at Morgan 

State University, here in Baltimore. This is part of our oversight 

function of the Small Business and Entrepreneurship Committee, 

and today we will be talking about the source of capital for minority businesses. And I thank all the witnesses that are here. 

I want to start by first acknowledging and thanking the leadership of our Chairman, Senator Risch, who authorized this field 

hearing. I serve as the lead Democrat on the Small Business Committee. Senator Risch is the Chairman. The two of us have worked 

very closely together through this Congress, and we are very proud 

that we have been able to produce several significant bills that 

have become law, and we have worked together on oversight of the 

SBA and small business. I particularly thank Senator Risch for his 

cooperation and for allowing this Committee field hearing to take 

place. 

I want to acknowledge the staff that is here. From Senator 

Risch’s office, we have Meredith West, Renee Bender, and J.R. 

Walker; and our Chief Clerk of the Committee, Kathryn Eden. 

I also want to acknowledge from the Democratic staff, we have 

Sean Moore, Kevin Wheeler, Beth Bell, Olivia Nutter, Ellen Harrington, and Sean Bartlett. 

On my staff, I want to thank Jerome Stevens. Whenever we are 

at Morgan, Jerome is going to be here with me. He is an incredible 

asset to our field operations as my outreach director, and I thank 

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you. And Carleton Atkinson, who is my Maryland director, is also 

with us today. 

So we have a full staff that is with us. Steve Umberger is here, 

who is the SBA director in the Baltimore office. He is also my 

neighbor. We are both in the Bank of America building together, 

and I thank Steve. He does a great job in reaching out, getting as 

much input as we can and providing services to businesses. He was 

on the ground immediately every time we have had a significant 

crisis in our business community, Ellicott City being one that 

stands out, the great work that the SBA office here did in helping 

those businesses in Ellicott City. 

Dr. Wilson will be with us shortly, and when he is here, I am 

going to ask the witnesses if we will interrupt for a moment so I 

can give him an opportunity. Dr. Wilson is the president at Morgan 

State University. Morgan State University is very proud of the 

work that they have done in leadership, innovation, and producing 

great leaders in minority-owned businesses in our community. 

There are several examples that we will be talking about today 

that owe their roots to their education at Morgan State University. 

So we are very, very pleased about that. 

Again, I thank all the panelists. I thank the people that are here. 

Let me just start, if I might. A friend of mine gave me this book 

to read, ‘‘They Call Me Little Willie.’’ Now, for those of you who 

know Baltimore, we are talking about Willie Adams. He was a legend in our community, a person who was known as one of the great 

leaders in the black community in Baltimore. 

I mention Little Willie because it is very relevant to the topic we 

are talking about today, access to capital by minority businesses, 

and Little Willie, Willie Adams, came to Baltimore from the South. 

He had virtually no education, but he was an entrepreneur. He had 

a brilliant mind for business, and just about every legal avenue for 

business was not available to him, coming to Baltimore in the 

1940s. 

So he decided the only way he could make some money was to 

run numbers. He was good at it. I mean really good at it. He understood numbers, and he was able within a relatively short period 

of time to establish the largest numbers business in Baltimore and 

basically was able to get capital. And he used that capital to help 

black entrepreneurship in Baltimore. 

There are many, many examples, but probably the most prominent would be Henry Parks and Ray Haysbert with Parks Sausage, 

which was financed by Willie Adams to get started. 

The other, which is known very well, is ANR with Theo Rodgers, 

and the rest is sort of history. 

Now, many think he did a much better job on the use of lottery 

revenues in the states, doing today, but we will not go through 

that. 

[Laughter.] 

But it was the only avenue available to black entrepreneurs. 

Now, we have come a long way since those days. We now have 

financing options available to minority businesses and womenowned businesses, but quite frankly, we still have a long way to go. 

Many of you will recall this is my second term as Ranking Member of the Small Business and Entrepreneurship Committee. For a 

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brief period in 2015, I was the Ranking Democrat, and we held a 

field hearing at Bowie State University in 2015, talking about the 

barriers affecting minority-owned businesses. 

As a result of that hearing, we did talk about the importance of 

the Fee Waiver Program under the 7(a) and how that helped minority businesses. We also talked about the SBA Microloan Program and its success rate in getting funds to small businesses, and 

we looked at the challenge at that time of the baby boomers selling 

their businesses and whether black entrepreneurs were going to be 

able to deal with that. And we looked at employee-owned businesses and other opportunities that we thought would be relevant 

in order to advance those issues. 

Well, now I am Ranking Member of the Small Business Committee again, and I felt it was important to build on what we started in 2015, recognizing that America’s strength is in our values. It 

is in our values. Our values are that every American, every person 

has the opportunities of this great Nation, and the fact that black 

owners do not have the same ability for capital is against the values of this Nation. We need to do something about it. That is who 

we are as a country. So that is one reason we need to look at access 

to capital. 

Secondly, we know about the wealth disparity in this country. 

We know about the tremendous wealth disparity between the minority community, between women, and we need to bridge that 

gap. 

Yesterday, I was at the Congressional Black Caucus when we 

looked at the issues of venture capital with start-up companies, 

and we looked at the disparities there. I commented then there is 

a reason why venture capitalists are not investing as much in black 

businesses. One reason is that you look at the senior leadership in 

venture capital, and only 2 percent are African American. So there 

are obstacles that are out there that we need to do something 

about. 

And, yes, it is important because that is what is right about this 

country is to give opportunity to all, but it is also holding down the 

growth potential of this country when we hold down entrepreneurship in minority communities. 

The fastest growing firms in the United States are owned by minority entrepreneurs. The great State of Maryland is no exception. 

In fact, Maryland is home to the highest average number of minority-owned businesses in the country and ranks second for minorityowned women businesses. 

In 2012, minority businesses accounted for 38 percent of all 

Maryland small firms compared to 29 percent nationally. Despite 

this growth, gaps in key areas remain in Maryland’s minorityowned and non-minority-owned businesses. 

In 2012, minority-owned businesses created .8 jobs to the economy, compared to the non-minority community, 2.3 jobs. It shows 

that this gap, what is affecting our overall economy. If we could do 

better with access to capital to all businesses, we will grow our 

economy and create more jobs. 

Non-minority-owned firms also reported gross receipts four times 

that of minority-owned businesses. This disparity, if we can bridge 

this gap, we can grow our economy. The gap results in part from 

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the significant obstacles that minority business owners face in accessing capital, including capital through contracting opportunities. 

Here is what we know. Minority-owned businesses are two to 

three times more likely to be denied credit, more likely to avoid applying for loans because they believe they will be turned down from 

those lines, and are more likely to get smaller loans and pay higher 

interest rates and use non-conventional loan sources that are not 

as regulated. 

Adding to these barriers, we know that banking consolidation 

has harmed small businesses lending in Baltimore. There has been 

a consolidation in banking. We all know that. We know how we 

have seen the conglomerates, these international firms. They are 

not as attuned to dealing with small businesses, minority businesses, women-owned businesses. 

According to a recent report from Johns Hopkins—and we will 

have testimony on this from Mary Miller—bank deposits in Baltimore nearly doubled between 2007 and 2016, yet the number of 

small loans actually were less. So there has been a disconnect between the banking community and providing access to capital to 

small businesses. Access to capital matters because it correlates to 

hiring. Closing the wealth gap between minorities and non-minorities are fueling the general economy. 

Based on the data from the National Small Business Association, 

there is a clear correlation between a small business’ ability to get 

financing and its ability to hire. If minorities are not getting access 

to capital, the economy is losing job opportunity. All of us need to 

be interested in this issue for many reasons. 

As Stanley Tucker testified in 2015 on this topic, ‘‘There is a direct correlation between the growth of these businesses, minorityand women-owned, and who they are. Minorities hire minorities; 

women hire women.’’ 

Entrepreneurship is one way to chip away at the wealth gap experienced in the minority communities, particularly in the black 

community. 

The Small Business Administration has programs that exist to 

increase access to capital. They do a lot of good, and I support 

them, but some of these programs struggle to adequately serve minorities and have been struggling for some time. 

In the 7(a) loan program—this is our premier program under the 

SBA, the one that gets the most attention—black business owners 

received only 4 percent of approvals and 2 percent of the dollars 

in FY 2017, despite owning 9 percent of the country’s small businesses. That is unacceptable. Hispanic or Latino borrowers received 

only 8 percent of the 7(a) approvals and 6 percent of dollars, despite owning 12 percent of small businesses. We must do better. 

In Baltimore, the lending environment is even more disparate, 

with black businesses receiving only 19 percent of approvals and 12 

percent of dollars, despite owning 47 percent of businesses. 

The SBA 504 program, which finances buildings and equipment, 

the longer-term financing critical for economic expansion of a business, a growth, that are poised to create or save jobs, also does a 

lot of essential financing in this country, but it consistently fails to 

reach black and Hispanic or Latino borrowers at the level equal to 

their business ownership. 

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5 

Now, not all is bad. The SBA’s Microloan Program and the 7(a) 

Community Advantage Pilot Program have shown promising results in reaching underserved communities, and I hope we will 

have a chance to talk about that. And I look forward to hearing 

more from our witnesses as to how these programs have been effective and what we can do to make the 7(1) and 504 programs more 

effective and reaching all audiences. 

Lack of access to credit for minorities is not a new problem, and 

the trends show that this situation is not improving as quickly as 

it needs to do. We can and must do better. 

Today, we will hear from witnesses who can talk about the programs I just mentioned. If the SBA programs are not working to 

adequately reach all Americans, I want to have a constructive exchange about how to make them better. I also want to hear about 

non-SBA products and services that are helping minority-owned 

small businesses in Maryland. 

So, to our witnesses—and I really do thank you all for being 

here. This is an incredibly important topic, and I really do look forward to your testimonies and our exchange. 

As is the Committee’s practice, without objection, your full statements will be made part of our record. We would ask that you try 

to summarize, 5 minutes. We do not have a timer on. I think they 

forgot to bring the timer, but anyway—— 

Ms. WHEELER. Kathryn has—— 

Senator CARDIN. Oh, we do have a timer. I see. I am sorry. We 

have the old-fashioned timer, not quite as fancy as we have in our 

Committee room in D.C. 

[Laughter.] 

But we ask that you try to keep it within that range. 

First, we will hear from Bill Manger, associate administrator of 

the SBA Office of Capital Access. Mr. Manger oversees the SBA 

loan program policy and oversight, managing a $120 billion portfolio of direct and guaranteed loans, nine operation centers, and 

560 employees. 

After Mr. Manger, we will hear from Dawn Medley, vice president of Business Finance Programs for FSC First, a nonprofit organization whose mission is to provide local, small, and minorityowned businesses in Prince George’s County and the State of Maryland access to creative and innovative finance solutions through direct and indirect loans. 

Following Ms. Medley’s remarks, we will hear from John Lewis, 

who is executive vice president and chief administrative officer of 

The Harbor Bank of Maryland, the only Maryland-chartered, African American-owned and -managed commercial bank. We did not 

have Harbor Bank during Willie Adams’ day, so that did not exist. 

The Harbor Bank is an important fixture in Baltimore, especially 

for the black business community, providing underserved entrepreneurs with SBA loans and business assistance, checking and 

savings accounts, and critical financial guidance. Mr. Lewis has 

over 20 years of experience in the financial services. So we welcome 

you here. 

And lastly on this panel—we have two panels—we will hear from 

Marla Bilonick, the executive director of the Latino Economic Development Center, on the importance of SBA Microloan Programs 

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for business owners and particularly Latino business owners in the 

Baltimore area and D.C. She has led the LEDC’s regional efforts 

to drive the economic independence and social advancement of 

working-class Latinos and minorities. LEDC is the second largest 

SBA micro lender in Maryland—and found out this week that they 

have been approved to participate in the SBA’s 7(a) Community 

Advantage Pilot Program. That is critically important and one of 

the subjects we are going to talk about today because of the moratorium that has been put in place. 

Congratulations for getting in under the wire. We would like to 

hear how you were able to achieve that. 

I will hold the introductions of the second panel after we complete the first panel, and we will start with Mr. Manger. 

STATEMENT OF BILL MANGER, ASSOCIATE ADMINISTRATOR, 

OFFICE OF CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC 

Mr. MANGER. Okay. Thank you to the members of the Senate 

Committee on Small Business for having me testify today. I would 

also like to thank Ranking Member Cardin for the opportunity to 

answer questions in his home State about SBA’s loan programs 

and how they assist minorities with access to capital. Additionally, 

I would like to thank our hosts at Morgan State University for providing this beautiful venue. 

As associate administrator for the SBA Office of Capital Access, 

it is my job to administer programs that make capital available to 

small business entrepreneurs who would otherwise be unable to access capital to start or expand a business through conventional 

means. Many of SBA’s lending partners are community-based and 

have a particular focus on providing loans to veterans, womenowned businesses, minority-owned businesses, and businesses located in rural communities. 

SBA has several programs that help minority entrepreneurs obtain access to capital, but the most common and widely known is 

the 7(a) loan program. This loan program offers guarantees on 

loans to small businesses of up to $5 million on reasonable terms 

and conditions that can be used for almost anything, including acquiring land, purchasing or constructing a building, purchasing 

equipment, or working capital. On loans up to $150,000, the guarantee is 85 percent of the value of the loan. For loans over 

$150,000, the guarantee is 75 percent. 

For small businesses that need longer-term loans for fixed-asset 

acquisition, such as property, a building, or heavy equipment, SBA 

offers the 504 Loan Program. These loans are made available 

through Certified Development Companies, CDCs, which are SBA’s 

community-based partners. The 504 loans are typically structured 

with a lender providing 50 percent of the cost of the project. The 

CDC is providing the next 40 percent—that is the 504 loan—and 

the borrower contributing the remaining 10 percent of the project 

cost. 

The advantage of this program is that it provides terms of 10 

years, 20 years, and, just introduced in April, 25 years, all at fixed 

interest rates. The addition of the 25-year term for the 504 proLAP51NQ082 with DISTILLER

7 

gram offers borrowers an extra 60 months of financing, freeing up 

cash flow for the small business. 

An example of a recent 504 loan being made to a local business owner right here in the Baltimore area is the $3.5 million loan that 

went to Laundry City West in June. The owner currently has plans 

to increase the number of his employees over the next 2 years. 

Under Administrator McMahon’s leadership, there has been 

growth in our smaller, including a record volume of dollars lent in 

our Microloan and Community Advantage Programs. Both the 

Microloan and Community Advantage Programs are designed to 

provide access to capital to traditionally underserved communities 

through mission-oriented lenders. 

The SBA’s Microloan Program offers small business loans of up to $50,000 from not-for-profit lending intermediaries. SBA makes 

funding available directly to the intermediaries which in turn lend 

to small businesses. The average size of a microloan in the program 

is just under $14,000. 

The program has been very successful in filling a need for small 

loans. For example, in Fiscal Year 2017, the Microloan Program 

provided loans with reasonable interest rates to almost 5,000 small 

businesses. Year-over-year, we have seen a 5.6 percent increase in 

these loans, which created and/or retained an estimated 17,648 

American jobs year to date. I would like to note here that over 8 

percent of our microloan small business borrowers return to the 

SBA when seeking larger amounts of capital from one of our other 

loan guarantee programs. 

In our Community Advantage Program, mission-oriented lenders can make SBA-guaranteed 7(a) loans of up to $250,000 for those 

small businesses that have capital requirements above the 

microloan limit of $50,000. 

Currently, my office has implemented new collaborative efforts 

with our Office of Field Operations to increase the number of loans 

in both inner cities and rural areas. We have a goal to increase the 

number of loans by 5 percent in HUBZones and rural areas, and 

beginning October 1st, we are offering fee relief for 7(a) loans of up 

to $150,000 made in these specific areas. 

We view this initiative and others such as the launch of our 

Lender Match tool last year as valuable ways to provide access to 

capital for minority entrepreneurs looking to attain the American 

dream. Lender Match is a technology platform that allows entrepreneurs to complete a quick online form, without registration or 

cost, in order to be connected with an approved SBA lender within 

48 hours. Lender Match is an extremely useful tool to protect small 

businesses from non-regulated predatory lenders. 

Another electronic platform we have developed for our lending 

partners who do not make a large number of SBA loans is 

SBAOne, which provides a step-by-step process for submitting a 

loan with an SBA guarantee. 

Additionally, my office is working in collaboration with our Office 

of Field Operations to train our Lender Relations Specialists on 

how to better support our lending partners, encourage more lenders 

to use our programs, and provide first-class customer service. 

As you can see, there is a lot of work being done at the SBA to 

help aspiring entrepreneurs everywhere. I am very proud of the 

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work we are doing at SBA and the strides we have made to make 

our programs as effective and efficient as possible. 

Thank you very much for inviting me to testify here today, and 

I look forward to answering your questions. 

[The prepared statement of Mr. Manger follows:] 

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Insert offset folio 24 here 32693.024

Statement of William Manger 

Associate Administrator 

Office of Capital Access 

U.S. Small Business Administration 

before the 

U. S. Senate Committee on Small Business and Entrepreneurship 

at Morgan State University, Earl G. Graves School of Business and Management 

Hearing on "Strengthening Access to Capital for Minority-Owned Small Businesses" 

September 14,2018 

'!bank you to members of the Senate Committee on Small Business for having me testify 

today. I would also like to thank Ranking Member Cardin for the opportunity to answer 

questions in his home state about SBA 'sloan programs and how they assist minorities with 

access to capital. Additionally, I would like to thank our hosts at Morgan State University for 

providing the venue. 

As Associate Administrator for the SBA Office of Capital Access, it is my job to 

administer programs that make capital available to small business entrepreneurs who would 

otherwise be unable to access capital to start or expand a business through conventional means. 

SBA's loan programs have been helping small businesses get on their feet and grow for decades. 

Many ofSBA's lending partners are community based and have a particular focus on providing 

loans to veterans, women-owned businesses, minority-owned businesses and businesses located 

in rural communities. 

SBA has several programs that help minority entrepreneurs obtain access to capital, but 

the most common and widely known is the 7(a) Joan program. The 7(a) loan program is a 

powerful tool for helping create and retain jobs for American workers. This Joan program offers 

guarantees on loans to small businesses of up to $5 million on reasonable terms and conditions 

that can be used for almost anything including: acquiring land, purchasing or constructing a 

building, purchasing equipment, or working capital. On loans up to $150,000, the guarantee is 

85% of the value of the loan. For loans over $150,000, the guarantee is 75%. 

The SBA has established credit criteria and terms and conditions for loans made by its 

partnering lenders, including national banks, community banks, credit unions and other financial 

institutions. The SBA reduces risk f(Jr lenders and makes it easier lor small businesses to get 

loans. 

For small businesses that need longer-tenn loans for fixed asset acquisition, such as: 

property, a building, or heavy equipment, SBA offers the 504 Loan program. These loans are 

made available through Certified Development Companies (CDCs), which are SBA's 

community-based partners. The 504 Loan program is a powerful economic development loan 

progran1 that offers small businesses another avenue for business financing, while promoting 

business growth, and job creation. 504 Loans are typically structured with a lender providing 

50% of the cost of the project, the CDC providing the next 40% (that's the 504 loan), and the 
10 

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Insert offset folio 25 here 32693.025

borrower contributing the remaining 10% of the project cost. The advantage of this program is 

that it provides terms of 10 years, 20 years, and, just introduced in April, 25 years, all at fixed 

interest rates. This is especially important in a rising interest rate environment. The addition of 

the 25 Year term for the 504 Program offers borrowers an extra 60 months of financing, freeing 

up cash flow for the small business. An example of a recent 504 loan being made to a local 

business owner right here in the Baltimore area is the three and a half million dollar loan that 

went to Laundry City West in June. The owner currently has plans to increase the number of his 

employees over the next two years. 

SBA Administrator McMahon and I understand how important access to capital is for a 

budding entrepreneur and how difticult obtaining small dollar loans can be. TI1at is why we 

continue to stress to our lending partners that we want to sec more small-dollar loans being made 

-and I'm pleased to report that we have seen that in the numbers. Under Administrator 

McMahon's leadership, there has been growth in our smaller loans, including record volume of 

dollars lent in our Micro loan and Community Advantage Programs. Both the Microloan and 

Community Advantage programs are designed to provide access to capital to traditionally 

underserved communities through mission-oriented lenders. 

The SBA's Microloan Program offers small businesses loans of up to $50,000 from notfor-profit lending intermediaries. SBA makes capital available directly to the intermediaries 

which, in tum, lend to small businesses. The average size of a micro loan in the program is just 

under $14,000. 

The program has been very successful in filling a need for small loans. For example, in 

Fiscal Year 2017, the Microloan Program provided loans with reasonable interest rates to almost 

5,000 small businesses. Year-over-year, we have seen a 5.6% increase in these loans, which 

created and/or retained an estimated 17,648 American jobs year to date. Realizing the success of 

the program. Congress recently passed a law that increases the maximum ceiling for the SBA 

loan to microlending intermediaries from $5 million dollars to $6 million dollars. I would like to 

note here that over 8% of our microloan small business borrowers return to SBA when seeking 

larger amounts of capital from one of our other loan guarantee programs. 

In our Community Advantage program, mission-oriented lenders can make SBAguaranteed 7(a) loans of up to $250,000 for those small businesses that have capital requirements 

above the Microloan limit of $50,000. 

Currently. my office has implemented new collaborative efforts with our Office of Field 

Operations to increase the number of loans in both inner cities and rural areas. We have a goal to 

increase the number of loans by 5% in HUBZones and rural areas, and beginning October I'', we 

are offering fee relief for 7(a) loans of up to $150,000 made in these areas. We view this 

initiative and others such as the launch of our Lender Match tool last year as valuable ways to 

provide access to capital for minority entrepreneurs looking to attain the American dream. 

Lender Match is a technology platform that allows entrepreneurs to complete a quick online 

form, without registration or cost, in order to be connected with an approved SBA lender within 

48 hours. To date, Lender Match has generated over 3.5 million leads on behalf of small 

businesses to our lenders; and over I 46,000 unique borrowers have been contacted by lenders 

2 
11 

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Insert offset folio 26 here 32693.026

with financing options. Lender Match is an extremely useful tool to protect small businesses 

from non-regulated predatory lenders. Another electronic platform we have developed for our 

lending partners who do not make a large number ofSBA loans is SBAOne, which provides a 

step by step process for submitting a loan with an SBA guarantee. 

Additionally, my office is working in collaboration with our Office of Field Operations to 

train our Lender Relations Specialists on how to better support our lending partners, encourage 

more lenders to use our programs and provide tirst-class customer services. It is important to 

Administrator McMahon and me that the SBA provides our lenders with a unified and consistent 

experience across the country. 

As you can see, there is a lot of work being done at the SBA to help aspiring 

entrepreneurs everywhere. Our agency stands committed to help advance opportunities for the 

millions of American small businesses that contribute so much to our economy. These businesses 

bring economic development that makes an immeasurable difference in their communities. They 

hire American workers, and transform the landscape by invigorating entire neighborhoods or 

even entire industries. I am very proud of the work we are doing at SBA and the strides we have 

made to make our programs run as effectively and etliciently as possible. 

Thank you for inviting me to testify here today and !look forward to answering your 

questions. 

3 
12 

Senator CARDIN. Thank you very much. 

I do also want to acknowledge that Ryan Dorsey is with us, the 

Councilman from this District. We thank you very much for being 

here. 

And we also have a representative representing my colleague in 

the Senate, Chris Van Hollen, my partner, who does an incredible 

job on these issues, small business issues, so thank you very much. 

I also want to acknowledge my colleagues in the House that represent this area—Elijah Cummings, John Sarbanes, and Dutch 

Ruppersberger—all strong proponents of small business. 

And, lastly, I think I should mention Parren Mitchell, who 

chaired the House Committee on Small Business and provided 

great leadership for the small business community through his 

leadership in the House of Representatives. 

Ms. Medley. 

STATEMENT OF DAWN R. MEDLEY, VICE PRESIDENT OF 

BUSINESS FINANCE PROGRAMS, FSC FIRST, LARGO, MD 

Ms. MEDLEY. Thank you again, Senator Cardin and members of 

the Committee on Small Business. My name is Dawn Medley, as 

stated before, and as the vice president of Prince George’s Financial Service Corporation, also known as FSC First, I provide oversight of our loan administration team, which consists of five bankers, including myself, from various institutions like SunTrust, 

PNC, NCB, CitiFirst, BB&T, and SBA’s OCRM and various Federal, State, and County State agencies. 

And I also administer eight loan products, including the SBA 

Community Advantage Program. We market it as a Small Business 

Growth Fund and SBA 504. 

Again, it is my pleasure to serve on this panel today because it 

is always a great day to speak about what is working to assist 

small business with access to capital and what can be done to further improve that effort. 

FSC First has a 40-year successful track record in the industry. 

We were established in 1978 as a 501(c)(3) nonprofit organization 

and in 2000 was designated as a CDFI by the U.S. Treasury. 

In 1982, 36 years ago—I was not there then. 

[Laughter.] 

Through the U.S. Small Business Administration, FSC was designated as a Certified Development Company, or CDC. We have 

been an SBA Community Advantage Lender now for 5 years, receiving our approval in 2013, and received Delegated Authority in 

March of 2017. 

We also serve as a fund manager and lender service provider for 

a Microenterprise Fund; the Maryland Video Lottery Terminal, or 

VLT Program; the County’s $50 million Economic Development Incentive Fund; the City of Bowie Revolving Loan Fund; and two 

Green Energy Programs, C–PACE and Green Energy Loan Guaranty Program. 

Our business loan programs have assisted businesses that have 

created over 7,600 jobs in just the last 20 years. We operate very 

much like a community bank in that we fully underwrite all our 

loans and we retain the loans and service them from origination to 

maturity; however, we also focus on business sustainability. There 

LAP51NQ082 with DISTILLER

13 

is no need in providing capital with terms so burdensome that they 

are impediments to healthy cash flow and liquidity at the outset 

of the business. 

Our experience as a Community Advantage lender is that this 

program has been an invaluable asset to our ability to provide capital to small minority-owned business in Prince George’s County 

Maryland. We could do more if we were not limited by having to 

provide loan loss reserves because our $4 million loan pool is limited to serving county-based businesses due to the funding source 

for those loan loss reserves. 

Just this past fiscal year, we had to turn away or attempt to source another program, $3.4 million in applications from small minority businesses throughout Central and Southern Maryland 

across seven counties. We became a CA lender to better service this 

unmet need for capital but are still restricted from helping due to 

this requirement. 

Still, without this guaranty provided by Community Advantage, 

we would not be able to utilize our loan pool at the rate we do now 

because our bank pool of participating lenders requires that we 

have a guaranty in order to lend. Nevertheless, we manage to do 

a very good job providing loans in our underserved communities 

utilizing CA where we can. 

FSC’s portfolio of CA loans is diverse, consisting of 100 percent 

of loans being made to minorities and 55 percent to women-owned 

businesses. Sixty-six percent of the loans are to black or Africanowned businesses; 22 percent are to Asian-owned business, and 11 

percent are to American Indian- or Alaskan Native-owned businesses. 

Our industry mix is just as diverse, consisting of restaurants, 

food service and caterers, media and broadcasting, professional 

staffing, and construction. 

Seventy-seven percent of our loans have been made in underserved markets, as defined by the SBA, creating 122 jobs and retaining 94 jobs. 

The CA portfolio is quite healthy as well. FSC has experienced 

zero losses—no defaults, no charge-offs, no workouts, no liquidations. There is one caveat. One borrower filed for personal bankruptcy, which of course is a technical default of the loan documents, but continued to pay as agreed and paid the loan off early 

and in full. 

Our borrowers realize that but for the Community Advantage 

loan guaranty, their business ownership and expansion dreams 

would not be possible, and so they have been diligent in being good 

stewards of the financing that has been made available to them. 

Many of our businesses are startup or emerging businesses who 

have been turned away by banks. We manage risks starting with 

the application package, requiring a business plan, not a business 

paragraph, which includes a viable marketing strategy and financial assumptions based on current industry data and site location 

demographics. 

A good business in a bad location can be just as detrimental as 

unrealistic revenue projections. We use common sense and best 

practice underwriting to give the business the best chance to be 

able to repay the loan, and we stay close to our borrowers through 

LAP51NQ082 with DISTILLER

14 

site visits, financial statement and tax return analysis, and regular 

personal engagement, so we can try to detect any tremors in the 

business early enough to help. 

We utilize this approach to be an instrument in eliminating barriers to capital and to graduate businesses to being bankable. 

One of our borrowers, a media and broadcast company, has been 

able to expand nationally after receiving a $100,000 CA loan. Even 

though they had a collateral shortfall, she has paid her loan off 3 

years early and is now bankable. 

Prior to Community Advantage, the SBA 504 program was our 

organization’s flagship program. It is our desire for it to be so 

again. We have obtained SBA authorizations for 90 loans in our 40- 

year history, most of them not in the recent past due to competition 

with banks utilizing the 7(a) program over the 504 program, increased regulations, increased compliance and reporting requirements, loan submission software limitations, and surprise new policies not clearly communicated or included in the SOP. 

Even though SBA has been responsive to our inquiries and addresses our questions rapidly, the latter makes utilizing the program more difficult and is a barrier to making more loans and creating more jobs. 

Of those 90 loans, only 29 were to minority-owned businesses 

and 12 were to women-owned businesses. 

We would like the opportunity to increase 504 lending again as 

our pipeline and our target market areas are revealing many new 

possibilities. 

FSC First specializes in blending our diverse loan products to 

create capital solutions for businesses that then create jobs and increase economic growth. 

I thank you for the opportunity and for inviting me to testify 

today. 

[The prepared statement of Ms. Medley follows:] 

LAP51NQ082 with DISTILLER

15 

LAP51NQ082 with DISTILLER


Insert offset folio 27 here 32693.027

Dawn Medley, Vice President, Business Finance Programs 

Prince George's Financial Services Corporation (FSC First} 

Good Morning Senator Cardin and Members of the Committee on Small Business and 

Entrepreneurship. My name is Dawn Medley. I am the Vice President of Business 

Finance Programs with Prince George's Financial Services Corporation aka FSC First. 

As such I provide oversight of our Loan Administration team and all 8 loan products 

including SBA Community Advantage (aka as Small Business Growth Fund) and SBA 

504. lt is my pleasure to serve on this panel today. It's always a great day to speak 

about what's working to assist small businesses with access to capital and what can 

be done to further improve that effort. 

FSC First has a 40 year successful track record in the industry. FSC was established 

in 1978 as a 501 c (3) non-profit organization and in 2000 was designated as a 

Certified Development Financial Institution (or CDFI) by the U.S. Treasury. In 1982, 

36 years ago, through the U.S. Small Business Administration, FSC First was 

designated as a Certified Development Company (or CDC). We have been an SBA 

Community Advantage Lender for 5 years receiving our approval in March of 2013 and 

then received Delegated Authority in March of 2017. We are also serve as fund 

manager and lender service provider for a Microenterprise Fund, the County's $50 

Million Economic Development Incentive Fund, the Maryland Video Lottery Terminal 

(VLT) Small Business FLEX Fund, the City of Bowie Revolving Loan Fund and 2 Green 

Energy Programs (C-PACE and Green Energy Loan Guaranty Program). Our business 

Joan programs have assisted businesses that created over 7,600 jobs in the last 20 

years. We operate very like a community bank in that we fully underwrite all our loans 

and we retain the loans and service them from origination to maturity; however, we 

also focus on business sustainability. There is no need in providing capital with terms 

so burdensome that they are impediments to healthy cash flow and liquidity at the 

outset of the business. 

Our experience as a Community Advantage lender is that this program has been an 

invaluable asset to our ability to provide capital to small and minority owned business 

in Prince George's County Maryland. We could do more if we were not limited by 

having to provide Joan Joss reserves because our $4 Million loan pool is limited to 

serving Prince George's County based businesses due to the funding source for those 

loan loss reserves. Just this past fiscal year, we had to turn away or attempt to source 

another program for $3.4 Million in applications from small and minority businesses 

throughout Central and Southern Maryland across 7 Counties. We became a 

Community Advantage lender to better service this un-met need for capital but are 

still restricted from helping due to this requirement. Still without this guaranty 

provided by Community Advantage, we would not be able to utilize our Joan pool at the 

rate we do now because our bank pool of participating lenders requires that we have a 

guaranty in order to lend. Nevertheless, we manage to do a very good job providing 

loans in our underserved communities utilizing CA where we can. 

September 14, 2018 

Senator Cardin Field Hearing 

Committee on Small Business & Entrepreneurship 

www.fscfirst.com 

301.883.6900 
16 

LAP51NQ082 with DISTILLER


Insert offset folio 28 here 32693.028

Dawn Medley, Vice President, Business Finance Programs 

Prince George's Financial Services Corporation (FSC First) 

FSC First's portfolio of Community Advantage loans is diverse consisting of 100% of 

our loans being made to minorities and 55% to women-owned businesses. 66% of the 

loans are to Black or African owned businesses; 22% are to Asian-owned business and 

11% are to American Indian or Alaskan Native owned businesses. Our industry mix is 

just as diverse consisting of restaurants, food service & caterers, media & 

broadcasting, professional staffing and construction. 77% of our loans have been 

made in underserved markets as defined by the SBA creating 122 jobs and retaining 

94 jobs. 

The Community Advantage portfolio is quite healthy. FSC has experienced zero losses. 

No defaults, no charge offs, no workouts, no liquidations. There is one caveat. One 

borrower filed for personal bankruptcy which of course is a technical default of the 

loan documents but continued to pay as agreed and paid the loan off early. Our 

borrowers realize that but-for the Community Advantage loan guaranty, their business 

ownership and expansion dreams would not be possible and so they have been 

diligent in being good stewards of the financing that has been made available to them. 

Many of our businesses are start-up or immerging businesses who have been turned 

away by banks. We manage risks starting with the application package requiring a 

business plan, not a business paragraph, which includes a viable marketing strategy 

and financial assumptions based on current industry data and site location 

demographics. A good business in a bad location can be just as detrimental as 

unrealistic revenue projections. We use common sense and best practice underwriting 

to give the business the best chance to be able to repay the loan. We stay close to our 

borrowers through site visits, financial statement and tax return analysis and regular 

personal engagement, so we can try to detect any tremors in the business early 

enough to help. We utilize this approach to be an instrument in eliminating barriers to 

capital and to graduate businesses to being bank-able. One of our borrowers, a media 

& broadcast company, has been able to expand nationally after receiving a $100,000 

CA loan that had a severe collateral shortfall has paid her loan off 3 years early and is 

now bank-able. 

Prior to Community Advantage, the SBA 504 program was our organizations flagship 

program. It is our desire for it to be so again. We have obtained SBA Authorizations for 

90 loans in our 40 year history most of them not in the recent past due to competition 

with banks utilizing the 7a program over the 504 program, increased regulations, 

increased compliance and reporting requirements, loan submission software 

limitations and surprise new policies not clearly communicated or included in the 

SOP. Even though SBA has been responsive to our inquiries and addresses our 

questions rapidly, the latter makes utilizing the program more difficult and is a barrier 

to making more loans and creating more jobs. Of those 90 loans, 29 (or 32%} were to 

minority-owned businesses and 12 (or 13%) were to women-owned businesses. 

September 14, 2018 

Senator Cardin Field Hearing 

Committee on Small Business & Entrepreneurship 

www. fscfirst.com 

301.883.6900 
17 

LAP51NQ082 with DISTILLER


Insert offset folio 29 here 32693.029

Dawn Medley, Vice President, Business Finance Programs 

Prince George's Financial Services Corporation (FSC First) 

We would like the opportunity to increase 504 lending again as our pipeline and our 

target market areas are revealing many new possibilities. 

FSC First's specializes in blending our diverse loan products to create capital solutions 

for businesses that then create jobs and increase economic growth. 

I thank you for inviting me to testify today. 

September 14, 2018 

Senator Cardin Field Hearing 

Committee on Small Business & Entrepreneurship 

www.fscfirst.com 

301.883.6900 
18 

Senator CARDIN. Quite an impressive record. Well done. 

Mr. Lewis. 

I should point out that Joe Haskins, the founder of Harbor Bank, 

is an alum of Morgan State University. I want to point that out. 

STATEMENT OF JOHN LEWIS, EXECUTIVE VICE PRESIDENT 

AND CHIEF OFFICER, THE HARBOR BANK OF MARYLAND, 

BALTIMORE, MD 

Mr. LEWIS. Well, on behalf of our chairman and chief executive 

officer, Joseph Haskins, Jr., thank you for inviting The Harbor 

Bank of Maryland to testify at today’s field hearing. 

My name is John Lewis, and I serve as executive vice president 

and chief administrative officer of The Harbor Bank of Maryland. 

Founded in 1982, The Harbor Bank of Maryland is a Marylandchartered commercial bank headquartered in Baltimore, Maryland. 

The Harbor Bank of Maryland is one of few Baltimore-based community banks and was founded in part to make capital available 

to creditworthy borrowers who were otherwise unable to access 

bank capital. 

Our portfolio has always been reflective of Baltimore and all of 

its communities. A point of pride and distinction is that we have 

been recognized an unprecedented 12 times by the United States 

Treasury with the Bank Enterprise Award for demonstrating an increase in lending, investment, and service activities in distressed 

communities within our footprint. 

The Harbor Bank of Maryland is a U.S. Treasury-designated 

Community Development Financial Institution, or CDFI, a designation which requires 60 percent or more of our loans to be made in 

low-income communities. 

Our designation also lists our CDFI target populations as low-income communities in Greater Baltimore and African-Americans. 

The Harbor Bank of Maryland continues to work with the U.S. 

Small Business Administration as a 7(a) lender, a two-time awardee under the Program for Investment in Microentrepreneurs, 

known as PRIME, the Baltimore co-chair of the Partnership for 

Lending in Underserved Markets along with the U.S. Small Business Administration and the Milken Institute. 

Since its founding, The Harbor Bank of Maryland and its affiliates have been innovative in providing capital access, advice, and 

financial services to underserved areas throughout its regional footprint of Maryland; Washington, D.C.; and Northern Virginia. Its 

subsidiary, Harbor Financial Services, is the first community bankowned investment subsidiary in the country. 

Its holding company, Harbor Bankshares Corporation, expanded 

the organization’s ability to provide gap capital by winning competitive New Market Tax Credits awards seven times for a total allocation of $299 million. Those awards have created over 4,000 jobs 

and attracted over $2 billion in investment into local projects 

which, by definition, would not have happened but for Harbor’s investment. 

The provision of capital has continued with the growth of Harbor’s mission-based non-profit affiliate, The Harbor Bank of Maryland Community Development Corporation, also a U.S. Treasurydesignated CDFI. This affiliate provides gap capital in forms which 

LAP51NQ082 with DISTILLER

19 

range from patient debt capital to equity. Its innovations include 

the formation of an EB–5 Immigrant Investor Program Regional 

Center, the creation of the Minority Business Pre-seed Venture 

Capital Fund. It also has dedicated technical assistance and acceleration programs for small businesses, neighborhood community 

development corporations, nonprofits, and small real estate developers. 

These programs are all housed in the Joseph Haskins, Jr. Center 

for Community and Economic Development, a 6,000-square-foot coworking space located at the headquarters of The Harbor Bank of 

Maryland. 

Harbor expects to continue its innovations in providing capital to 

underserved markets with its platform for Opportunity Funds, 

which were created by the Tax Cuts and Jobs Act of 2017. 

In September 2016, The Harbor Bank of Maryland began a 2- 

year pilot program called The Partnership for Lending in Underserved Markets, co-chairing this initiative again with the SBA and 

the Milken Institute. 

I request that the two white papers produced by this initiative 

be officially added to the record. 

Senator CARDIN. Without objection. 

[The information appears in the Appendix on page 99.] 

Mr. LEWIS. Thank you. 

The ‘‘Partnership for Lending in Underserved Markets’’ generated the following key considerations for increasing capital access. The first was the observation that a committed local partner 

who knows the market and its players well is essential to advancing any capital access solution. 

The Harbor Bank of Maryland reintroduced SBA 7(a) lending in 

calendar year 2018 and is currently on track to close 10 deals totaling approximately $5 million. The range of those deals is from 

$100,000 to $1.5 million. 

Eighty-five percent of those deals are to minority-owned companies, and with this measured reentry, we have zero dollars on advertising to date. Harbor will close the year as one of the most active lenders in the market by deal size and by number of deals. 

This makes the point that community banks are essential to small 

business capital access solutions. Small banks lend to small businesses. 

Expert knowledge of local market and submarket conditions allows banks to properly assess risk and provide capital where other 

banks may be challenged. 

Another observation of the PLUM initiative was that minority 

businesses benefit from targeted networks that prioritize their 

needs. 

In minority communities, providing access to capital often means 

confronting two challenges. The first challenge is having capital in 

the right form to provide to businesses. Debt is the wrong form of 

capital for many businesses with significant operating risk in underserved communities. 

The second challenge is preparing businesses for capital. The 

SBA’s offerings through SCORE and similar technical assistance 

programs are key to meeting the specific needs of minority busiLAP51NQ082 with DISTILLER

20 

nesses. Minority businesses, just like startups in Silicon Valley, 

often need supplements to their human capital. 

The Harbor Bank of Maryland provides technical assistance 

through its various programs and co-working space. Those programs were greatly aided by the receipt of two operating grants 

from the SBA’s Program for Investment in Microentrepreneurs. 

Those grants allowed us to service hundreds of businesses. 

The third observation of the PLUM initiative was the lack of understanding of cultural factors as a major factor in the barriers to 

access to capital for black and Hispanic entrepreneurs and small 

business owners. 

The Harbor Bank of Maryland is one of 21 remaining African 

American Minority Depository Institutions, or MDIs. MDIs are designated by the Federal Deposit Insurance Corporation. These institutions have a long history of providing private capital and advice 

to minority businesses. 

According to a recent study, MDI branches are located in Census 

tracts with an average of 74 percent minority population. That is 

compared to 28 percent for all FDIC-insured institutions. 

Our 80 employees are part of the fabric of this community, with 

a depth of access that comes from being born, schooled, churched, 

and accepted by its members. In fact, our Chairman and CEO, Joseph Haskins, Jr., is a graduate of this fine university we are in 

today. 

A study by AEO cites three gaps which must be addressed to 

overcome capital access issues: the wealth gap, the credit gap, and 

the trust gap. Earning the trust of minority communities takes the 

demonstrated and enduring commitment to their success, health, 

and inclusion. It is frankly the one area of finance where past performance may be indicative of future results. 

The last thing I will mention is there are policy solutions that 

serve as barriers to minority capital access. Relationships and partnerships with policy champions can be the difference between good 

ideas being executed and good outcomes happening. 

There are many aspects of capital access that work. The CDFI 

Fund works. SBA programs that foster small business lending and 

waive fees work. The Program for Investment in Microentrepreneurs works. Their continued support by policy champions is essential. 

We also believe that the Opportunity Zones created by the Tax 

Cuts and Jobs Opportunities Act creates an outstanding opportunity, but we also believe that similar to other programs and 

other challenges to capital access, without having the proper intermediaries, capital will not flow through that program to minority 

communities as well. 

A recent study on the MDI industry demonstrates that MDIs 

have the highest percentage of small business loans to total assets 

but also have the lowest median capital-to-asset ratio. 

Thank you for the opportunity to provide this testimony, and I 

welcome your comments and questions. 

[The prepared statement of Mr. Lewis follows:] 

LAP51NQ082 with DISTILLER

21 

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Insert offset folio 30 here 32693.030

John D. Lewis 

Executive Vice President & Chief Administrative Ot1icer 

The Harbor Bank of Maryland 

Chairman Risch, Ranking Member Cardin, and Members of the Committee, On behalf of our 

Chairman and Chief Executive Otliccr, Joseph Haskins, Jr., thank you for inviting The Harbor 

Bank of Maryland to testify at today's field hearing. My nan1e is John Lewis and I serve as the 

Executive Vice President and Chief Administrative Otlicer of The Harbor Bank of Maryland. 

The Harbor Bank of Marvland 

Founded in 1982, The Harbor Bank of Maryland is a Maryland Chartered Commercial Bank 

headquartered in Baltimore, Maryland. The Harbor Bank of Maryland is one of few remaining 

Baltimore-based community banks and was founded, in part, to make capital available to 

creditworthy borrowers who were otherwise unable to access bank capital. Our portfolio has 

always been retlective of Baltimore and all of its communities. A point of pride and distinction is 

that we have been recognized an unprecedented twelve times by the United States Treasury with 

the Bank Enterprise Award for demonstrating increased lending, investment, and service activities 

in distressed communities within our footprint. 1 The Harbor Bank of Maryland is a US Treasury 

Certified Community Development Financial institution ("CDFI''), a designation which requires 

greater than 60% of our loans to be made in low-income communities. Our designation also lists 

our CDFI target populations as low-income areas of Greater Baltimore and African-Americans. 

The Harbor Bank of Maryland continues to work with the US Small Business Administration as a 

7(a) lender, two time awardee under the Program for Investment in Microentrepreneurs 

("PRIME"), and Baltimore Co-Chair of the Partnership for Lending in Underserved Markets 

("PLUM") along with the US Small Business Administration and the Milken Institute. 

Since its founding, The Harbor Bank of Maryland and its atliliates have been innovative in 

providing capital access, advice, and financial services to underserved areas throughout its regional 

footprint of Maryland, Washington, D.C., and Northern Virginia. Its subsidiary, Harbor Financial 

Services, is the first community bank-owned investment subsidiary. Its holding company, Harbor 

Bankshares Corporation ("Harbor"), expanded the organization's ability to provide gap capital by 

winning competitive New Markets Tax Credit awards seven times for a total allocation of $299 

million. These awards have created over 4,000 jobs and attracted over $2 billion in investment 

into local projects, which, by definition, would not have happened but for Harbor's investment. 

The provision of capital has continued with the growth of Harbor's mission-based non-profit 

atliliate, The Harbor Bank of Maryland Community Development Corporation, also a US Treasury 

designated CD Fl. This affiliate provides gap capital in forms which range from patient debt capital 

to equity. Its innovations include the formation of an EB-5 Immigrant Investor Program Regional 

Center and the creation of the Minority Business Pre-seed Venture Capital Fund. It also has 

dedicated technical assistance and acceleration programs for small businesses, neighborhood 

community development corporations, non-protits, and small real estate developers. These 

1 BEA Distressed Communities are defined as those where at least 30 percent of residents have incomes that are less 

than the national poverty level and where the unemployment rate is at least 1.5 times the national unemployment 

rate. 
22 

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Insert offset folio 31 here 32693.031

programs are all housed at the Joseph Haskins, Jr. Center for Community and Economic 

Development, a 6,000 SF co-working space located at The Harbor Bank of Maryland's Baltimore, 

Maryland, headquarters. Harbor expects to continue its innovations in providing capital to 

underserved markets with its platform for Opportunity Funds, which were created by the Tax Cuts 

and Jobs Act of2017. 

The Capital Gap for Minority-Owned Small Businesses 

In September 2016, The Harbor Bank of Maryland began a two-year pilot program, The 

Partnership for Lending in Underserved Markets, co-chairing the initiative with the US Small 

Business Administration and the Milken Institute. I request that the two white papers produced 

by the initiative ("Phase I Summary: Developing Action-Oriented Solutions to the Financing 

Challenges Facing Minority-Owned Small Businesses" and "Phase II: Summary Lessons Learned 

for Advancing Minority Small Business Capital Access") be added to the record. 

Data shows a persistent gap in the percentage minority small employer tirms and their employees 

relative to percentages of the U.S. Population. In 2012 Blacks comprised 13.1% of the population 

and only 2.1% of small employer firms and 1.9% of employees. Hispanics comprised 16.9% of 

the population and only 5.6% of small employer firms and 4.5% of employees. 2 Conversely, nonminorities comprised 62.9% of the population and 80.9% of small employer firms and 84.6% of 

employees. 3 This under-indexing of minority business O\\Tiership and employment is relevant to 

our discussion of the capital gap for two primary reasons. First, community wealth disparities lead 

to major disparities in access to critical early-stage equity that can be leveraged to grow businesses 

and share risk. A Stanford Institute for Policy and Economic Research Study on Access to Capital 

for Minority-0\.\lled Startups calculated the average outside equity of a black-o\\lled business to 

be $500 at founding as compared to $18,500 for a white-o\\lled business.4 Another reflection of 

the disparity in access to outside equity is the fact that the median net worth of black business 

owners is (most likely by necessity) twelve times that of black non-business O\\llers.5 The second 

reason why the under-indexing of minority businesses is relevant is because it is reflective of the 

disparity in the flows of capital and resources to minority entrepreneurs to successfully grow their 

businesses. Across the capital spectrum, minorities show relatively smaller levels of capital access. 

For example, I% of venture capital dollars go to African Americans, as compared to 87% going 

to non-minorities.6 2.5% of US Small Business Administration 7(a) approvals went to African 

Americans and 67.9% went to non-minorities.' 

1 Small businesses employ half of the country's private sector workforce and have created approximately 60 percent 

of net new jobs since 1995. 3 Karo, Carolyn, "Phase I Summary: Developing Action Oriented Solutions to the Financing Challenges Facing 

Minority-Owned Small Businesses" Partnership for Lending in Urban Markets. Milken Institute, September2017. 4 Fairlie, Robert, "Black and White: Access to Capital among Minority-Owned Startups' Stanford Institute for 

Economic Policy Research. 15 December 2016 

' Gonnan. Ingrid, "The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success" 

Association for Enterprise Opportunity, 16 February 2017. 6 American Sustainable Business Council, Fact Sheet: Closing the Funding and Opportunity Gaps for women and 

Minority-Owned Businesses (20 15) 7 Dilger, Robert, Congressional Research Service. Small Business Administr•tion ?(a) Loan Guarantee Program, 27 

June 2018 
23 

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Insert offset folio 32 here 32693.032

These factors affect the ultimate growth and success of minority businesses. A recent research 

report showed 28.4% of Black business owners responding reported that the lack of access to 

capital negatively impacted their profits, as compared to I 0.1% of white respondents. It also 

showed 22.6% of Black business owners responding reported that the cost of capital negatively 

impacted their profits, as compared to 10.6% of white respondents.8 Undercapitalization is also a 

leading cause of business failure. 9 

Recommendations for Improving Access to Capital for Minority-Owned Small Businesses 

The Partnership for Lending in Underserved Markets generated the following key considerations 

for increasing capital access: 

1. ''A committed local partner, who knows the market and its players well, is essential to 

advancing any capital access solution"10 

The Harbor Bank of Maryland reintroduced SBA 7(a) lending in calendar year 2017 and is 

currently on track to close ten deals totaling approximately $5 million (with deal sizes ranging 

from $100,000 to $1,500,000). Over 85% of those loans are to minority-led companies based in 

Baltimore. Even with this measured reentry (we have spent $0 on advertising to date), Harbor will 

close the year as one of the most active lenders in the market by number of deals. Community 

banks are essential to small business capital access solutions; small banks lend to small businesses. 

Expert knowledge oflocal market (and sub market) conditions allows banks to properly assess risk 

and provide capital where other banks may be challenged. 

2. "Minority businesses benefit from targeted networks that prioritize their needs" 11 

In minority communities, providing access to capital otlen means confronting two challenges. The 

first challenge is having the capital (in the right form) to provide to businesses. Debt is the wrong 

form of capital for many businesses with significant operating risk in underserved communities. 

The second challenge is preparing the businesses for capital. The SBA's offerings through SCORE 

and similar technical assistance programs are key to meeting the specific needs of minority 

businesses. Minority businesses, just like start-ups in Silicon Valley, often need supplements to 

their human capitaL The Harbor Bank of Maryland provides technical assistance through its 

various programs and co-working space. Those programs were greatly aided by the receipt of 

operating grant funding through the SBA's Program for Investment in Microentrepreneurs 

("PRIME"), allowing Harbor to impact hundreds of local small businesses. 

' Robb, Alicia, "Startup Financing Trends by Race: How Access to Capital Impacts Profitability" Annual Survey of 

Entrepreneurs Data Briefing Series. Ewing Marion Kauffman Foundation, October 2016. 9 "Venture Capital Demographics," CB Insights, available at https:llwww.cbinsights.comlbloglventure-capitaldemographics·87·percent-vc-backed·founders·white-asian-teams·raise·largest-fundingl 

1

° Karo, Carolyn, "Phase II Summary: Lessons Learned for Advancing Minority Small Business Capital Access" 

Partnership for Lending in Urban Markets. Milken Institute, May 2018. 11 Ibid. 
24 

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3. 'The lack of understanding and recognition of cultural factors is a major barrier to capital 

access for Black and Hispanic entrepreneurs and small business owners" 12 

The Harbor Bank of Maryland is one of 21 remaining African American Minority Depository 

Institutions ("MDis"). MD!s are designated by the Federal Deposit Insurance Corporation 

(''FDIC"). These institutions have a long history of providing private capital and advice to 

minority businesses. According to a recent study, MDI branches are located in census tracts with 

an average of 74% minority population, as compared to 28% for all FDIC insured depository 

institutions. 13 Our 80 employees are part of the fabric of this community, with the depth of access 

that comes from being born, schooled, churched, and accepted by its members. In fact, our 

Chairman and CEO, Joseph Haskins, Jr. is a graduate of this tine University, Morgan State 

University, where we are gathered today. A study by AEO cites three gaps which must be 

addressed to overcome access to capital issues: wealth gap, credit gap, and tn1st gap. 14 Earning 

the trust of minority communities takes the demonstration of enduring commitment to their 

success, health, and inclusion. It is the one area in finance where past performance may be 

indicative of future results. 

4. "There are policy solutions to minority barriers to capital access ... relationships and 

partnerships with policy champions can be the ditTerence between good ideas and executed 

outcomes" 15 

There are many aspects of capital access that work; however, many of these areas are continually 

challenged. The CDFI Fund and its programs (Bank Enterprise Award, New Markets Tax Credits, 

Bond Guarantee Fund, Financial Assistanceffechnical Assistance Awards) work. SBA programs 

fostering small dollar lending and waiving fees work. The Program for Investment in 

Microentrpreneurs works. Their continued support by policy champions is essential. Harbor 

Bankshares Corporation also believes that the Opportunity Zones created by the Tax Cuts and Jobs 

Act of 2017 will bring catalytic market-based capital to low income communities and small 

businesses. While there is significant discussion around "guardrails" to somehow manage the 

distribution of market-based capital, our experience infomts us that similar to the challenges of 

capital access in other capital markets, the solution to ensuring the funds get to minority small 

businesses is a matter of ensuring the proper intermediaries have access to opportunity fund capital. 

Accordingly, sound policy would make certified minority depository institutions eligible 

opportunity fund investments, by rights. A recent study on the MDI industry demonstrates that 

MD!s have the highest median percentage of small business loans to total assets (as compared to 

all financial institutions), but have the lowest median capital-to-asset ratio. 16 

12 Ibid. 

n Barth, James "Minority-Owned Depository Institutions: A Market Overview" Access to Capital. Milken Institute, 

July 2018. 14 Gonnan, 26. 15 Karo, vi. 16 Barth, 29. 
25 

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S. Data challenges may yield information that is insut11ciently localized to be instructive. 

Moreover, "there is little demographic data on groups such as women and minority small 

business owners and their ability to access capital" 17. "Supplementing the information with 

community insights and local knowledge and expertise will further facilitate identifying gaps 

and opportunities for minority business owners.'' 18 

Most of the organizations providing loans and investments to minority small businesses do not 

have research arms. They are subject to different reporting requirements than are large lenders, 

and they spend their time looking for opportunities, underwriting them, writing checks. and 

managing their portfolios. Much better efforts need to be made at getting their side of the story, 

both quantitatively and qualitatively. Across the country (and Baltimore is no exception), entire 

communities had their stories told by others for generations. It is no coincidence that these san1e 

communities have also been neglected by capital markets for generations. 

I am pleased to continue this dialog with this committee to help form additional policies that 

support strengthening access to capital for minority-o'A~1ed small businesses. Thank you for the 

opportunity. 

17 The State of Small Business Lending: Innovation and Technology and the Implications for Innovation. 2016. 

Karen Gordon Mills (former SBA Administrator) and Brayden McCarthy. Harvard Business School. Working 

Paper. 

18 Caro, vi. 
26 

Senator CARDIN. Thank you very much for your testimony. 

We will turn now to Ms. Bilonick. 

STATEMENT OF MARLA BILONICK, EXECUTIVE DIRECTOR, 

LATINO ECONOMIC DEVELOPMENT CENTER, WASHINGTON, 

DC 

Ms. BILONICK. Thank you. 

Good morning. My name is Marla Bilonick, and I am the executive director of the Latino Economic Development Center, best 

known as LEDC. Thank you very much, Senator Cardin and the 

Committee on Small Business and Entrepreneurship for having me 

here today. 

LEDC is a 27-year-old organization with the mission to drive the 

economic and social advancement of low- to moderate-income 

Latinos and other underserved communities in the D.C. and Baltimore Metropolitan Areas by equipping them with the skills and 

tools to achieve financial independence and become leaders in their 

communities. 

We operate out of five offices in the region, with over 40 professional and bilingual staff providing top-notch services to our clients. 

On an annual basis, we serve well over 4,000 low- to moderateincome residents. Scanning all of our programs, the majority of our 

clients are Latino at 60 percent. A sizeable portion are African 

American at 30 percent, and the remaining portions are white/Caucasian and Asian at 10 percent. 

Our core asset-building programs are Housing Counseling, Affordable Housing Preservation; Small Business Capacity Building; 

and Small Business Lending, which will be the focus of my conversation today. 

We are a SBA micro-lending intermediary and a certified Community Development Financial Institution. LEDC receives support 

for our lending services from partners including the SBA, CDFI 

fund or Treasury, private corporations, and philanthropic foundations. 

Since we began lending in 1997, we have rolled out more than 

$15 million in capital in the form of over 1,200 small business 

loans. We have provided small business technical assistance services to thousands of aspiring and existing small business owners in 

the region. Last year, LEDC distributed close to 200 loans in the 

communities we serve. 

Until recently, our loan products ranged from $500 to $2,000 on 

the consumer side and up to $50,000 for small businesses as an 

SBA micro lender. 

So, for 20 years, we were limited to the $50,000 threshold, despite significantly rising costs of doing business in the neighborhoods where we operate. 

In 2015, we were awarded a Community Economic Development 

Grant through the Department of Health and Human Services that 

allowed us to pilot lending to restaurants at the up-to-$100,000 

level. This program has been wildly successful, as we have disbursed $300,000 to four businesses that have created over 100 jobs. 

These loans are performing, despite representing the highest-risk 

industry that we lend to. 

LAP51NQ082 with DISTILLER

27 

Just 2 days ago, as you mentioned, we were informed that we 

have been approved as a SBA Community Advantage Lender. We 

are extremely pleased and eager to provide larger loans to our clients. The demand is there. While we do not have plans to abandon 

our core micro-lending business, we know that there is a market 

of clients with growing businesses that have graduated out of our 

micro-lending program and/or whose capital needs exceed our prior 

$50,000 threshold. 

For example, Mobtown Fermentation, a Baltimore-based 

kombucha company on a growth trajectory that could further their 

market expansion through an additional capital injection. Between 

2015 and 2016, they grew by 253 percent and continue to show remarkable growth of over 100 percent year over year. They were capped at our $50,000 maximum loan amount when 

they received a loan from LEDC in January. However, they could 

use additional funding to expand outside of the Maryland, D.C., 

and Virginia markets where they currently have their products in 

250 stores. They have their sights set on Pennsylvania, New Jersey, and New York, but they will not get there by patch-working 

together the microloans and the occasional pitch competition prize 

money they may win. Traditional bank financing has eluded them 

as a young start-up. 

We currently have a pipeline of a dozen businesses like Mobtown 

that we will be putting on track for Community Advantage loans, 

now that we have the capacity to serve them. The Community Advantage Program is of utmost importance to scaling and supporting 

our small business communities. 

While there is a pervasive belief that CDFIs and other community lenders are less equipped to underwrite and service larger 

loans, I would respectfully beg to differ. At LEDC, we have a team 

of 20 staff dedicated to underwriting, risk management, portfolio 

servicing, and providing advisory services available to our borrowers. We have a centralized underwriting function and staff designated to the sole task of monitoring our portfolio and managing 

risk. Each loan is underwritten to an internal algorithm that assesses factors including loan to value, cash flow, available collateral, business and personal credit profile, among other factors. 

Using this algorithm, we assess each transaction with a grade reflecting its level of risk. Our current portfolio at risk, measured as 

loans late for over 30 days, is at 5.1 percent, with an annual writeoff rate that oscillates between 2 and 2.5 percent. 

We achieve these metrics by having an in-house loan servicing 

team working closely with clients and tracking closely the financial 

performance of their ventures, including providing business advisory support where needed. 

We are doing deals that commercial banks would run from. However, our intensive underwriting process, coupled with constant attention to each deal and each client, keeps our loans performing 

and our portfolio sound. 

The Community Advantage Program is a critical product for a 

specific set of our clients. The communities we serve deserve access 

to a full range of financial products that can be tailored to their 

needs, rather than having to tailor and compromise their needs to 

fit a limited set of offerings. 

LAP51NQ082 with DISTILLER

28 

I am appreciative of the opportunity to testify and be with you 

today as well as your consideration of my perspective from the 

front line. 

[The prepared statement of Ms. Bilonick follows:] 

LAP51NQ082 with DISTILLER

29 

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l!!l"~!<!!l!li!M!!l 

@i®dcmetro 

September 14, 2018 

Good morning, my name is Marla Bilonick and I am the Executive Director of the Latino 

Economic Development Center, best known as LEDC. Thank you very much for the opportunity 

to discuss the SBA's Community Advantage Program with you today. 

LEDC is a 27-year old organization with the mission to drive the economic and social 

advancement of low-to moderate-income Latinos and other underserved communities in the 

D.C. and Baltimore Metropolitan Areas by equipping them with the skills and tools to achieve 

financial independence and become leaders in their communities. We operate out of 5 offices 

in the region, with over 40 professional and bilingual staff providing top-notch services to our 

clients. On an annual basis we serve well over 4,000 low- to moderate-income residents. 

Scanning all of our programs, the majority of our clients are Latino (60%) and a sizeable portion 

are African-American/Black (30",b). The remaining portions are White/Caucasian and Asian 

(10%). Our core asset-building programs are: Housing Counseling, Affordable Housing 

Preservation; Small Business Capacity Building; and Small Business Lending. We are a SBA· 

Microlending Intermediary and certified Community Development Financial Institution. LEDC 

receives support for our lending services from partners including the SBA, CDFI Fund (Treasury), 

private corporations, and philanthropic foundations. 

Since we began lending in 1997, we have rolled out more than $15 million in capital in the form 

of over 1,200 small business loans. We've provided small business technical assistance services 

to thousands of aspiring and existing small business owners in the region. last year, LEDC 

distributed close to 200 loans in the communities we serve. 

Until recently, our loan products ranged from $500-$2,000 on the consumer side and up to 

$50,000 for small businesses. So, for 20 years, we were limited to the $50,000 threshold, 

despite significantly rising costs of doing business in the neighborhoods where we operate. In 

2015, we were awarded a Community Economic Development grant through the Department 

of Health & Human Services that allowed us to pilot lending to restaurants at the up to 

$100,000 level. This program has been wildly successful as we have disbursed $300,000 to four 

businesses that have created over one hundred jobs. These loans are performing, despite 

representing the highest-risk industry that we lend to. 

Just two days ago, we were informed that we have been approved as a SBA Community 

Advantage Lender. We are extremely pleased and eager to provide larger loans to our clients. 

The demand is there. While we do not have plans to abandon our core microlending business; 

we know there is a market of clients with growing businesses that have graduated out of our 

microlending program and/or whose capital needs exceed our prior $50,000 threshold. 
30 

LAP51NQ082 with DISTILLER


Insert offset folio 36 here 32693.036

For example, Mobtown Fermentation, a Baltimore-based kombucha company on a growth 

trajectory that could further their market expansion through an additional capital injection. 

Between 2015 and 2016 they grew by 253% and continue to show remarkable growth of over 

100% year over year. They were capped at our $50,000 maximum loan amount when they 

received a loan from LEDC in January. However, they could use additional funding to expand 

outside of the Maryland, D.C., and Virginia markets where they currently have their products in 

2.50 stores. They have their sights set on Pennsylvania, New Jersey, and New York. But they 

won't get there by patch working together microloans and the occasional pitch competition 

prize money they may win. Traditional bank financing has eluded them as a young start-up. 

We currently have a pipeline of a dozen businesses like Mobtown that we wilt be putting on 

track for Community Advantage loans, now that we have the capacity to serve them. The 

Community Advantage (CA) program is of utmost importance to scaling and supporting our 

small business communities. 

While there is a pervasive belief that CDFis and other community lenders are less-equipped to 

underwrite and service larger loans, I'd respectfully beg to differ. At LEDC, we have a team of 20 

staff dedicated to underwriting, risk management, portfolio servicing and providing advisory 

services available to our borrowers. We have a centralized underwriting function and staff 

designated to the sole task of monitoring our portfolio and managing risk. Each loan is 

underwritten to an internal algorithm that assesses factors including loan to value, cash flow, 

available collateral, business and personal credit profile, among other factors. Using this 

algorithm, we asses each transaction with a "grade" reflecting its level of risk. Our current 

portfolio at risk, measured as loans late 30+ days, is at 5.1%, with an annual write off rate that 

oscillates between 2.0-2.5%. We achieve these metrics by having an in-house loan servicing 

team working closely with clients and tracking closely the financial performance of their 

ventures -including providing business advisory support where needed. 

We are doing deals that commercial banks would run from. However, our intensive 

underwriting process, coupled with constant attention to each deal and each client keeps our 

loans performing and our portfolio sound. 

The Community Advantage program is a critical product for a specific set of our clients. The 

communities we serve deserve access to a full range of financial products that can be tailored 

to their needs ... rather than having to tailor and compromise their needs to fit a limited set of 

offerings. 

I appreciate the opportunity to testify and be with you today, as well as your consideration of 

my perspective from the frontline. 

-Marla Bilonick, Executive Director 

2 
31 

Senator CARDIN. Thank you very much for your testimony. 

We have been joined by Dr. Wilson, who is the president of Morgan State University, one of the great educators in our country and 

doing a great job at Morgan. One of the things I like about Dr. Wilson is the way that he works very closely with this community and 

recognizing that the growth of the community and both Morgan are 

indeterminately intertwined. 

So thank you for your leadership, and we would welcome if you 

would like to make a comment, fine, but I just really wanted to 

thank you. 

STATEMENT OF DR. DAVID WILSON, PRESIDENT, MORGAN 

STATE UNIVERSITY 

Dr. WILSON. Thank you, Senator. 

Good morning, everyone. First of all, let me thank you, Senator 

Cardin, for creating this opportunity here, so we can hear, you can 

hear, and the Senate can hear from small business owners and entrepreneurs. We certainly have appreciated your support of Morgan’s growth and maturation and the role that we play here in 

spurring economic development. 

We have the Earl G. Graves School of Business and Management 

here, and out of that school, we have an entrepreneurship program. 

We recently partnered with Goldman Sachs, and there are 10,000 

small businesses programmed that are unfolding here in Baltimore. 

We have graduated three cohorts of entrepreneurs now out of 

that program, and so we are delighted that you are creating this 

opportunity to hear from small business owners and entrepreneurs 

as to really what they need in order to grow that business, so that 

businesses can continue to employ more individuals in our city and 

in our region. 

I do know that our honorable mayor, Catherine Pugh, wanted to 

be here today. She had an unfortunate conflict, but Mayor Pugh is 

a two-time graduate of Morgan. She also has an MBA from Morgan 

and started her own businesses along the way. So on behalf of our 

mayor and on behalf of the entire Morgan State University community, welcome to our university. 

Senator CARDIN. Thank you, Dr. Wilson. I appreciate it very, 

very much. 

[Applause.] 

Mr. Manger, I would like to start with a question to you, and I 

want to put this in context. You rightly so have showcased the 

Microloan Program and the Community Advantage Program as to 

the success in reaching underserved communities, minority businesses, and how you have been reaching out to improve the programs themselves to meet the mission of the SBA. And that is 

noted. 

Administrator McMahon is well respected in our Committee. She 

has been very vocal about her commitment to make sure that the 

programs are diverse and fairly representative of this country. 

So I put that in context to three decisions that were recently 

made by the SBA that I am having a hard time understanding how 

they fit into the mission. 

So let me start with the Community Advantage Pilot Program, 

but I also will want to get on the record the fee waiver changes 

LAP51NQ082 with DISTILLER

32 

that are being suggested in the 7(a) program, also your mission rating, withdrawal of the mission-rating process. 

Mr. MANGER. Mm-hmm. 

Senator CARDIN. But we have had a lot of testimony from all 

these witnesses on the Community Advantage Pilot Program and 

the importance of that program. 

Administrator McMahon, when asked about that program, was 

very complimentary about it. Recognizing that it is through 2020, 

we have been trying to make it permanent, she suggested that we 

wait until closer to 2020 before making those decisions so that we 

can properly evaluate it. 

So we were surprised to learn of modifications that were put in 

to the program by the SBA that could very well affect its ability 

to reach underserved communities. Can you just share with us the 

changes? One is to put a moratorium on additional certifications. 

As you have heard here, there are some questions about additional 

needs in that regard. 

Mr. MANGER. Mm-hmm. 

Senator CARDIN. Another dealt with increasing the reserve, and 

one of our witnesses already said the reserve is hampering her 

ability to make loans. The other deals with the size of the loan and 

different communities. 

So there were changes that were made. Can you just go over the 

rationale for that and whether there is now a change in SBA’s position on whether we should try to make this permanent? You extended it for 2 years to 2022, but perhaps we should be looking at 

making it permanent. 

Mr. MANGER. Sure. So let me start by saying, Senator Cardin, 

that Administrator McMahon and I are very committed to seeing 

the Community Advantage Program succeed. As you know, it has 

been a pilot program for several years now, and we want to do everything we can to make it strong and bolster it so that it does 

have long-term sustainability. And we want the additional time 

that we have called for. It is actually 2 years that we have called 

for it. It was to expire in March. We are letting it go through the 

end of the fiscal year to September 30th, 2022. We want to make 

sure that we have the time to adequately observe the performance 

of the program based on some of the changes that we have made. 

And let me just go into some of the changes that we have made. 

We have extended the pilot, as I said, by 2 years. I want to say 

that we did take a suggestion actually that John Lewis made, and 

it was actually incorporated before we even heard from John today, 

that we have now expanded the ‘‘underserved market’’ definition to 

include opportunity zones. So that is an expansion of the areas that 

the loans may be used in. 

The eligibility for delegated status will be contemplated after 

seven loans are made. Right now, we are able to look at a lender 

and see after five loans if they should be given delegated status, 

which is very important. We have decided that we would like to see 

two more loans be disbursed before delegated status is reached because we have seen some earlier issues, not with any of the programs of my colleagues here on the panel—and they have spoken 

to their performance, but we had a report done in conjunction with 

Dunn and Bradstreet, which I brought a copy of here today, that 

LAP51NQ082 with DISTILLER

33 

shows that there are some lenders in the program that are stressed 

and seeing stressed portfolios that are affecting the program. So we 

want to take steps to make it as strong as possible so that we can 

eventually take it to permanency, just a couple of things that we 

are doing here. 

So we have also looked at the credit scores, credit scores of 139 

or lower on scores show a much more significant problem, three 

times as great as loans that are at 140. 

So what we are saying is for those Community Advantage lenders that want to make a delegated loan, the lowest they can go is 

140. If they want to go below that, we will let them do that, but 

they have to go through our centers for SBA staff to underwrite as 

opposed to just doing it delegated on behalf of the lender. 

So, again, it is just a change to try and tighten up where we have 

seen and identified numerically where we have seen some issues. 

We have increased the loan loss reserve correct on only the portion—on only the portion that is sold in the secondary market. 

When this program was first developed, actually, it was prohibited to sell these loans in the secondary market, and in fact, initially, under the Obama administration when this program was 

rolled out, the loan loss reserve was 15 percent. It was lowered to 

5 percent for the portion that is not sold in the secondary market, 

and the portion that is sold in the secondary market went down to 

3 percent when they allowed them to be sold in the secondary market. 

All we are asking is to increase that on the sold in the secondary 

market by 2 percentage points to 5 percentage points, so it is going 

to be 5 percent across the board. It is still lower than the program 

started with under the previous Administration, and the reason 

why we are doing that is because any loans that are sold into the 

secondary market, the SBA must make the money available to the 

investor who is holding that loan immediately before we can take 

any recovery. So we think that by adding an additional 2 percent 

that it will be in the loan loss reserve will help us be able to have 

some of that money to, again, pay the investor that has the loan 

on the secondary market. 

Most importantly, actually we took some steps here that I think 

the Community Advantage lenders should be appreciative of as 

well as our small business borrowers. We are limiting the fees that 

may be charged to a borrower, and we are also limiting the fees 

that a lender service provider can charge a Community Advantage 

lender because we have seen—again, the reports show it—that 

there have been some very stiff fees charged to not only borrowers 

but then to Community Advantage lenders who use a lender service provider. And we want to limit that because that is not the 

point of the program. We want to make sure we are getting capital 

out to small businesses. We do not want people to take huge fees 

away from the small business borrower or the Community Advantage lender. 

So these are steps that we are taking to strengthen the program. 

We want the additional time to observe the program with these 

changes in hopes that then, yes, we will be able to make the program permanent. 

Senator CARDIN. Thank you. 

LAP51NQ082 with DISTILLER

34 

We were just somewhat taken aback that the changes were made 

when we thought all that would be made when the decision on permanency was made. 

Each of our other panelists have talked somewhat about different 

changes. Ms. Medley, you mentioned the reserve as affecting your 

ability to make loans. You have had a perfect record, and yet—so 

you were, I think, arguing that the reserves could even be lower. 

So I do not know if you want to comment or not about the increase 

from 3 to 5 percent in regards to part of these loans. 

Ms. MEDLEY. Thank you, Senator Cardin. 

The reserves, the regular reserves that you must have on the 

portfolio at 5 percent are a challenge enough. 

When we explored selling loans on the secondary market, our 

analysis at the lower loan loss reserve amount was that it made 

no economic sense for our organization to be in the secondary market because of the additional reserves. 

If they are higher, there is no way that we would ever get to the 

point where we would be able to sell loans on the secondary market, which does improve cash flow. But when we did the long-term 

analysis on whether we should sell the loans or keep them in portfolio and just continue in that direction and not sell, it was more 

cost effective for us not to sell in the secondary market because of 

the reserve amount. And, certainly, with them increasing, there 

would be no possibility in the near future. 

Senator CARDIN. Mr. Lewis, you mentioned the gaps that we 

have in regards to minority communities. You mentioned the gaps 

on wealth and on trust, but you also mentioned it on credit. 

Here, we are talking about increasing the credit score for participation. Does that present a problem as you see it? 

Mr. LEWIS. So, generally, when we look at credit scores, particularly with entrepreneurs, anyone who has walked that path knows 

when you are starting a business, you do what you do to keep the 

business going, right? And that in itself, if you are starting from 

a position of not having wealth and your own cushion and not having family and friends and other investors, means that sometimes 

you may have a history of paying some bills slow. You may still 

pay them, but you may pay them slow. 

And that walk in that progression, certainly from someone who 

is not starting from a position of strength, would say by the time 

you get to actually having a successful business that is ready to 

grow, that is ready to meet with a lender or CDFI, that experience 

getting up to that point may have impaired your credit. 

And it speaks—a lot of the work that we do is not formulaic. It 

is relationship based. It is getting to understand borrowers, not 

only where they are going, but where they have been. And that relationship base basis of doing your underwriting and considering 

credit diminishes the importance of credit scores and things holistically about the opportunity to lend. 

But, certainly, anything that speaks to raising the required credit scores will be punitive to borrowers ultimately. 

Senator CARDIN. Ms. Bilonick, my numbers show there are 113 

Community Advantage providers. I do not know if that includes 

you or not, so maybe it is 114. 

Ms. BILONICK. Probably not. 

LAP51NQ082 with DISTILLER

35 

[Laughter.] 

Senator CARDIN. And they are located in 39 states. 

But my information also shows that we do have regional gaps in 

having the availability of these programs. With a moratorium being 

imposed, if it was imposed last week, you would not be eligible. 

From the Latino community, which is an emerging community in 

so many parts of the country, do we have enough CA-authorized 

providers to make these loans, or will the moratorium have an impact? There is a growing change in this country. 

Ms. BILONICK. I will say that I do not know the geographic disbursement of the current CA lenders to make an educated answer 

for that question, but I would imagine that it will have an impact 

on minority communities that need this financing to be able to successfully grow their businesses. 

You know, apologies for not knowing this correct scenario. 

Senator CARDIN. No, no. But the Latino community seems to be 

a growing community. 

Ms. BILONICK. Absolutely. 

Senator CARDIN. And the fact that you just got certified points 

out that there is a growing need in the community—— 

Ms. BILONICK. Definitely. 

Senator CARDIN [continuing]. And trying to be filled. My concern 

is that imposing a moratorium freezes the CA lenders that we currently have. 

In the Latino community, it seems like it is a more dynamic community that may not now be able to get a CA lender in order to 

take advantage of this program. 

Ms. BILONICK. I think that is absolutely right. 

And I did want to just also add onto what John was saying. I 

think the other issue in terms of credit score that our clients have 

is not only late payments but using sort of—as I said, patch-working together alternative methods so that they can put together 

what does not exist in the market, which is the funding that they 

need. 

So they may be overleveraged, which is bringing their credit 

score down, just because they have maxed-out credit cards and 

other forms of credit that they have creatively put together in order 

to be able to finance their businesses. 

Senator CARDIN. And, Mr. Manger, I would just hope that we 

will get this input because I think we all want to make this program work as effectively as possible. I would just hope that there 

will be an opportunity for this type of input as we look toward the 

ultimate resolution of the permanency of this program and how it 

should be configured. 

Mr. MANGER. Certainly. 

Senator CARDIN. And how we can learn from this program in regards to the 7(a) program itself and the 504 program as to how we 

can make it more effective in reaching underserved communities. 

Mr. MANGER. Senator, that is really exactly why we are taking 

the actions that we are taking now. We want to make sure, again, 

we can bolster the program and make it as strong as possible. 

What we are seeing, again—and the numbers were provided—the 

last 12-month default rate for those Community Advantage loans 

that were made with scores below 140 is over 10 percent. That is 

LAP51NQ082 with DISTILLER

36 

much higher than any other cohort in our 7(a) portfolio, and all we 

are saying is that you can still make a loan below 140 credit score, 

but it has to be done through one of our centers. 

If you want to be a delegated lender, then you will have to make 

the loans above that 140 level, just because of the evidence that we 

have seen in the default rate. 

Just to give you the balance, those over 140, the last 12-month 

default rate is below 4 percent. So you see how dramatically it increases when you go below 140. That is what our concern is. 

Senator CARDIN. But I would just counter that, and I think Mr. 

Lewis might be the best to respond to this. 

One of the trends that we have seen that has been just a trend 

that has hurt us in making credit available to small businesses has 

been the banking consolidation, the loss of headquarters, more 

branch banks, et cetera. 

You look at a Harbor Bank, and you see an institution that is 

a community institution. They cannot run away from the community. We will find them, and their record is incredible in underserved communities. 

But as we move more to the consolidation and branches, yes, it 

may seem like a simple process to have a different entity make 

that determination, but it becomes intimidating for minority businesses. 

Mr. Lewis. 

Mr. LEWIS. Certainly. 

So I would say the key point here is that scoring in itself can be 

challenging for small businesses, for minority businesses, for the 

things that we talked about before. There are gaps in access. 

So when you get to distribution, which is really the score of this, 

which is how do I get to these businesses, in getting to the businesses, you have got to be able to get to a point where you understand them and understand them not from a score perspective. 

Even if that is the best that you have, it is an inferior way to make 

loans because lending is like any investing. If you know your neighborhoods, if you know your entrepreneurs, if you know your business opportunities better than anyone else, you can make a loan 

that other people may not be able to make. And, if anything, that 

is the distinction of community banks, of MDIs, of local lenders. 

The other thing that I would lift, though, that is very important, 

when we talk about low-income communities or communities that 

have been disinvested for generations and generations and generations, they have particular challenges. There is a heightened risk 

profile generally in those communities, which does not say that you 

cannot lend in those communities. It says that you have to be an 

expert at lending in those communities. 

One of the things that has been very effective for us—and in 

doing that, you may be taking on a heightened risk in your portfolio, and you have to acknowledge that. You have to price it well. 

You have to structure well. 

But in doing that, one of the things that has been effective for 

us in taking that increased level of risk has been the Bank Enterprise Award that we won 12 times. Essentially what that does is 

it allows us to take the risk, have a riskier portfolio, and then be 

compensated for having made those loans, in arrears which is not 

LAP51NQ082 with DISTILLER

37 

perfect, but it still is a compensation for taking those risks. And 

we are able to do it effectively. 

So one of the things that I would offer and think of, if it is that 

you want to get to the point where you have got lower credit scores 

and still have the flexibility of doing it the way that we do it is 

to have some consideration of how you helped those lenders 

through capital support, so they continue to make those loans on 

a riskier level. 

Senator CARDIN. Good suggestion. 

Yes. 

Ms. BILONICK. I just had a question with regard to the amount 

of time that would be added to the process by needing to refer to 

the SBA to underwrite. 

My fear would be that doing that would just drive the businesses 

to alternative sources like online predatory lenders, just because it 

will add a significant time to the underwriting process versus doing 

it in-house. 

Senator CARDIN. And these are areas I hope that the SBA will 

take into consideration as we are continuing. 

I know our Committee is going to take a good deal of interest in 

this and try to be constructive in working with the SBA. I share 

that concern. 

You have a process now. If you do a different process, one of the 

things that we find with minority businesses, they do not make applications because they think they are going to get rejected, and 

they use the alternative sources, which are not good. And you wonder why there are more failures. There are more failures because 

they are undercapitalized. 

It is a cycle that we are trying to break, and I understand the 

logic behind every change you suggested. I would just urge that we 

look at the results. We have had really good results from the CA 

program. Let us make sure that we are improving those results, 

not moving in the wrong direction. 

I want to ask you quickly about the fee waiver. 

Ms. BILONICK. Yeah. 

Senator CARDIN. This was an area of major interest in the last 

hearing we had. Congress is very much interested in the fee waiver 

program. 

As I understand it, you have modified the fee waiver program for 

loans under $150,000 under 7(a). That will only give partial fee 

waiver unless the loan is in one of the HUBZones or rural areas. 

Is that—— 

Mr. MANGER. That is correct. 

Senator CARDIN. So does not that work to the disadvantage of 

the other 7(a) loans, small loans? 

Mr. MANGER. So, currently, you are correct. This year, any loan 

under $125,000 gets fee relief. Again, the decision was made, 

though, that we wanted to offer fee relief targeted to help those 

communities that are underserved. 

If you get a small loan in the suburbs, should that person really 

get the fee relief or should the fee relief be targeted to HUBZones 

and rural areas that are underserved and underbanked, as you 

were talking about? 

LAP51NQ082 with DISTILLER

38 

So we have changed, shifted this year, the goal or the initiative so that fee relief will be offered up to $150,000, slightly higher, but 

again zones made in HUBZones or rural areas. 

Senator CARDIN. I would just make this observation. I do not 

know if that is accurate. The fee waiver seems to have been very 

effective in helping underserved businesses. 

Mr. MANGER. And that is what we are trying to still target. 

Senator CARDIN. We are not sure if the definition of rural and 

HUBZone equates to underserved businesses, and I just hope we 

can evaluate that because we do think there are a lot—I mean, I 

know a lot of parts of Maryland that have had designations, are 

losing their designations. We have used a longer average time, so 

that they can continue to get some of the advantages of being in 

an economic zone. But these are businesses that cannot get the 

conventional types of interest. 

We used a smaller loan amount as the barometer to give the relief on fees because they are the ones that go more to the targeted 

businesses that we are trying to get help to, the women and minority businesses, et cetera. 

So I am not sure limiting it to HUBZone and rural—it may very 

well exclude a target group that we are trying to get to. 

Mr. MANGER. I would just say, Senator Cardin, with all due respect, I think there are some small businesses that are getting 

loans of up to $150,000 that are really not an underserved market, 

and again, it could be a business that is located in a suburb of 

Washington, D.C., that then gets the fee relief, and the question is 

do they really need the fee relief or should it be going to historically underutilized business zones, which is the definition of a 

HUBZone? 

Senator CARDIN. Well, we might differ on this. 

Mr. MANGER. Okay. 

Senator CARDIN. Let us share the information back and forth. 

Mr. MANGER. Yes. 

Senator CARDIN. I know of a lot of businesses that are minorityowned, women-owned businesses that do not fall in rural and do 

not fall in a HUBZone that should qualify for the maximum 

amount of help that we could give them to get loans. They cannot 

otherwise get those loans. I do not know if the observation here of 

anyone else on the panel on this or—— 

[No response.] 

Let me move to my last point, and I will try to cover this quickly. 

Mr. MANGER. Sure. 

Senator CARDIN. And that is this mission rating. I understand 

you have pulled that, and the mission rating was an effort to try 

to identify those lenders that are giving smaller loans, rural loans, 

minority businesses, women businesses, veterans businesses, export businesses. Basically, we are trying to give them a mission 

rating so they could be identified as carrying out the mission that 

we want them to do in regards to underserved areas. 

It is also my understanding that you pulled that because this is 

a self-reporting information, and you were not clear as to the reliability of the self-reporting information, even though you do use 

self-reporting information for a lot of other purposes within the 

SBA. 

LAP51NQ082 with DISTILLER

39 

It seems to me that was sort of a sledgehammer approach to a 

program that is aimed at trying to identify those lenders that are 

carrying out the mission that we want them to, and now we have 

nothing. 

Mr. MANGER. Well, Senator, I would just say that you are exactly 

correct that all of that data is reported on a self-reporting basis, 

and we actually caveat any of the information that we put out and 

publish the data, and that it is captured on a self-reported basis. 

In fact, actually over 10 percent come in with undefined, undisclosed. So we thought it was not fair to rate a lending institution 

based on incomplete self-reported data. That is the issue. 

Senator CARDIN. Do you have an alternative? 

Mr. MANGER. I think we can continue to look at it, Senator, but 

we want to make sure that, again, in terms of credit risk oversight—and we just passed the 7(a) oversight bill—we want to make 

sure that we have as much oversight over those programs as possible, and trying to come up with some way to give someone extra 

credit based on unsubstantiated information just does not seem the 

right way to do it. So we will continue to look at other ways we 

can go about getting the mission accomplished. 

Senator CARDIN. I want to thank all of the panelists. This has 

been, I think, extremely helpful. 

As I said in the introduction to Mr. Manger’s question, our Committee wants to work with the SBA to accomplish the mission in 

helping underserved communities. We recognize it is a difficult definition of ‘‘underserved communities,’’ and that is why some of our 

concern on how you have drawn some of these lines. 

So we will continue to have this dialogue. We welcome our witnesses to continue to share with us your success. 

Very impressive record, Ms. Medley, in your business. 

And Harbor has an incredible record in helping our community. 

Ms. Bilonick, we look forward to your record. We do not have a 

record yet from you. 

[Laughter.] 

Although it has been 24 hours. 

Ms. BILONICK. Right. 

Senator CARDIN. But we look forward to the growth of your business in our community. 

So thank all of our witnesses for the testimony. 

Ms. BILONICK. Thank you 

[Applause.] 

Senator CARDIN. We have a second panel. We are looking forward to that. Our second panel—as we are making the transition, 

I will do the introductions in order to save a little bit of time. 

On our second panel, we have Ken Clark, who I believe is also 

a graduate of Morgan State University. 

Mr. CLARK. Yes, sir. 

Senator CARDIN. All right. We want to make sure we get that in 

there, Dr. Wilson. The use of this room is contingent upon promoting Morgan State every time we can. 

He is a business consultant in the Minority Business Development Agency Business Center representing the Capital Region Minority Supplier Development Council. In this role, Mr. Clark proLAP51NQ082 with DISTILLER

40 

vides strategic counseling and business development services to 

local and national minority businesses. 

We will then hear from Tim Smoot, senior vice president and cofounder, CFO of Meridian Management Group, who will speak to 

us about the investment capital for minority-owned firms. We are 

happy to have Meridian Management Group back with us today, as 

we had the president and CEO, Stanley Tucker, join us in 2015. 

Mr. Tucker is a frequent advisor to many of us here in the State 

of Maryland. 

And then we will hear from Mary Miller, who is a senior fellow 

at the Johns Hopkins University, 21st Century Cities Initiative. 

She will present findings from the 21st Century Cities eye-opening 

report entitled ‘‘Financing Baltimore’s Growth: Strengthening 

Lending to Small Businesses.’’ Ms. Miller is the lead author of the 

report, and her team conducted critical research and identified 

causes for the decrease in small business lending throughout Baltimore County. 

Finally, we will hear from Will Holmes, who is representing Morgan State University in his role as the director of outreach for the 

Goldman Sachs 10,000 Small Businesses Initiative. As a consultant 

and small business owner, Mr. Holmes is living the access-to-capital issue, while helping expand opportunities for other minority 

businesses in Baltimore. 

So we will start first with Mr. Clark. 

STATEMENT OF KENNETH E. CLARK, BUSINESS CONSULTANT, 

MBDA BUSINESS CENTER–CAPITAL REGION, CAPITAL REGION MINORITY SUPPLIER DEVELOPMENT COUNCIL, SILVER SPRING, MD 

Mr. CLARK. Good morning, Senator Cardin. Thank you very 

much for the opportunity to be here. Kenneth Clark, business consultant in the Minority Business Development Agency Business 

Center-Capital Region. 

This business center is operated by the Capital Region Minority 

Supplier Development Council under the leadership of Sharon 

Pinder, our president and CEO who could not be here today. 

I am delighted to be here at Morgan State in the newest building 

on campus, as both Ms. Pinder and I are alumni of this great institution. 

You have my written testimony, and I would like to reserve the 

option to offer some clarity and minor corrections in an updated 

submission in a few days. 

I will summarize some of the points in my testimony at this 

time. The original testimony is a little longer than 5 minutes. 

For clarity, I would like to explain the roles of the Capital Region 

Minority Supplier Development Council and its relationship with 

Minority Business Development Agency in the operation of MBDA 

Business Centers. 

The Capital Region Minority Supplier Development Council, 

CRMSDC, is one of the 23 regional councils of the National Minority Supplier Development Council, which was formed in the aftermath of the riots following the assassination of Dr. Martin Luther 

King. The significance of the establishment of the NMSDC was 

that it was built on the idea of economic development and wealth 

LAP51NQ082 with DISTILLER

41 

creation in the minority communities. NMSDC was established— 

they established regional counsels to certify minority businesses 

and to provide a linkage to their corporate procurement departments. 

The councils continue to host trades fairs, conferences, one-onone matchmaking, and various networking events to foster interaction between MBEs and corporate buyers, most often through 

corporate supplier diversity professionals. 

CRMSDC also offers highly impactful training to the leadership 

of minority firms at major university business schools like Tuck, 

Kellogg, and others, and supplement that with local training opportunities. This has helped minority firms to move from startup and 

subcontractor status to more sustainable businesses. 

The impact of CRMSDC’s activities is that its nearly 350 minority businesses generate over $3 billion in revenue and employ approximately 20,000 people, and that is within this region. 

This tracks well with the National Minorities Supplier Development Council, where 15-, 1,600 corporations work with 12,000 certified minority businesses to create $400 billion in output and $2.2 

million in jobs. And I provided a graphic for your information on 

that. 

The Minority Business Development Agency developed along a 

similar path following the riots, only this way in the Federal Government with people like Parren Mitchell and others, Executive 

Order—putting pressure on the Administration—Executive Order 

11625, over 45 years ago, started OMB, the Office of Minority Business Enterprise, OMB. 

The Minority Business Development Agency, which was the 

name change, serves as the only Federal agency tasked to help minority businesses realize their full economic potential through technical assistance centers, public and private contracting opportunities, advocacy, research, and education for Minority Business Enterprise growth and development. 

The bulk of this work is accomplished throughout a nationwide 

network of 35 Minority Development Agency Business Centers. 

Included in that number are four manufacturing centers, which 

promote capacity building among minority manufacturers and one 

Federal Procurement Center. 

There is an Minority Business Development Agency manufacturing center located—operated by the City of Baltimore here at 

Morgan State University in the Business School. 

Each center provides services that assist businesses in accessing 

capital, accessing contracts, accessing new markets, as well as 

helping them in their growth in size and scale, providing strategy 

consulting. 

In 2016, CRMSDC, under the leadership of Sharon Pinder, competed to win an MBDA grant to run a business center here in the 

Washington, D.C., area. Later, in 2016, CRMSDC won a bid to run 

a Federal Procurement Center, the only one of its kind in the Nation. The Federal Procurement Center is designed to specifically 

help minority businesses with access to Federal and federally funded contracts. 

LAP51NQ082 with DISTILLER

42 

The business centers can help work with MBEs operating in Federal, State, local as well as corporate contracts. So our result is 

that we have a dual, two-pronged approach. 

Both teams use information systems tools provided by MBDA. 

They use our personal contacts and our personal knowledge of the 

various commercial and governmental sectors to help their clients 

win and—find and win contracts. 

They also assist their clients with finding loans, working capital, 

and other financial instruments from minority-friendly sources of 

which they have identified. 

At a recent training conference, both of our centers were recognized as being outstanding for our ability to provide contract activity, financial access, job creation, and retention of goals. 

The two centers combined have about 220 clients, and they have 

won over $240 million in contracts and have created 1,700 jobs in 

the last year’s program. 

There are a number of barriers that we operate to try to eliminate. Those barriers are timely bid notification, explicit discrimination due to stereotypes, higher and double standards, and MBE/ 

DBE stigma. 

We compete with larger—we try to help against large project 

sizes, bonding and insurance requirements, and timely payment. 

We also try to combat the barrier of good faith to use minorities, 

except when they are required in a contract. There is explicit discrimination, and this whole issue of MBE and DBE stigma is a 

problem. 

The issues boil down to access to capital, contract and network 

access, and marketplace discrimination. 

I see my time is out, so I will thank you very much for the opportunity to present this testimony, and I will answer any questions 

you might have. 

[The prepared statement of Mr. Clark follows:] 

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43 

LAP51NQ082 with DISTILLER


Insert offset folio 37 here 32693.037

Written Testimony of 

Mr. Kenneth E. Oark 

Business Consultant, MBDA Business Center- Capital Region 

Capital Region Minority Supplier Development Council 

Before the 

Senate Small Business Committee at a hearing in 

Morgan State University, Baltimore, MD 

Friday, September 14, 2018. 

Good Morning, Senator Cardin. I am Kenneth Clark, Business Consultant in the Minority Business 

Development Agency Business Center- Capital Region and Past President of the Maryland/District of 

Columbia Minority Supplier Development Council, the precursor to the Capital Region Minority Supplier 

Development Council. This business center is operated by the Capital Region Minority Supplier 

Development Council under the leadership of Sharon Pinder, President and CEO, who could not be here 

today. I am delighted to be here at Morgan State as both Ms. Pinder and I are alumni of this great 

institution. 

For clarity, I would like to explain the roles of the Capital Region Minority Supplier Development Council 

and its relationship with Minority Business Development Agency in the operation of an MBDA Business 

Centers. 

The Capital Region Minority Supplier Development Council CRMSDC) is one of the 23 regional councils of 

the National Minority Supplier Development Council (NMSDC). NMSDC was founded in the aftermath of 

the riots following the assassination of Dr. Martin Luther King. As various federal commissions 

undertook studies to determine the root causes of violence in the cities, so did corporate America. Their 

studies determined that the root cause of unrest was lack of access to the American Dream of life, 

liberty, and the pursuit of happiness. This dream requires money, i.e., jobs, income and business 

revenue. The study led those corporate executives to the implementation of trade fairs and job fairs to 

provide jobs for residents and business opportunities for minority businesses. Their activities coalesced 

into the establishment of the corporate-led National Minority Purchasing Council with regional affiliates. 

The Greater Baltimore Minority Purchasing Council was founded in 1972. It later merged with the 

Greater Washington Minority Purchasing Council and, with subsequent national name changes, became 

the MD/DC Minority Supplier Development Council. I had the privilege of serving as a Board Member, 

including a term as board chair, and, later, president of this council. 

The significance of the establishment of NMSDC was that it was built of the idea of economic 

development and wealth creation in the minority communities. It was the hope of NMSDC's corporate 

founders that an employed minority community and a vibrant minority business community would help 

to generate income that could be spent by that community to buy the products and services of 

corporate America. It would also create an economic sense of well ness that would lessen chances for 

violence in the streets. NMSDC established the regional councils to certify minority businesses and to 

provide a link to their corporate procurement departments. The regional councils continue to host 

trades fairs, conferences, one-on-one matching, and various networking events to foster interaction 

between MBEs and corporate buyers. This work is most often managed through corporate supplier 

diversity professionals whose job is to find and advocate for minority businesses within the corporate 
44 

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Insert offset folio 38 here 32693.038

procurement process. CRMSDC also offers highly impactful training to the leadership of MBE firms at 

business schools such as Kellogg, Tuck and others. Additionally, it has offered similar training locally, 

with the result that many minority business leaders are able to move their firms from start-up and subcontractor status to fully sustainable businesses. The impact of CRMSDC's activities is that its nearly 350 

MBE firms generate over $3 Billion in revenue and employ approximately 20, 000 people. This tracks 

well with the data from NMSDC nationally where 1,595 corporations work with 12,000 certified minority 

firms to create $400 Billion in output and 2.2 million jobs. (See attached graphic data from NMSDC) 

After the 1968 riots, the Commerce Department developed along a similar path as corporate America 

with the creation the Office of Minority Business Enterprise, the precursor to the Minority Business 

Development Agency under Executive Order 11625. Since 1972, MBDA has been working aggressively 

to support the growth of MBEs. MBDA serves as the only federal agency tasked to help MBEs realize 

their full economic potential through technical assistance, public and private contracting opportunities, 

advocacy, research, and education for MBE growth and development. The bulk of this work is 

accomplished through a nationwide network of now 35 MBDA Business Centers (there were as many as 

44 at one point.) There is an MBDA Manufacturing Center operated by the City of Baltimore here at 

Morgan State. Each MBDA Business Center provides services that assist MBEs in accessing capital, 

contracts, and new markets, as well as helping them to grow in size and scale. The Business Centers can 

work with MBEs seeking federal, state and local as well as corporate contracts. Included in the 35 

centers are four MBDA Manufacturing Centers and one Federal Procurement Center. The 

Manufacturing Centers promote capacity building of minority manufacturers. The Federal Procurement 

Center is designed to specifically help MBEs with access to federal and federally funded contracts. 

In 2016, CRMSDC competed to win an MBDA grant to run a business center in the Washington, DC area. 

Later, also in 2016, CRMSDC also won the bid to run a Federal Procurement Center, the only one of its 

kind in the Nation. Both centers use information systems tools provided by MBDA, personal contacts 

and knowledge of the various commercial and governmental sectors to help their clients find and win 

contracts. They also assist their clients in finding loans, working capital and other financial instruments 

from minority-friendly sources of which they have become aware. At the recent MBDA National 

Training Conference, both the Business Center and the Federal Procurement Center were recognized as 

"Outstanding" for meetings or exceeding the rigorous contract, financial, and job creation and retention 

goals required in the MBDA grants. In order to create greater synergy for business development and 

increased support to minority businesses, Sharon Pinder has created a Minority Business Consortium in 

which the three organizations collaborate to offer a more full slate of services to regional minority 

businesses. In addition to the economic impact of CRMSDC stated above, together our Capital Region 

MBDA business centers helped its 220 clients win over $240 million in contracts that created 1700 jobs 

in the last program year. 

While both CRMSDC and its MBDA centers, and MBDA and NMSDC as a whole, work hard at assisting 

minority enterprises grow their businesses and develop their teams, there are still many barriers to 

minority contracting. A summarization of disparity studies from several state and local jurisdictions was 

released in January by MBDA. It showed that very significant disparity still exists in minority 

contracting. It was most distressing to see that the disparities still existed even after remedies proposed 

from prior disparity studies had been implemented in these areas. The barriers to contracting were the 

following based on specific and verifiable data and anecdotal experiences: 

At the Prime level- timely bid notification, explicit discrimination due to stereotypes, and higher 

and double standards, MBE/DBE stigma. 
45 

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Insert offset folio 39 here 32693.039

Prime level non-discriminatory -large project sizes, bonding/insurance requirements, timely 

payment 

Sub-contractor- timely bid notification, bid shopping, held bid, lack of good faith effort to use, 

only taking an MBE if required, explicit discrimination (same as above), MBD/DBE stigma 

(See Attached graphic from MBDA website for details) 

Basically this boils down to Access to capital, contract network access, and marketplace discrimination. 

To help address issues around access to capital, our business center held a finance seminar to educate 

MBEs on the intricacies of working with various sources. Mr. Tim Smoot, on this panel, was one of those 

experts along with four national and regional banks and an alternative lender. These "minority business 

friendly" institutions shared how to best work with banks, when to go to alternative sources, how to 

develop the relationships that might help off-set some of the stereotypes associated with being an MBE 

or DBE. One client said that this was exactly what she needed to hear to be better prepared. This 

panelist has also just received approval for a line of credit based my referral to one the minority-friendly 

lender at a bank after she had been previously denied a loan at several banks. 

This is the environment in which CRMSDC, the MBDA Business Centers and the Federal Procurement 

Center work to try to alleviate as many of these barriers as possible. It is work that is done in the field, 

holding hands with MBEs, and talking to, calling and visiting contracting personnel in the corporations 

and state and federal agencies to help get deals done. Policy personnel in the federal or state capitals 

do not and cannot impact the problems faced daily by MBEs. I say this because, as you aware, it has 

been proposed that MBDA discontinue the funding of business centers and that the agency is to become 

strictly a policy organization. This action will be done to the great detriment of the minority business 

community. I urge your strong support to continue full funding of the MBDA, its Business Centers and 

the Federal Procurement Center. 

Thank you, Senator Cardin, for the opportunity to speak. I thank you for your interest and leadership in 

this important area of supporting minority business growth and development. In 20 years, the 

complexion of the Nation will reach a major transition. Many people fear a future in which minorities 

are a majority and are trying to hold back the tide. If we don't create strong and viable minority 

businesses and build wealth in the minority communities now, the cycle of economic life in these United 

States will spin out of control into a downward spiral. Effective leadership can guide the Nation to a 

great future. 

Thank you again, 

Respectfully submitted, 

Kenneth Clark 
46 

Senator CARDIN. Thank you, Mr. Clark. 

Mr. Smoot. 

STATEMENT OF TIM SMOOT, SENIOR VICE PRESIDENT, CHIEF 

FINANCIAL OFFICER, CO–FOUNDER, MERIDIAN MANAGEMENT GROUP, INC., BALTIMORE, MD 

Mr. SMOOT. Thank you, Senator. I appreciate you inviting us 

today. I would like to thank you guys. 

My name is Tim Smoot, senior vice president and co-founder and 

CFO of Meridian Management Group, hereafter called MMG, a minority fund manager that provides capital to small-, minority-, 

women-, and veteran-owned businesses primarily based in Maryland. The majority of our funds managed by MMG are from Federal and State sources. The lion’s share of the businesses we assist 

are unable to obtain financing from banks and other traditional financial institutions. MMG has a 23-year track record of excellence 

in managing funds in this arena. Over the years, we have financed 

$275 million in financing to more than 1,100 companies. 

Specifically, we manage the Maryland Small Business Development Financing Authority and one of the VLT funds. Ours is called 

MCBIF. 

Having said that, access to capital has always been a number 

one obstacle for expansion of minority businesses. 

My partners and I have been in the commercial lending business 

for 35 years or more. I recall disparity study after disparity study 

concluding that relatively then same predicament. Minorities are 

being much more likely to be declined for financing than their 

white counterparts by significant numbers, being approved for 

loans on a much smaller level, and being forced to use expensive 

forms of financing from many others. 

Most studies found that the majority of the minority businesses 

have become more successful in obtaining credit card and 

microloan funding, which is helpful. However, they also concluded 

that, as stated in a study, those loans cannot replace the importance of larger working capital loans needed to actually grow businesses in a significant way. 

They also appear to be gaining more access to higher interest 

rate funding, including online financing, but it is very difficult to 

try to grow a business when the cost to capital is 15 to 30 percent. 

One of our relatively frequent requests for funding involves the 

refinancing of existing debt, the majority of which is expensive and 

has very short repayment terms, crippling a business’ efforts to 

generate cash flow and sustain operations. The refinancing is designed to offer conventional bank lending rates and more traditional terms and in some cases deferments of principal and interest. 

The overall objective of this particular element of the program is 

to offer more ‘‘patient capital’’ to allow the businesses to grow and 

create jobs in minority communities, which is the very reason we 

are here today. 

It is pretty obvious that minority businesses tend to hire minorities, as you mentioned earlier, and much more willing to hire individuals in low-income communities and those who are not as well 

LAP51NQ082 with DISTILLER

47 

educated and those who are returning citizens from our penal institutions. 

Maryland is rather fortunate in that over the years, over the decades actually, MMG, its governors, and its Maryland lawmakers, 

including you, Mr. Senator—you would be interested in knowing I 

have a picture in our office of you and Mickey Steinberg and I 

think Governor Hughes signing some legislation for our Equity 

Franchising Program. 

Senator CARDIN. Oh, wow. 

Mr. SMOOT. It goes back a while, right? When we both had hair, 

right? 

[Laughter.] 

Particularly, the legislative Black Caucus has been extremely 

helpful, having strategically established programs to cover the majority of the most common needed resources for small businesses, 

which are term loans, lines of credit, letters of credit, loan guarantees, subordinated debt, equity financing, and surety bonding, 

again, at affordable rates. In fact, Maryland’s Small Business Development Financing Authority has been recognized as a national 

model by the Wall Street Journal and several other publications for 

having the most comprehensive group of financing programs to assist minority businesses. 

The State’s Video Lottery Terminal Fun is also the first of its 

kind in this country that is funded by revenue from the gambling 

casinos. MCBIF is one of the eight fund managers in Maryland 

managing up to $11 million in capital. 

Over the course of the last 5 years, these funds managed by 

MCBIF have provided 227 financings totaling $42 million to 175 

companies, with an average loan size of $245,000. On average, 61 

percent of the funds provided were provided to minority businesses, 

ethnic minorities, and 27 to women-owned businesses. 

One might ask, What is the risk/reward profile for these businesses? Well, in the case of MSBDFA, the loan loss rate grew from 

less than 5 percent prior to the recession and nearly 11 percent 

during the recovery. This is the obvious result of businesses being 

undercapitalized from the start, not having sufficient reserves to 

survive the decline in business activity. 

On the other hand, the overall impact of helping such businesses 

grow is substantial. For example, during the 20-year period in 1995 

to 2014, the State invested $32 million of general funds in the 

MSBDFA programs. This lending activity generated $343 million 

in local and State tax revenue, $7.7 bill in commercial sales, $2.3 

billion in personal income, and 3,820 jobs on average annually. 

This resulted in a return on investment to the State of 9.3 times. 

This is good economic policy for both the private sector and the 

public sector, Mr. Senator. 

[The prepared statement of Mr. Smoot follows:] 

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TESTIMONY OF TIMOTHY L. SMOOT 

SR. VICE PRESIDENT AND CFO 

MERIDIA MANAGEMENT GROUP, INC. 

BALTIMORE, MARYLAND 

Before the 

U.S. Senate Small Business Committee 

The Honorable Ben Cardin, Ranking Member 

on 

"Strengthening Access to Capital for Minority-Owned Small Businesses" 

Mr. Chairman and Members: First, I would like to thank you for the opportunity to appear 

before you today, and also thank you for convening this hearing on such an important topic 

to the State of Maryland and, indeed, our entire country as a whole. 

My name is Timothy Smoot, Sr. Vice President, Co-Founder and CFO of Meridian Management 

Group. Inc. (hereafter "MMG"), a minority-owned fund manager that provides capital to small, 

minority, women and veteran-owned businesses, primarily based in the state of Maryland. '!he 

majority of fund's managed by MMG are from federal and state resources. The lion's share of 

businesses we assist are unable to obtain financing from Banks and other traditional sources of 

financing. MMG has a23-year track record of excellence in managing funds in this arena. 

That being said, "Access to Capital" has always been the "Number One" obstacle of the 

expansion of minority businesses. My partners and I have been in the commercial lending 

business for 35 years or more. I recall, disparity study after disparity study concluding the 

relatively same predicament- minority entrepreneurs being much more likely to be declined for 

financing than their white counterparts (by significant margins), being approved for loans in 

much smaller amounts or being forced to use more expensive forms of financing among many 

others. Some of the most recent studies include the U.S. Small Business Administration, the 

Maryland Department of Transportation, the Federal Reserve Bank of Cleveland, Harvard 

University and Johns Hopkins University. An executive summary from the Cleveland study is 

attached to this study for your reference and support for my testimony. 

Most of studies found that more minority businesses have become more successful in obtaining 

credit cards and micro loans, which are helpful. However, they also conclude that, as stated in one 

study. "those loans cannot replace the importance oflarger working capital loans needed to 

grow" small businesses in a signil1cant way. They also appear to be gaining more access to 

higher interest rate funding. But, it very diftieult trying to grow a business when the cost of 

capital is 15 - 30% per annUIIl. 
49 

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Testimony of Timothy L. Smoot 

U.S. Senate Small Business Committee Hearing 

One of our relatively frequent requests for funding involves the refinancing of existing debt, the 

majority of which is expensive and has very short repayment terms crippling the businesses' 

efforts to generate cash flow and sustain operations. The refinancing is designed to oller 

conventional bank lending rates and more traditional terms and, in some cases, deferments of 

principal and interest. The overall objective of this particular element of the programs is to offer 

fonns of more "Patient Capital" to allow the businesses to grow and create more jobs in minority 

communities, which is the very idea behind this hearing. It is pretty obvious that minority 

businesses tend to hire more minorities and are much more willing to hire individuals in low 

income communities, those who are not as well educated and those who are returning to society 

from our penal institutions. 

Maryland is rather fortunate in that, over the course of several decades, MMG, its Governs and 

Maryland law makers- particularly, the Legislative Black Caucus- have strategically established 

financing programs that cover the majority of the most commonly needed resources for small 

businesses (i.e. term loans, lines of credit, letters of credit, loan guarantees, subordinated debt, 

equity financing and surety bonding)- at affordable rates. In fact, Maryland's Small Business 

Development Financing Authority has been recognized as a national model on several occasions 

for offering the most comprehensive group of financing programs to assist minority businesses by 

the Wall Street Journal, The National Franchise Association, the Center for Insight Center tor 

Community Economic Development and the Center for Regional Economic Competitiveness. 

The State's Video Lottery Tenuinal Fund is the first of its kind in the country to be funded by 

revenue from its gaming casinos. Maryland has a total of eight (8) fund managers. MMG's fund 

is referred to as the Maryland Casino Business Investment Fund ("MCBIF") capitalized with 

$11 million. 

Over the course of the past 5 years, these two funds managed by MMG provided 227 financings 

totaling $41.8 million to 175 companies. On average, 61% of the funds were provided to 

companies owned and operated by ethnic minorities. One might ask, what is the risk/reward 

profile of financing these businesses. 

Well, in the case ofMSBDFA, the loss ratio grew from less than 5% prior to the economic 

recession to nearly 11% during the recovery. This was the obvious result of businesses 

undercapitalized from the start not having sufficient reserves to survive the decline in business 

activity. On the other hand, the overall economic impact of helping such businesses grow was 

substantial. For example, during the 20-year period (1995-2014), the State invested $32 million 

of general funds into the MSBDFA programs. The lending and investment activity generated: 

- $343 million in local and state tax revenues, 

$7.7 billion in commercial sales, 
50 

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Testimony of Timothy L. Smoot 

U.S. Senate Small Business Committee Hearing 

$2.3 billion in personal income; and 

3,820 full-time equivalent jobs on average per year. 

The result was a net return on investment of9.3x. This is good economic policy tor both the 

private sector and the public sector. 

My partners and I clearly agree that it is more difficult lending to many minority firms. The 

tlrms lack sufficient start-up equity capital, credit scores are lower on average and they generally 

have less collateral to secure the loans. But, there is all ton of underutilized talent that could be 

extracted to strengthen minority communities that can provide tremendous economic benefits to 

the municipalities and state where they are located and ultimately this great country of ours. 
51 

Senator CARDIN. Thank you very much. 

I would like to see a picture, a copy of that picture. I will go over 

later. 

[Laughter.] 

Ms. Miller. 

STATEMENT OF MARY MILLER, SENIOR FELLOW, 21ST CENTURY CITIES INITIATIVE, JOHNS HOPKINS UNIVERSITY, 

BALTIMORE, MD 

Ms. MILLER. Good morning, Senator Cardin, and thank you for 

the opportunity to make some remarks at this field hearing. 

I would also like to thank your staff and Morgan State University for hosting us in this beautiful building. 

I am a 30-plus-year resident of the City of Baltimore. I came 

here in 1983 to work for a small private company called T. Rowe 

Price that today is one of the city’s largest employers, and I saw 

firsthand how a growing company can create jobs and economic 

benefits. 

I left T. Rowe Price in 2009 to work at the U.S. Treasury in a 

time of incredible turmoil following the financial crisis. My office at 

the Treasury oversaw both community development financial institutions as well as the country’s largest and most complex banks. 

Nearly 5 years of public service gave me a great opportunity to 

work on the regulation of our financial institutions and public policy goals in this sector. 

You have probably forgotten this, but in 2011, you introduced me 

to the Senate Finance Committee for my confirmation hearing as 

the Under Secretary for Domestic Finance. Thank you. 

Senator CARDIN. I did not forget that. 

Ms. MILLER. Okay. 

Senator CARDIN. I should have mentioned that in your introduction. 

Ms. MILLER. That is okay. 

I resigned from Treasury 4 years ago and returned to Baltimore 

as a full-time resident. I have become intensely interested in the 

question of how much financial capacity we have to support economic growth in this city. 

The Johns Hopkins University 21st Century Cities Initiative was 

the perfect platform to research and write about this question. I 

would like to submit for the record my written statement about our 

most recent work on small business lending activity in Baltimore 

over the past 10 years. 

Senator CARDIN. Without objection, it will be included. 

[The information can be found in the footnotes in Ms. Miller’s 

prepared statement.] 

Ms. MILLER. Our research is focused on every loan made to a 

small business located in this city, including minority-owned businesses, and I think our findings are relevant to all. 

Rather than restate all the findings in this report, I would like 

to focus on a few important themes in my time here. 

First, loans to small businesses have dropped by more than 30 

percent over the decade ending in 2016, while bank deposits in the 

city have doubled to $26 billion. This is a serious impediment to 

growth, and we need to change that. 

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52 

If banks that take deposits in Baltimore had maintained the 

same loan-to-deposit ratio in 2016 as in 2007, we would have seen 

$600 million in small business loans made in 2016, compared to 

the actual level of $200 million. 

Baltimore takes less advantage of the federally guaranteed loans 

offered by the Small Business Administration than comparable cities, as few of our banks have built the internal resources to originate these loans. I was very pleased this morning to hear about 

Harbor Bank’s entry into the market in 2018 because I think that 

is critical. 

Baltimore lenders also predominantly focus on real estate lending with hard assets as collateral versus small business loans 

backed by operating revenues. Our banks largely rely on offering 

small credit card loans to small businesses, which require fewer resources. The average credit card loan is about $10,000. 

The decline in overall small business lending here mirrors 

changes in the marketplace generally, although Baltimore has been 

particularly hard hit by bank consolidations and the loss of locally 

headquarters banks. Our leading banks today lend more into their 

home communities than they do in Baltimore. 

Our recommendations tie directly into the facts that we collected. 

We need to ask our largest depository banks to do more, whether 

as direct lenders to small businesses, as SBA loan originators, or 

through providing capital to CDFIs to help them lend. 

The city and the State have small public loan programs to reach 

higher-risk borrowers, but we believe those dollars could be more 

useful if used to leverage loans from the private sector by providing 

a backstop against losses. 

While not a focus of this report, which focused on banks, we also 

need to understand the value that nonbank lenders can bring to 

this marketplace to see whether technological solutions can reduce 

barriers to finding credit, lower borrowing costs, and bring more 

capital to Baltimore. 

Finally, our work showed how Community Reinvestment Act reports shed little light on small business lending shortfalls in Baltimore. This is a real opportunity to modernize this 40-year-old law 

to better measure the banking sector’s contribution to the real 

economy in cities like Baltimore. 

As our work has shown, we need to build a continuum of capital 

to allow small businesses to thrive. 

Senator Cardin, I appreciate your focus on these important 

issues. Thank you for all of your work on behalf of the citizens of 

Maryland. 

[The prepared statement of Ms. Miller follows:] 

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"Strengthening Access to capital for Minority-Owned Small Businesses" 

United States Senate, Committee on Small Business and Entrepreneurship 

Field Hearing, Morgan State University, Baltimore, MD 

September 14, 2018 

Written Testimony 

Mary Miller, Senior Fellow, Johns Hopkins 21•' Century Cities Initiative 

Baltimore is home to more than 50,000 small businesses. Roughly 37,500 of these businesses 

are sole proprietorships and about 12,500 have at least one employee. 1 Small businesses form 

the backbone of the local economy, providing jobs for residents, tax revenues for the city, and a 

sense of identity to neighborhoods and commercial districts. But for new and established small 

businesses to thrive, the city needs a financing system with capacity to meet their needs. 

Capital is certainly not the only ingredient necessary for successful business growth, but it is a 

critical input. If companies lack access to appropriate types of capital at critical stages of 

growth, they are likely to never take off and achieve scale, or even worse, to go out of business 

or leave Baltimore and relocate where financial support is more readily available, depriving the 

local economy of jobs and economic growth. 

To better understand whether Baltimore's financing system and the flow of capital to small 

businesses is sufficiently expansive and diverse to support the entire landscape of the city's 

small businesses and their varying needs, the Johns Hopkins 21't Century Cities Initiative (21CC} 

has spent the past two years analyzing data, interviewing experts, and convening stakeholders. 

21CC has published two reports over the past year presenting a robust set of findings and 

recommendations relating to the local financing system. These reports are summarized below. 

The data provided here are drawn from the reports, where all original sourcing is provided. 2 

The first report, published in September 2017 and titled Financing Baltimore's Growth: 

Measuring Small Companies' Access to Capital analyzed 40 separate public and private funding 

programs and data sources to quantify loan, equity, and grant investments in small businesses 

located in Baltimore City. Over the five-year period from 2011 through 2015 about $560 million 

per year totaling about 7,000 individual transactions flowed to startups and small businesses in 

Baltimore City. 

Of the total dollar amount invested, 60 percent came in the form of loans, 30 percent in equity 

investments, and 10 percent in grants. There was significant annual growth in equity 

investments, increasing from $50 million per year in the mid-2000s to over $200 million per 

1 Figures from the U.S. Census Bureau's 2012 Survey of Business Owners and 2016 County Business Patterns. 2 To view the full reports, visit ht!i:d/21cc.jhu.edyjwp-content/uploads/2017/09/21cc-finandng-baltimoresgrowth-sept-2017. pdf and http ://21 cc. jhu. ed u/wp-content/u ploads/2018/07/financing -baltimores-growthstrengthening-lending-to-small-businesses.pdf. 

Mary Miller, 21" Century Cities Initiative, Written Testimony 
54 

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year a decade later. On the loan side, the report showed declines in the total amount of loans 

originated to Baltimore City's small firms over the past decade. 

Last month, 21CC published the second report, Financing Baltimore's Growth: Strengthening 

Lending to Small Businesses, that takes a deeper look into the dynamics of bank lending to 

small businesses in Baltimore City. The report covers the period from 2007 to 2016, which is the 

most recent available 10 years of loan and deposit data that banks are required to report to 

federal regulators. 

The report organized bank lenders into three categories: 1) banks with branches in Baltimore 

City (referred to as depository banks); 2) banks that have branches elsewhere, but do not have 

any branches or take deposits in Baltimore City (referred to as non-branch banks); and 3) 

regulated financial institutions that specialize in credit card loans. Overall, small business bank 

lending in Baltimore was significantly lower in 2016 than 2007, falling from $457 million in 2007 

to $307 million in 2016. Across the board, all three types of institutions were greatly impacted 

by the Great Recession, with the number and dollar amount of loans both decreasing 

significantly from 20071evels and hitting low marks in the 2010 to 2012 period. Since then, all 

three types of institutions have expanded their activity, but non-branch banks are the only 

category of lender that has surpassed 2007 levels in total dollar amount loaned. 

Depository banks are consistently responsible for about 70 percent of all loan amounts on an 

annual basis. Their small business lending, however, has not kept pace with their growth in 

deposits. Over the 10-year period from 2007 to 2016, total outstanding bank deposits among 

banks with branches in Baltimore nearly doubled (from $13.5 billion to $26.5 billion), while 

annual small business lending activity for these same types of banks fell 32 percent (from $311 

million to $212 million). The top five depository banks in Baltimore City in 2016, based on small 

business loans originated, were: M& T Bank, PNC Bank, Wells Fargo Bank, Bank of America, and 

BB&T Bank. 

A key data point analyzed in the report was the annual ratio of small business loan amounts to 

outstanding deposit amounts, or the loan-to-deposit ratio. Among the top 14 depository banks 

in 2016, annual small business lending data is publicly available for 11. The total loan-to-deposit 

ratio for these 11 banks was 0.82 percent in 2016. Bank of America had the lowest loan-todeposit ratio at 0.21 percent, although the bank originated the fourth most loans to Baltimore's 

small businesses at $22 million. Maryland headquartered Howard Bank and Columbia Bank had 

the highest loan-to-deposit ratios at 6.3 percent and 8.1 percent, respectively. 

Looking back to 2007, the loan-to-deposit ratio was 2.4 percent among the top banks, 

combined. If the loan-to-deposit ratio for 2016 was the same as in 2007, then the top 

depository banks would have provided over $600 million in small business loans in 2016, rather 

than the $203 million in small business loans that were in fact provided. In other words, just by 

maintaining the 20071oan-to-deposit ratio, banks would have originated nearly $400 million 

more in small business loans in 2016 than was actually the case. 

Mary Miller, 21" Century Cities Initiative, Written Testimony 
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Non-branch banks in Baltimore have grown in both number of loans and total 

dollar amount, with increased growth over the past six years. In 2016, these banks provided 

nearly four times the number of loans and loan amounts they provided in 2010. They 

are the only lender type that is doing more small business lending in total dollar amount 

compared to 2007. One example is the First National Bank of Pennsylvania, which began 

originating small business loans in Baltimore in 2012 and steadily increased their lending in the 

city to 2016 when the bank made 35 loans totaling $8.5 million, for an average of over 

$240,000 per loan, indicating a focus on larger working capital term loans. In a sign of a longterm commitment to the Baltimore market, in 2016 the bank established its regional 

headquarters in Baltimore and opened its first branch in the city. 

Credit card lenders have made some gains over the past five years, but their activity today is 

well below what it was prior to the Great Recession. The number of credit card transactions in 

2016 was about one-third what it was in 2007, and the total dollar amount was less than half 

what it was a decade prior. The top lender in terms of number of transactions in Baltimore City 

for every year from 2007 to 2016 was American Express, although their average loan size was 

only $12,000 in 2016. 

The report also looked closely at U.S. Small Business Administration (SBA) 7(a) loans in 

Baltimore. In the overall landscape of small business lending by banks in Baltimore, SBA 7(a) 

loans represent a small portion of loan activity. However, they are an important tool for banks 

to expand their small business offerings, particularly because they are generally larger 

loans and a way banks can provide working capital to small businesses through loans 

that are guaranteed by SBA. 

From 2007 to 2016, the total dollar amount of all types of SBA 7(a) loans made to Baltimore 

City small businesses increased from $19.2 million in 2007 to $28.3 million in 2016, while 

the number of loans during that same time period decreased from 152 in 2007 to 108 in 

2016, resulting in an average loan size that was twice as high. In 2016, 26 banks originated SBA 

7(a) loans to Baltimore City small businesses. An important observation in SBA 7(a) lending in 

Baltimore is the dominance of M&T Bank in the market, which accounted for over halfthe 

number of loan transactions and more than one-third of total loan amounts in 2016. Overall, 

however, SBA loans are under-leveraged in Baltimore compared to their use in cities such as 

Atlanta, Buffalo, Cleveland, and Pittsburgh. 

The decline in overall small business lending over the past decade did not happen by accident. 

Rather, it largely mirrors changes in the marketplace, some of which are national and some 

Baltimore specific. The report highlighted three reasons for small business lending declines in 

Baltimore: bank consolidation, headquarters effect, and shrinking average loan sizes. 

The national consolidation ofthe banking industry hit Baltimore particularly hard. In each case 

where a locally headquartered bank was acquired by a larger national bank, the amount of 

combined small business lending dropped. Examples include the acquisition of Mercantile Bank 

by PNC Bank and Provident Bank by M& T Bank. These four banks were together originating 

Mary Miller, 21" Century Cities Initiative, Written Testimony 
56 

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over $130 million in small business loans in 2007. The two acquiring banks originated $98 

million in 2016. 

For Baltimore, it is challenging to be a branch town and attract the same level of investment as 

a bank's headquarters city. The report looked at overall loan data and found that the two 

largest small business lenders in Baltimore, M& T Bank and PNC Bank lend at higher rates in 

their headquarters communities, when controlled for population. In Buffalo, M& T's small 

business lending was 2.5 times its Baltimore area activity. In Pittsburgh, PNC's small business 

lending was three times that of its Baltimore area lending. It's also the case that these banks 

have much higher deposits in the headquarters communities, which supports higher local 

lending. 

The average loan amount to small businesses by all depository banks has declined from 

$191,819 per loan in 2007 to $70,877 per loan in 2016. Decreasing average loan amounts 

appear to be driven by the growth of small business credit cards and smaller lines of credit 

being offered by some depository banks. 

The report also analyzed Community Reinvestment Act (CRA) evaluations for depository banks 

active in Baltimore. The evaluations shed little insight into small business lending activity in 

Baltimore. CRA guidelines, with regard to geographic assessment areas and lending criteria, do 

not capture the decline in small business lending nor recognize the banks that are serving 

Baltimore City's need for these loans. 

In closing, the report offered several recommendations: 

• Encourage the largest banks in Baltimore to increase small business lending activity by 

making more direct loans, becoming more active with SBA loans, and/or capitalizing 

local small business loan funds, such as community development financial institutions 

(CDFis). 

• More effectively utilize state and city loan programs to provide loan loss reserves or 

guarantees for private bank loans targeting new and/or higher-risk borrowers. 

• A concerted effort should be made to attract and welcome banks and other types of 

lenders from outside of Baltimore and Maryland that have identified market 

opportunities in Baltimore's small businesses and startups. 

• Reports like the one developed by 21CC, which rely on CRA data focused on a specific 

market, could be used as a case study for regulators and stakeholders currently working 

on modernizing this 40-year-old legislation. Baltimore is an example of how CRA's 

geographic assessment areas and scoring need improvement to better measure 

community reinvestment. 

Mary Miller, 21" Century Cities Initiative, Written Testimony 4 
57 

Senator CARDIN. Well, thank you very much. 

Mr. Holmes. 

STATEMENT OF WILL HOLMES, DIRECTOR OF OUTREACH, 

GOLDMAN SACHS 10,000 SMALL BUSINESSES, MORGAN 

STATE UNIVERSITY, BALTIMORE, MD 

Mr. HOLMES. I would like to thank Senator Cardin and the Committee for the opportunity to speak to you today. Good morning, 

Senator Cardin. 

My name is Will Holmes, and I am director of Outreach for the 

Goldman Sachs 10,000 Small Businesses Program in Maryland, 

and I am the founder of WHC, a business management and technology consulting firm based in Baltimore. We work with government agencies, financial institutions, universities, and growing 

companies in North America, Africa, and Asia. 

My testimony today will outline the fundamentals of the Goldman Sachs 10,000 Small Businesses Program and detail my observations on the challenges small minority- and women-owned businesses face when attempting to access capital. 

First, the Goldman Sachs 10,000 Small Businesses Program. 

Here in Maryland, the Goldman Sachs program is funded by Goldman Sachs and Bloomberg Philanthropies, and it is facilitated by 

Morgan State University, Johns Hopkins University, and the Community College of Baltimore County. I am based at Morgan State, 

and I am contracted to promote the benefits of this highly effective 

program to business owners in Maryland who meet the following 

criteria: at least 2 years in business, at least two employees; at 

least $100,000 in revenue. 

There is no cost to be in this 11-week program. It is free, but 

there is a tremendous time commitment. Scholars are in class one 

full day per week and often meet outside of class to work on their 

growth plans and share ideas with the other scholars and their assigned business advisor. 

The program is intense, and it is working. Across the U.S., graduates are increasing their revenues and creating new jobs in their 

communities. Here are some statistics from Goldman Sachs: 99 

percent of business owners who start the program complete the 

program, 67 percent of graduates report an increase in revenue 

after finishing the program, 47 percent of graduates report creating 

new jobs in their communities, 88 percent of graduates report they 

do business with other Goldman Sachs graduates. 

The scholars’ investment is their time, but the returns are a 

more sustainable business, higher revenue, the opportunity to employ more people in their communities, and a new network of thousands of graduates across the country. The Goldman Sachs Program teaches business owners how to work on their businesses instead of working in their businesses. Plus, upon graduation, business owners have a better understanding of what is needed to attract investors and lenders while pursuing capital to grow their 

businesses. 

Now, in regard to accessing capital, in my experience, the two 

greatest barriers for small businesses are lack of information and 

low credit scores. 

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58 

As for lack of information, Baltimore is rich in resources. So acquiring knowledge is possible if business owners took full advantage of consultants like me or they utilized the Small Business Development Center, the Small Business Administration, Minority 

Business Development Agency, Small Business Resource Center 

under Paul Taylor and Jim Peterson, or the many incubators in the 

city. But I believe all business owners would benefit from more coordination between these State, Federal, and local resources. Also, 

better marketing of programs and some integrated case management would surely help push new entrepreneurs to fully utilize 

these services. 

I believe that for first generation or minority or women entrepreneurs, the information they need to grow, it exists here in the 

city. We just need to develop a better system for connecting entrepreneurs with the knowledge they need to develop sustainable 

business models, access capital, and pursue RFPs and contract opportunities. 

But low credit scores, that is a different problem. When it comes 

to low credit scores, my experience is that minority and women entrepreneurs usually do not lack moral character or have some insidious desire to be delinquent on payments. That is not it at all. 

Instead, entrepreneurs often have low credit scores because of 

three simple reasons. 

First, their biggest customers are late paying them. Often business owners wait for months for payments from large agencies or 

organizations, well past the agreed-upon 30- or 45-day net payment 

terms. 

Second, they have little to no accumulated assets or wealth. 

Minority- and women-owned businesses often do not have adequate 

savings, investment accounts, or wealthy family and friends to provide startup cash or short-term personal loans. 

Third, overwhelming debt. Ideal debt-to-income ratios set by 

banks are hard to meet when business owners have high student 

loans and maxed-out credit cards. Minority and women business 

owners often use their personal credit cards to start their businesses, but if they run into slow periods or emergencies and they 

cannot get additional funding, they often shut down. And their employees, suppliers, and community suffer, all due to lack of funding 

and no access to capital. 

In conclusion, the Goldman Sachs 10,000 Small Businesses Program offers an amazing opportunity to businesses who make over 

$100,000 in annual revenue. Graduates are adding jobs and positively changing communities, but Baltimore entrepreneurs who 

have not made $100,000 yet need help also. They need to be better 

connected to existing free and low-cost resources. They also need to 

be better supported by programs created by legislators, lendings, 

and investors to help them better prepare to access capital. 

Access to capital is the key to stronger small businesses, and I 

firmly believe that stronger small businesses who employ local residents are a cornerstone in the foundation of healthier, wealthier, 

and safer communities in Baltimore. 

I want to thank you and the Committee for allowing me to speak 

to you today on behalf of Morgan State University and the Goldman Sachs 10,000 Small Businesses Program. 

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59 

I am happy to answer any questions you may have. Thank you. 

[The prepared statement of Mr. Holmes follows:] 

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country. Plus, they have a better understanding of what is needed to attract investors and lenders when pursuing 

capital to grow their businesses. 

Furthermore, the Goldman Sachs initiative brings attention and partnerships to the educational institutions that host 

the program. For example, our Referral Partners Program brings local banks and business organizations to outreach 

events on the Morgan State University campus. Partners are introduced to all the resources Morgan State University 

can offer in addition to the quality of the faculty and facilities. These new relationships are fantastic for creating 

employment pathways for graduates and internship opportunities for students. 

The Goldman Sachs program leaches business owners how to work ON their businesses instead of working IN their 

businesses. The program also gives business owners the tools to create positive change in their communities 

through job creation. More jobs mean more stability in the community, a greater tax base and eventually better 

schools, more homeowners and a stronger local economy. 

My role in Baltimore ... 

To give you some background about me, I am a business consultant. I opened WHC, my business management and 

technology consulting firm, in 2009. Our clients are government agencies, financial institutions, universities and 

growing companies in North America, Africa and Asia. Additionally, I am on the Board of Directors for the BaHimore 

City Chamber of Commerce. And I often partner with the U.S. Small Business Administration, Department of 

Commerce, the Department of Treasury and the Greater Baltimore Urban League to provide tree training to new 

business owners and help connect them to new tools and growth opportunities. Additionally, I founded Baltimore 

Professionals and Entrepreneurs. BPE has over 5400 members and we have hosted over BOO professional 

development events since 2011. 

So, as a consuHanl and business owner, I know first-hand the difficulties entrepreneurs have in qualifying for 

business capital. 

Barriers to Accessing Capital 

In my experience, the 2 greatest barriers for small businesses, to accessing capital, are: 

• Lack of information 

Low credit scores 

As for lack of information, Baltimore is rich in resources. So acquiring knowledge is possible if business owners 

took full advantage of consultants like me or utilized the SBA, Small Business Resource Center, The Small Business 

Development Center, The Urban League Entrepreneurship Center, The Baltimore City Chamber of Commerce, The 

Minority Business Development Agency or the dozens of incubators in the city. 

But, I believe all business owners would benefit from more coordination between these stale, federal and local 

resources. Also, better marketing of programs and some integrated case management would help push new 

entrepreneurs to fully utilize these services. I believe that, for first generation or minority or women entrepreneurs, the 

information they need to grow exists. We just need to develop a better system for connecting entrepreneurs to the 

knowledge they need to develop sustainable business models, access capital and pursue RFPs and contract 

opportunities. 

But, low credit scores ... That is a different problem. When it comes to low credit scores, my experience is that 

minority and women entrepreneurs usually do not lack moral character or have some insidious desire to be 

delinquent on payments. Instead, entrepreneurs often have low credit scores because of three simple reasons: 

First, their biggest customers are late paying them. I can attest, set asides and government contracts 

don't always mean smooth sailing for growing companies. Often business owners wait for months for 
61 

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payments from large agencies or organizations, well past agreed upon 30 or 45 day net payment terms. 

When big clients are late paying a business owner, that business owner needs to go into savings or find 

other sources to pay their employees. Then, they watt to get paid by the client. That delay often causes 

business owners to be late paying their creditors. And of course, those late payments negatively affect their 

credit scores. Then, their bad credit scores and inconsistent income prevent business owners from 

qualifying for the loans or credit lines they need from banks to cover payroll, add staff, buy new equipment 

or pay fees. It can eventually reach the point where a business can't grow because they experience an 

artificial cap on their capacity that is set by their limited financial resources. Not because their service is 

poor or their products are inferior, it is because they don't have the money to market effectively, buy 

equipment, pay accountants and attorneys or make investments in their infrastructure. This also means 

they can't hire pecple from their communities and help grow the local economy. 

Second, they have little to no accumulated assets or wealth· Minority and women owned businesses 

often don't have adequate savings, investment accounts or wealthy family and friends to provide start-up 

cash or short term personal loans. And it is the nature of business, that unforeseen sttuations occur that 

cause slow periods or create emergency sttuations that require immediate attention. Wtth no cushion 

provided by savings or go-to sources of short term capital, that business owner is forced to close temporarily 

or permanently, lay off staff and possibly stop the streams that are providing revenue. And of course, no 

assets and slow Account Receivables are not attractive to investors or lenders. As I've grown my business, I 

have met more wealthy business owners. Wealthy entrepreneurs throw money at their mistakes and 

emergencies and have the financial cushion to outlast the situation, then regroup and begin again. But, an 

underfunded business owner, without access to capital, must develop some long-term, complicated, 

bootstrap plan to dig themselves out of their situation. And if that doesn't work, another small business fails 

and the local economic ecosystem takes a loss. 

• Third, overwhelming debt... Ideal debt-to-income ratios set by banks are hard to meet when business 

owners have high student loans and maxed out credit cards. Minority and women business owners often 

use their personal credtt cards to start their businesses. But, if they run into slow periods or emergencies, 

which are normal in business, and they can't get additional funding, they max out their credit lines, tighten 

their belts, grind harder and cross their fingers in hopes of making it through until business picks up. But, if 

that doesn't work, they shut down and their employees, suppliers and community suffer. All due to lack of 

funding and no access to capital. 

Conclusion 

As a management consultant, I understand the need for financial institutions to limtt risk and set standards to protect 

their shareholders. But, as a Baltimore business owner who works with thousands of Baltimore business owners, I 

also see how our local economy and communities suffer when small businesses are not able to grow and offer long 

term jobs to the thousands of residents who want to work and take better care of their families. 

The Goldman Sachs 10,000 Businesses program offers an amazing opportunity to businesses who make over 

$100,000 in annual revenue. Graduates come from diverse backgrounds and communities, and because of the 

opportunities the program affords, these business owners are adding jobs, positively affecting their communities and 

are prepared to access capital. 

But, Baltimore entrepreneurs who haven't made $100,000 yet need help also! To be successful, small, minority and 

women business owners need to better access available free and low cost resources and be better supported by 

legislators, lenders and investors. I believe greater access to capital is the key to stronger small businesses. And I 

firmly believe that stronger small businesses, who employ local residents, are a cornerstone in the foundation of 

healthier, wealthier and safer communities in Baltimore. 

I want to thank you and the committee for allowing me to speak to you today. On behalf of Morgan State University 

and the Goldman Sachs 10,000 Small Businesses program, I am happy to answer any questions you may have. 

Thank you. 
62 

Senator CARDIN. Well, let me thank all four of you for your contributions to this hearing, and I am going to have some specific 

questions. 

But I am going to ask the general question first, and I welcome 

you supplementing this. And it does not have to be in a formal 

sense, but just giving your thoughts. 

We had these tools available through the Federal Government to 

help access to capital for minority businesses, women-owned businesses. We talked about the 7(a) program. We have talked about 

the Community Advantage, the Community Advantage’s attempt to 

get the 7(a) program more effective in the targeted areas that we 

are talking about. 

We can argue whether it can be made more effective or less. We 

have some modifications that are being suggested. We need to respond to that. 

We have the 504 program, which provides a longer-term capital 

for expanding businesses. The record in minority community, 

women-owned community in the 504 program is not impressive at 

all. 

What changes can we make in the 504 program to have it better 

targeted for the communities that are not getting their fair share 

of these 504 loans? What concrete suggestions do you have to modify that program? 

Then in regards to an area we have not really talked much 

today, which is one of the key resources the Federal Government 

makes available to small businesses, and that is the contracting, 

the Federal contracting 23 percent set-aside. 

The Federal Government is the largest purchaser of services and 

goods in the world. So it is the largest source of business for small 

business in the world. How can we better—and by the way, we are 

doing a better job of meeting our 23 percent. I thank the SBA for 

its leadership and being an advocate for it. 

I was responsible for getting an amendment in the National Defense Authorization Act, and I thanked Senator Risch and our 

Committee for the Offices of Small and Disadvantaged Business 

Utilization, which are included in all of the departments on their 

procurement side to make sure that they are doing their 23 percent. The amendment requires the SBA to see whether in fact they 

are carrying that out and report back to Congress on that. 

We also passed in the National Defense Authorization Act a 

prompt payment provision, 15 days for small businesses, so that we 

could also deal with one of the issues you were talking about on 

slow pay. 

My question generally is, What can we do to target that program 

more toward minority businesses, women-owned businesses? The 

record there is not as promising as the 23 percent, which we are 

doing a better job in reaching, and by the way, what can we do better for prime contracts rather than subcontracts? Because we know 

the power is in the prime, and how many more prime when they 

bundle—we passed anti-bundling legislation, but we need to have 

I think your input how we can make these programs more effective 

because having business gives you access to capital. 

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So if you want to respond now, fine. If not, I would just challenge 

you to give us information in that regard. I am more than happy 

to 

Mr. CLARK. Senator, I would like to comment about the contracting piece. 

The Federal Government has goals, 22 percent for small businesses. 

Senator CARDIN. Right. 

Mr. CLARK. Our issues in the country much more are directed toward minority business and for which we do not generally create 

goals because we have the whole issue of Croson and many other 

court cases, which limit the issue of race-based requirements and 

goals. 

Only in the Federal 8(a) program—and you talked primarily 

about disability—do you have the disability—disadvantage—not 

disability—disadvantage do you have that item where you can look 

at if you are disabled or disadvantaged—disadvantaged. 

And the problem there is that minority businesses are generally 

capped with size standards and with net worth requirements, 

which limit our ability to grow, and so I think it would be much 

more effective if we were to eliminate some of those standards for 

minority businesses to allow them to grow. We cannot become— 

many businesses can go up and get $6 million of revenue or a few 

million dollars in net worth, and all of a sudden, they are capped. 

And no longer can they get any of the set-asides or any other programs. So we need to open up these programs. 

The most radical change would be if we were to open up our contracting for minorities to be the same for—as we have for American 

Indians, Alaska Natives, and Hawaiian, where there are no caps on 

wealth and which allow those companies to grow as much as they 

can. MSDC has that as their objective. They do not have any cap 

for the certification programs for corporate America. They want you 

to grow as large as you can so that you can provide their services 

to not only locally but regionally, nationally, and internationally 

where they do business. So why are we continuing to limit our minority businesses to being subcontractor programs with very small 

areas where we are allowed to grow? 

Mr. SMOOT. I just have a couple of comments, and this is on the 

contracting side as well, Mr. Senator. 

As you know, a lot of the minority businesses, to become primes, 

they need capital, and a lot of times, one of the things that we have 

done with the Maryland programs is to provide what we call ‘‘mobilization funding’’ because there are contract opportunities, but unless they have the capital up front to even get the contract started, 

they cannot compete. In a lot of cases, they just forego the contract 

because they just do not have the capital. 

In terms of the banks, I have heard a lot of stories through the 

disparity studies that when they become sizeable and competitive, 

the banks have the larger contractors in their portfolios, and they 

are discouraged from lending to the minority businesses in order 

to—because it would create competition for them. 

So we think that more access to substantial capital to graduate 

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coming prime contractors—the talent and the ability is there, but 

you just have to have that capital. 

And one other comment, even on the State side, I think the 

State’s minority participation program is not sufficient enough. In 

a lot of cases, what happens, the prime contractors are required for 

a year to meet those requirements, but after a year, they are no 

longer required. I think the participation efforts ought to be longer 

than a year because you want the continuous work for minority 

businesses. 

Senator CARDIN. Ms. Miller, you mention in your article about 

modernizing the CRAs in regards to small business lending. Can 

you just elaborate a little bit more? 

You point out the problems of bank consolidations and not having the headquarters. The CRA is not without controversy. We 

have had significant discussions about that in the United States 

Senate. It might be useful for the Small Business Committee to get 

input into the Banking Committee as we deal with this issue, and 

I would welcome your thoughts as to how that could be used to 

help achieve this objective of this hearing. 

Ms. MILLER. So you may be aware that one of the banking regulators, the OCC, has just asked for a comment on a proposal to 

modernize the execution of the Community Reinvestment Act, and 

just for the benefit of our audience, this is a law that says if you 

are taking deposits in a particular area, you need to have an effort—or you need to have evidence that you are making loans back 

into particularly low- and moderate-income communities. 

What we found in our work is that banks get to choose their assessment areas for where they are measured for their Community 

Reinvestment Act lending, and Baltimore, because it is not a headquarter bank location, is typically not the assessment area for the 

leading banks in the city today. So that is one problem because we 

are not getting attention on the activity in a particular market if 

the leading bank’s headquarters are elsewhere. They might choose 

Charlotte, or they might choose Pittsburgh or Buffalo to get their 

Community Reinvestment Act ratings. 

The banks that we do have in Baltimore, the largest banks are 

choosing as an assessment area the entire State of Maryland for 

looking at their lending activity. 

So we lose the perspective and the focus on a small area when 

we can draw very large assessment areas. That is one problem. 

I think that also small business lending is not particularly culled 

out of the data that banks provided on this measure, and I think 

it would be good to get more focus on particular kinds of lending 

that the banks are making. 

The last thing I would say is that the ratings are very out of date 

in some cases. They are conducted irregularly. We do not conduct 

ratings for a long period of time, and we did not see any connection 

between small business lending that is taking place in Baltimore 

and the Community Reinvestment Act ratings for the banks that 

are active in this area, like Howard Bank or Harbor Bank. 

So our suggestion would be in this age of big data, where it is 

much easier to get the information, that we try to modernize this 

to look at how banking is conducted in a world where there are 

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fewer branches and to really connected place-based data and activity. 

That is a long complicated answer, but I would be glad to—— 

Senator CARDIN. What really got me, the information that was 

presented to me by staff. It is so shocking I did not think it was 

accurate, so I am going to say it anyway. The leading bank gave 

out 58 SBA 7(a) loans, and one of our largest banks gave out zero. 

That is kind of shocking. 

Ms. MILLER. Yeah. 

Senator CARDIN. And if CRA means anything in regards to community activities, how can you have zero for a big bank? 

Ms. MILLER. To be fair, I think one of the bank’s responses would 

be, ‘‘Well, we are doing some home mortgage lending. We are making larger loans.’’ 

Our focus was really zeroing in on small business lending, and 

you are correct. The numbers are pretty shocking. It does not mean 

that banks are not doing other things. 

Senator CARDIN. If you are going to deal with the disparities that 

we heard about, the wealth disparity in this country, you have got 

to deal with entrepreneurship, and what do banks do? And they 

are not responding to the small business community? You are absolutely right. We have got to tailor it to minority businesses, but 

they are not even dealing with small businesses. 

Ms. MILLER. I cannot disagree with you, Senator. 

I would say that we need to think about it very holistically in 

terms of finding equity, capital for small companies that are not 

yet ready to borrow, but we also need to be right there next to 

them to provide loans when they are ready to grow. 

It is going to take a lot of cultural change, I think, to improve 

the environment. 

And, again, our focus is on a city, and a lot of the data that we 

see are based on much broader metropolitan areas or States or regions, and we lose that particular focus. 

Senator CARDIN. Mr. Holmes, thank you for your presentation, 

and it is wonderful to see Goldman Sachs private entities get involved and trying to deal with this issue. 

What have you learned from the Goldman Sachs participation 

that we could get more private interest in leveraging access to capital for minority businesses? 

Mr. HOLMES. Well, I think that the Goldman Sachs program does 

a fantastic job of combining information with essentially a pushpull hand holding along the way. What I mean in particular is 

every single person who comes through the program is assigned a 

business advisor, and that business advisor, very knowledgeable, 

experienced, not only are they helping them to understand what 

they are learning each day in the program, but also to put together 

a growth plan that they can use after they graduate. 

And so the reason why I think that is so important and I think 

that other entities should consider the importance of more coaching 

and more hand holding or case management, per se, is because it 

works. 

Another example besides the Goldman Sachs program, I was a 

subcontractor on a program through the Department of Defense 

called the DoD Velociter Program for a few years, and that was 

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very effective, the same amount of great information. What really 

made those companies that have received a SBIR grant and they 

were going for Phase I, Phase II, Phase III, helping them to really 

move along, it was the coaching that allowed them to do it, teaching them how to create a bid/no-bid process, teaching them how to 

identify which parts of the budget were actually funded by Congress, and so which agencies to target. But it was that coaching 

that really taught them how to do it. A lot of them were first generation business owners, or they really were just focused on technology. So they did not really understand the business side of marketing and sales and how to really grow a sustainable company. 

So I think—and let me also mention that Bloomberg—I want to 

thank them for—Bloomberg Philanthropies for also partnering with 

Goldman Sachs here in Maryland to be a part of this initiative, and 

I think more of that will only really help the economy. 

I think the Goldman Sachs does a great job of focusing on affecting small businesses because if you can affect a small business, 

help them to be more sustainable, they are going to hire more people. If they hire more people in that community, that means the 

community will probably become more stable. That means there 

will be a greater tax base. There will be better roads, better 

schools, more firefighters, more police officers. That is really the 

avenue or the approach we take. 

I think if more organizations did that here in the city but then 

also across the United States, we would have a stronger local economy, so I think it would turn into a greater national economy. 

Senator CARDIN. Thank you. That was very helpful. 

Mr. Clark, I appreciate you mentioning the Minority Business 

Development agencies. The Trump administration zeroed out the 

budget. Congress restored it. So the Senate in this year’s budget 

has restored the funds. We recognize the value of the program. It 

has been a 50-year program. 

You mentioned it. You talked about it. Are there ways that we 

can strengthen that agency to be more effective in carrying out the 

mission? 

Mr. CLARK. Yes, Senator. I appreciate Congress re-appropriating 

more money to the agency. 

The significant thing that I am not sure everyone is aware, 

though, that while it was refunded more for FY 2018, for FY 2019, 

many of the centers are—their contracts, even though they may 

last for a year from September to September, they are being terminated March 21st of 2019. So there is a move under foot in the Administration. 

Senator CARDIN. Determined by the Administration? 

Mr. CLARK. Yes. 

Senator CARDIN. Administrative action. 

Mr. CLARK. They have been cut by administrative action. 

And the problem is that MBDA was created on the executive 

order. So, therefore, it is not a regulation that was passed by Congress, so the President and the Administration can make some 

changes in it. 

Senator CARDIN. So one way to improve it would be to give it a 

statutory basis. 

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67 

Mr. CLARK. That would be the first thing, give statutory approval, and—well, that is probably the only way that you can do 

it. 

And it is very important that we do be maintained. As I mentioned in the testimony, we are the hands-on people. We get calls 

every day. Some, we have to defer off. Our goal is to work with 

companies that are million dollars in revenue. That is the general 

objective. 

We get a lot of calls from people less than that, and we refer 

them off to the SBDCs or other PTACs and other places to try to 

get startup help, but we have to continue to work with them. And 

we try to direct people who are looking for capital, for example, to 

minority-friendly institutions. 

The issue about capital and minorities is that, as Ms. Miller said, 

there is a cultural change necessary, tactfully stated. What she 

means is that we have to end the problem with a minority walking 

into the door and you already lose a few points on your credit rating just because—the rules are objective rules, but they are subjectively applied. And so we need to figure out how to take away the 

subjectivity. 

One of the ways of doing that is to make a requirement that if 

you do not—big banks, if you are not giving out a certain number 

of loans, you will not have access to something else, like Federal 

deposits that are coming in from which they make all the money. 

So there are ways of trying to improve those processes. 

But back to MBDA, it is imperative that we try to do everything 

we can to maintain them. A statutory situation is the best—and 

also to figure out if there are ways to incent other organizations 

to pick up the ball that should the Administration drop it, that we 

provide all the monies for organizations like the Minority Supplier 

Development Council to still be able to do that developmental-type 

services. 

Senator CARDIN. Mr. Smoot, you mentioned returning citizens, 

and I appreciate you doing that. It is of particular interest to me. 

It should be an interest to everyone. We have too many people who 

we lose in our economy that need an opportunity. 

Can you just elaborate suggestions you might have on how we 

can better target these programs to a very vulnerable group of people returning from our prison systems? 

Mr. SMOOT. I think in general, they may benefit from the Goldman Sachs program model where—because many of them have not 

gone to college, have not gotten business degrees and what have 

you. And the training, I think is critical, and I think the business 

community, including folks like myself and Stanley Tucker, would 

participate in a real hands-on training. I think mentorship programs would be very valuable and internship programs. There is 

a plumbing company that was one of our former portfolio companies that actually has internships. Probably 40 percent of his workforce are returning citizens, and I think that is a tremendous 

model to follow. 

Senator CARDIN. And you can imagine how challenging it is for 

minority business owners to get access to capital. We have already 

talked about that. If you are coming out of prison, I am sure your 

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68 

credit score is not exactly that high. To be able to participate in 

any of these programs is going to be extremely challenging. 

So I would just urge us to think of ways that we can offer opportunities for people that have really been disadvantaged in our community, and there is a lot of creativity that is out there that is untapped that can help the individual in our community. We need to 

think somewhat out of the box. 

I was impressed by the response that our regulations may try to 

fit into a cookie-cutter type of setup. Individuals do not fit into 

that, so we have to be flexible enough, and that is why—I think 

it was Harbor Bank. They know their customers, and they get that 

sense. 

Sometimes the banking regulations and the rules and regulations 

make it difficult to do what you think is right, and we got to make 

sure that you can do what is right. 

In most cases, it will pay off big dividends. There will be failures, 

but failures are part of life, and that is part of what we are dealing 

with. 

Mr. SMOOT. I thought John made a great point because many of 

us come from the communities that those guys and ladies came 

from. So we can relate to some of the things and issues that they 

have, and that goes a long way, particularly in terms of—Ken was 

speaking about in terms of the cultural awareness, so being able— 

having the right people to do that is a great asset. 

Mr. CLARK. An example of that, I had a client come into our center a few days ago. I filled out a contract for her to do LED lighting, and she said, ‘‘I am sorry. I cannot take the contract because 

I cannot get a lot of credit in order to buy the product in order to 

sell it.’’ And so I was able to find what I call—well, I am not calling 

it—minority-friendly lender within a big bank who knows the people and knows how to apply the rules. He was able to get her only 

$25,000, not very much, line of credit, but that was enough for her 

to get started. 

Now, next time, she will be successful. She now has past performance. She will be able to take a larger contract the next time 

and to also extend her line of credit. 

But it is a matter of having what we refer to as minority-friendly 

lenders even within the big banks, someone who is culturally sensitive. 

Senator CARDIN. Well, I want to thank this panel. Both panels 

have been extremely helpful. 

We clearly—as I mentioned in the beginning of this hearing, this 

is an oversight hearing for us to get input as to how our Committee 

can work with the SBA to improve the opportunities for access of 

capital in the targeted areas that we have talked about. 

This is an issue that Democrats and Republicans can come together with. We can get something done, and I think this hearing 

has been very helpful. 

You will notice that there are a lot of people around us that are 

taking in this information. It is shared with all members of our 

Committee and all members of the United States Senate, and I 

know that this will be very helpful in carrying out our function. 

I do urge you to let us have additional thoughts on how we can 

refine the specific programs for access to capital or whether there 

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are additional suggestions you have on new opportunities for access 

to capital, and it can be outside of the traditional norms. Please let 

us know, and we will try to partner and make that a reality. 

As is the tradition of our Committee, the record will remain open 

for 2 weeks for additional statements or questions that may be 

asked, and again, I thank all the witnesses for their participation. 

And with that, this hearing is adjourned. Thank you all. 

[Applause.] 

[Whereupon, at 12:05 p.m., the Committee was adjourned.] 

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APPENDIX MATERIAL SUBMITTED 

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Ranking Member Benjamin L. Cardin 

Opening Statement 

Senate Small Business and Entrepreneurship 

Committee 

"Strengthening Access to Capital for MinorityOwned Small Businesses" 

Field Hearing 

Morgan State University 

September 14, 2018 

Good morning and thank you for joining us for this Senate 

Small Business and Entrepreneurship Committee hearing 

entitled, "Strengthening Access to Capital for MinorityOwned Small Businesses." 

I want to thank Senator Risch, the Chair of the Senate 

Committee on Small Business and Entrepreneurship, for 

consenting to this field hearing. Unfortunately, Senator 

Risch is unable to be with us today, 

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but I appreciate his interest in the subject and the many 

bills and initiatives we have partnered on during my time 

as Ranking Member of the Committee. I want thank his 

Deputy Staff Director, Meredith West, and 

his lead staffer for small-business capital, 

Renee Bender (Ben-dur), and the Committee's Chief Clerk, 

Kathryn Eden (ee-done), for joining us today. 

Welcome to Baltimore. 

I want to thank President David Wilson of Morgan State 

University for allowing us to host this field hearing on 

their campus. I want to mention that Morgan State has 

graduated some of the finest leaders on the issue of 

minority-owned businesses. Related to today's hearing, 

we have our witnesses Mr. Smoot and Mr. Clark. 

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Mr. Clark is representing the Capital Region Minority 

Supplier Development Council, which is headed by a 

Morgan State alum, Ms. Sharon Pinder. The Harbor Bank 

of Maryland, represented by Mr. Lewis today, is headed by 

Mr. Joe Haskin's Jr.- also a Morgan State alum. 

We have two panels of distinguished witnesses today, and 

I thank them all for making time to be here. I also want to 

thank all of the members of the public who have taken 

time out of their day to join us as we hear testimony on the 

important issue of access to capital for minority-owned 

small businesses and how to strengthen it. 

Increasing opportunities for minority-owned businesses is 

a priority for me. 

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As some may know, this is my second time serving as the 

top Democrat of the Senate Small Business Committee. I 

was briefly the Ranking Member in 2015 before taking 

over the Senate Foreign Relations Committee. During that 

short time, I held a hearing on minority access to capital at 

Bowie State University to raise awareness of the unique 

barriers that affect minority-owned small businesses. 

Thanks in part to the testimony of those witnesses, some 

of whom are represented here again today - such as FSC 

First from Largo and Meridian Management Group from 

Baltimore - we were able to build a record to support the 

continuation of fee waivers for small-dollar 7(a) loans and 

boost the capacity of the SBA micro loan program -

two SBA resources that disproportionately help small 

businesses owned by minorities. 

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That field hearing also raised awareness of the need to 

look at resources for minorities and women to buy 

businesses of baby boomers as they retire over the next ten 

years and sell their businesses. Related to succession 

planning for baby-boomer businesses, the Small Business 

Committee ended up enacting bi-partisan legislation to 

expand financing through the SBA's largest loan program 

to small businesses that want transition to employeeownership as the owners retire. 

Now that I'm Ranking Member of the Small Business 

Committee again, I feel it is important that we build on 

what we started in 2015. The fastest growing group of 

firms in the U.S. are owned by minority entrepreneurs. 

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The great state of Maryland is no exception. In fact, 

Maryland is home to the highest average number of 

minority-owned businesses in the country, and ranks 

second for minority women-owned businesses. In 2012, 

minority businesses accounted for 38% of all Maryland 

small firms, compared to 29% nationally. 

Despite this growth, gaps in key areas remain between 

Maryland's minority-owned and non-minority owned 

businesses. In 2012, minority-owned businesses in 

Maryland contributed an average of 0.8 jobs to the 

economy, compared to 2.3 jobs for non-minority-owned 

businesses. 

Non-minority-owned firms also reported gross receipts 

four times that of minority-owned businesses. 

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This gap results in part from the significant obstacles that 

minority business owners face in accessing capital, 

including capital through contracting opportunities. 

Here's what we know: Minority-owned businesses are two 

to three times more likely to be denied credit, more likely 

to avoid applying for loans based on the belief that they 

will be turned down, and more likely to receive smaller 

loans and pay higher interest rates on the loans that they 

do receive. In addition, minority-owned firms are more 

likely to seek credit from an online lender - despite low 

satisfaction rates and virtually no regulation. 

Adding to these barriers, we know banking consolidation 

has harmed small business lending in Baltimore. 

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According to a recent report from Johns Hopkins- which 

will be presented during our second panel by Mary Miller 

- between 2007 and 2016, bank deposits in Baltimore 

nearly doubled while the ratio of small business loans to 

deposits plummeted. This hurts all small businesses, but 

it most likely exacerbates the disparities that minorityowned small businesses face. 

Access to capital matters because it correlates to hiring, 

closing the wealth gap between minorities and nonminorities, and fueling the general economy. 

Based on data from the National Small Business 

Association, there is a clear correlation between a small 

business's ability to get financing and its ability to hire. 

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If minorities aren't getting access to capital, the economy 

is losing job opportunities. 

As Stanley Tucker testified in 2015 on this topic: " ... there 

is a direct correlation between the growth of these 

businesses [minority- and women-owned] and who they 

are- minorities hire minorities; women hire women." 

Entrepreneurship is one way to chip away at the wealth 

gap experienced in many minority communities, 

particularly in the black community. According to the 

Association for Enterprise Opportunity, the median net 

worth for black business owners is 12 times higher than 

that of black non-business owners, and not simply because 

those who start businesses start out with more assets. 

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The Small Business Administration has programs that 

exist to increase access to capital. They do a lot of good, 

and I support them, but some of these programs struggle 

to adequately serve minorities and have been struggling 

for quite some time. 

In the 7(a) Loan Guaranty Program, the SBA's flagship 

loan program, black business owners received only 4 

percent of approvals and 2 percent of dollars in Fiscal Year 

2017, despite owning 9 percent of the country's small 

businesses. Hispanic or Latino borrowers received only 8 

percent of 7(a) approvals and 6 percent of dollars, despite 

owning 12 percent of small businesses. 

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In Baltimore, the lending environment is even more 

disparate, with black business owners receiving only 19 

percent of approvals and 12 percent of dollars despite 

owning 4 7 percent of businesses. 

The SBA's 504 Program, which finances buildings or 

equipment for small businesses that are poised to create or 

save local jobs, also does a lot of essential financing in this 

country, but it consistently fails to reach black and 

Hispanic or Latino borrowers at a level equal to their small 

business ownership. 

But it's not all bad: the SBA's Microloan program and the 

7(a) Community Advantage Pilot Program have shown 

promise of reaching more minorities, 

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and I look forward to hearing more from our witnesses 

about what makes these programs effective. 

Lack of access to credit for minorities is not a new 

problem, and the trends show that the situation is not 

improving as quickly as it needs to. 

We can and must do better. 

Today we will hear from witnesses who can talk about the 

programs I just mentioned. If SBA's programs are not 

working to adequately reach all Americans, I want to have 

a constructive exchange about how to make them better. I 

also want to hear about non-SBA products and services 

that are helping minority-owned small businesses in 

Maryland. 

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Let me now turn to our witnesses. 

First, we will hear from Bill Manger (Main-Grr), 

Associate Administrator of the SBA's Office of Capital 

Access. Mr. Manger oversees the SBA's loan program 

policy and oversight, managing a $120 billion portfolio of 

direct and guaranteed loans, nine operation centers, and 

s6o employees. 

Our next witness will be Dawn Medley, Vice President of 

Business Finance Programs for FSC First, a non-profit 

organization whose mission is to provide local, small, and 

minority-owned businesses in Prince George's County and 

the State of Maryland access to creative and innovative 

finance solutions through direct and indirect loans. 

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Prior to her current position at FSC First, Ms. Medley 

served as the Director of Business Lending Programs at 

the Maryland Department of Housing and Community 

Development. FSC First President, Ms. Shelly GrossWade, testified at our 2015 field hearing on minority 

access to capital, and I want to thank FSC First for their 

continued commitment to finding solutions for Maryland's 

small businesses. 

Following Ms. Medley's remarks, we will hear from John 

Lewis, Executive VP and Chief Administrative Officer of 

The Harbor Bank of Maryland - the only Maryland 

chartered Mrican-American owned and managed 

commercial bank. Harbor Bank is an important fixture in 

Baltimore, especially to the black business community, 

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providing underserved entrepreneurs with SBA loans and 

business assistance, checking and savings accounts, and 

crucial financial guidance. Mr. Lewis has over 20 years of 

experience in financial services and has contributed to the 

creation of Harbor Bank's social impact programs, 

including the Minority Pre-seed Venture Capital Fund and 

Emerging Real Estate Developer Program, which are 

supporting the success of minority-owned businesses in 

21st century industries. 

After Mr. Lewis, we will hear from Marla Bilonick (Biblaw-nick), Executive Director of the Latino Economic 

Development Center (LEDC), on the importance of SEA's 

micro loan programs for business owners - and 

particularly Latino business owners - in the Baltimore 

area and D.C. 

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Ms. Bilonick leads LEDC's regional efforts to drive the 

economic independence and social advancement of 

working class Latinos and minorities. LEDC is the second 

largest SBA microlender in Maryland, and found out this 

week they have been approved to participate in the SEA's 

7(a) Community Advantage Pilot program. (A quick 

thank-you to Mr. Manger for any role he played in that.) 

Our second panel will commence with Ken Clark, a 

business consultant in the Minority Business Development 

Agency (MBDA) Business Center representing the Capital 

Region Minority Supplier Development Council. In this 

role, Mr. Clark provides strategic counselling and business 

development services to local and national minority 

businesses. 

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Mr. Clark will discuss the challenges minority small 

businesses face in obtaining federal contracts - an 

essential resource for small businesses here in Maryland. 

Following Mr. Clark's testimony, Tim Smoot, Senior Vice 

President, co-founder and CFO of Meridian Management 

Group, will speak to us about investment capital for 

minority-owned firms. We are happy to have Meridian 

Management Group back with us today as we had the 

President and CEO, Stanley Tucker, join us in 2015 as well. 

Mr. Smoot handles the preparation of financial reports 

involved in the approval of investment proposals at 

Meridian Management Group and has advised minorityand women- owned businesses in Baltimore throughout 

his 30+ year career in financial services. 

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Next we'll hear from Mary Miller, who is a senior fellow 

at the Johns Hopkins University's 21st Century Cities 

Initiative. Today she will present findings in the 21st 

Century Cities' eye-opening report entitled "Financing 

Baltimore's Growth: Strengthening Lending to Small 

Businesses." Ms. Miller- the lead author of the report -

and her team conducted critical research that identified 

causes for the decrease in small-business lending 

throughout Baltimore County. 

This report and her testimony today will serve as another 

resource in finding solutions to level the playing field for 

all business owners in the region. I had the pleasure of 

introducing Ms. Miller to the Senate Finance Committee 

before her 2011 confirmation hearing to become 

Treasury's Under Secretary for Domestic Finance. 

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Finally, we will hear from Will Holmes, who is 

representing Morgan State University in his role as the 

Director of Outreach for the Goldman Sachs 10,000 Small 

Business Initiative. As a consultant and a small-business 

owner, Mr. Holmes is "living the access to capital issue" 

while helping expand opportunities for other minoritybusiness owners in Baltimore. 

The Baltimore City Chamber of Commerce recently 

awarded Mr. Holmes the Business Development Advocate 

Award for his deep passion for the community of fellow 

business owners and his action on their behalf. His insight 

from both sides of the issues is highly valued. 

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I would like to now turn our attention to our first witness -

Mr. Bill Manger (Main-Grr)- to hear his testimony. 

Closing. I'd like to thank the witnesses and attendees for 

coming today. The record will remain open for statements 

and questions for two weeks. The hearing is adjourned. 

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Statement for the Record 

Chairman Jim Risch 

U.S. Senate Committee on Small Business & Entrepreneurship 

"Strengthening Access to Capital for Minority-Owned Small Businesses" 

September 14,2018 

First let me thank Ranking Member Cardin for holding this hearing on access to 

capital. Access to capital has, and continues, to be an issue of huge importance to 

entrepreneurs and smaiJ businesses- access to the necessary capital is often the deciding 

factor in whether an entrepreneur is able to get their business off the ground, and whether a 

small business is able to be successful past the crucial Hrst two years of operation. 

As Chairman of the Senate Small Business and Entrepreneurship Committee, I strive 

to advance and support policies that will break down barriers for small businesses seeking to 

access capital. both through the Committee, and the larger Senate. For example, I strongly 

supported the efforts of the senior senator and Senate Banking Committee Chairman Mike 

Crapo to provide regulatory reliefto the nation's community banks that provide critical 

access to capital in their communities. The Economic Growth, Regulatory Relief and 

Consumer Protection Act (P.L. 115-174) provides an appropriate level of regulation for 

smaller tinancial institutions to allow them to invest further in their communities. I believe 

the continued downward trend in lending to entrepreneurs and small businesses is directly 

related to the over-regulation of our community banks who have had to comply with 

regulations meant for the biggest banks and whose ability to invest in their communities has 

been stymied by compliance burdens and complex rules not meant for smaller institutions. 

Overregulation and the tightening of traditional lending by banks has made the 

programs offered by the Small Business Administration (SBA) a vital resource for small 
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businesses. These programs are intended to provide some peace of mind for lenders in the 

fonn of a government guarantee for a portion of the loan in order to facilitate lending to 

entrepreneurs and small businesses that would otherwise be unable to obtain credit. I 

understand Ranking Member Cardin has focused this hearing on minority-owned businesses 

as an example of one of the groups that is served by SBA loan products. One program that 

has been mentioned heavily in this hearing is Community Advantage, a pilot program at 

SBA. This program is mandated to do 60 percent of its lending to underserved groups, 

including minorities and women. On September 12, 2018, the SBA published a notice 

extending the Community Advantage program past its expiration date of March 31, 2020 to 

September 30, 2022. 

The notice also revises the definition of an underservcd market to include Opportunity 

Zones and Rural Areas. This change will be instrumental to providing capital to borrowers 

that need it. I have long advocated for, and held hearings on, the needs of entrepreneurs and 

small businesses in rural areas and I'm pleased to see that SBA has made this change. 

Additionally, the Tax Cuts and Jobs Act of 2017 (P.L. 115-97) included a provision helmed 

by Small Business Committee member Tim Scott (R-SC) that would provide tax incentives 

for long-term equity investment in struggling communities. John Lewis, the Executive Vice 

President and Chief Administrative Officer of Harbor Bank Maryland and a witness at this 

hearing, underscored the positive impact the Opportunity Zones will provide for distressed 

communities, both rural and urban, across the country. All-in-all, the notice released by SBA 

provides stability to this program, expands it in important ways, and balances the need to 

lend in underserved communities with good governance policies. 
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I'm pleased the conversation about access to capital continues and I look forward to 

working with Senator Cardin to advance bipartisan efforts to ensure entrepreneurs and small 

businesses across the country have access to the capital they need to grow, continue to 

contribute to our economy, and create jobs. 
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"Strengthening Access to Capital for Minority-Owned Small Businesses" 

September 14, 2018, 10:00 a.m. 

Morgan State University- Earl G. Graves School of Business and Management, 

Martin Jenkins Hall, Room 514, 

Baltimore, MD 21251 

Supplemental Testimony from Mr. Kenneth Clark 

(Based on questions raised during the Hearing) 

1. The Importance of the Minority Business Development Agency 

As I mentioned briefly in my testimony, the 35 business centers respond daily to calls for advice 

and guidance in how to access contracts, how to get financing. or how to position themselves to 

meet the right people that can help them. The MBDA guideline for business centers is to work 

with firms with b'I"Cater than $!Million in revenue and 2 -3 years in business so that our efforts 

are concentrated on firms with the ability to grow. They have already passed the threshold of 

start-ups. We refer many callers to the Small Business Development Centers in the region. 

Sometimes we are compelled to take on an MBE with the potential for rapid growth or a unique 

product. MBEs are desperate for help. Some are in the 8(a) program and nearing the end of 

their 9 year time and haven't been successful. Others are newly into 8(a) without clear direction 

on how to proceed. These people need someone who take the time to listen and understand 

where they are and help them determine what their next steps should be. They need the business 

centers to use the following tools the MBDA provides them to find contracts or contacts for 

contracts: 

• GovPurchase that can provide data on all federal, state and local contracts, past and 

present and with contact information on contract officers and prime contractors involved 

in the federal, state and local contracts; 

• Dodge that provides on construction projects throughout the country; and 

• DNB/Hoover with its business intelligence data. 

These tools and our knowledge of the local envirornnent in which these MBEs operate allow us 

to provide strategic business counseling to our clients. 

Ex. I. Recent call from a MBE who has a contact that says there is an opportunity to a certain 

programming language but she doesn't know where to find the people. We scanned our database 

for IT clients and put out a request for the language and have provided her with 7 or 8 firms that 

can supply the talent. We are helping that client better frame the opportunity with the contract 

officer and helping her narrow her choices of firms with which to partner for the opportunity. 

2. We became aware of a contract opportunity and we called the firms that we believe qualify 

and we sat up the contacts, got them the tirm to register on the right websites and a $500K 

contract was won. 

3. I called an MBE about an LED lighting contract. She said she couldn't bid because she could 

get a line of credit to fund the purchase. I put her in touch with an MBE-friendly banker and 

within days, she got a small LOC which allows her to start working toward larger contracts. 
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2. Contracting Goals 

I commented earlier that the biggest challenge areas are access to capital and access to the 

information about contracting opportunities. The Business Centers help to address these 

problems. However, the biggest challenge to contracting was stated in the analysis of disparity 

studies is being a minority and the stigma that goes with it. The studies used the term MBFJDBE 

bias- not wanting to use minorities. Therefore, RACISM and BIAS are the biggest challenges 

in federal contracting for minorities. I know we don't want to use those words, so we say 

"disadvantaged" and make believe that there are some other issues involved rather than skin 

color. Biased bank otlicials won't give an MBE the money. Biased contract officers won't give 

intormation about a contract or are reluctant to award a contract to a minority. Biased outreach 

staff and other staff positions certainly won't help the MBE learn about procurement processes. 

With their bias, they automatically withhold points on applications for capital and the 

qualifications for a contract. Because they don't know the MBE firn1, they think the MBE 

cannot do quality work or will repay the loan. They also won't try to get to know the MBE to 

build a level of trust. Biased persons in the lending and contracting processes all use what seem 

to be objective standards but often they are subjectively applied. 

So how do we deal with the issues? The best models to support increased minority spend are 

those in which senior leadership in an organization have made it clear that diverse procurement 

is an organizational imperative and it backed by both performance measures and salary 

treatment. Corporations with successful supplier diversity programs get reports up to the 

boardroom level. A portion of managers evaluations top to bottom include what they did or 

didn't do to support diverse procurement. This extends beyond just the procurement departments 

but the end user organizations. Supplier diversity mangers are empowered to make sure 

minorities are included in every procurement opportunity under consideration. In some 

corporations, they have to sign off on the procurement that minorities have been fairly included 

in the procurement decision and that there were valid reasons why they did not get the contract. 

In the federal government structure, cabinet secretaries and top civil servants need to be charged 

with meeting diversity goals and called out if their departments are not meeting objectives. This 

can be effective. A few years ago, I was leading a business conference in Washington and we 

wanted to also hear about federal opportunities. We had ditliculty getting federal agencies to 

attend. By coincidence, President Obama stated in a cabinet meeting that week that he wanted 

more outreach to minority businesses. The very next day. we were getting calls asking to appear 

at our conference from agencies we had not even called earlier. When corporate Chairmen & 

CEOs Wes Bush at Northrop Grumman or Ivan Seidenberg at Verizon used to ask about supplier 

diversity, contract managers knew that it is important and extra eftort went into it. The President 

and Cabinet Secretaries have the same power to change the working rules in their organizations. 

I'd like to add one more point here. Because of the historic national programs that appropriated 

the lands and wealth of these indigenous peoples and subsequent subjugation and repression of 

their livelihood that resulted extreme poverty, the federal government has made special 

regulations regarding Native American. Hawaiian and Alaskan Native Corporations as follows: 
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Special Rights Under the SBA S(a) Program. -Tribal and ANC S(a) finns arc eligible to 

receive sole source 8(a) contracts regardless of dollar size, with no upper limit, while all 

other S(a) firms may not receive sole source contracts in excess of $3 million for services 

and $5 million for manufacturing. 

The full rules are more expansive but under this rule, Alaska Native 8(a) firms can compete more 

openly and fully without having to watch wealth or revenue caps that normally apply to other 

S(a) and DBE firms. Essentially, they can grow to be as large as they able to grow. The majority 

of other minority firms are trapped into sub-contractor status because to personal net worth and 

net revenue caps. If we were serious about support to minority businesses, and I have to say 

especially in this case, African American minorities whose families survived the institution of 

slavery and its spin-off, the ''Jim Crow Laws", minority businesses should have the same 

program a~ the Native American and Alaskan Natives in doing business. The fact that a few 

minority firms have managed to reach excellent heights in business, the majority of minority 

firms have not. Note that corporate America does not have these artificial standards tor their 

procurement programs. There are no size standards or wealth caps. They want the companies 

that work for them to grow as large as possible in order to provide services to them throughout 

their national and international footprint. The federal government could also benefit from the 

services of capable minority firms. 

3. Small Business Advocacy with the Federal Government: OSDBUs 

I have met and worked with OSDBU personnel. I see them regularly at conferences and trade 

fairs. OSDBU started under Public Law 95-507 which addressed SMALL BUSINESS ISSUES. 

They do outreach, help with policy in their agencies, and provide information. We occasionally 

learn about forecasts and contracts with their agencies. 

The OSDBU directors and staffs are like the Supplier Diversity StatTs in corporations. Not all 

are created equal. I would strongly endorse your efforts to have them meet the federal 

requirements. To meet the statutory requirement is the bare minimum of perfonnance we need. 

OSDBUs are somewhat held accountable for the results in their agencies but they can't be if they 

have no power other than outreach and helping to set goals. The words of the regulations is "at 

least 23% small business" with certain breakdowns for various sub-categories- Black, Hispanic, 

Women, Hub-Zone, etc. I've found goals for construction for disadvantaged businesses. Due to 

various court cases, the federal government can't specify race- but race is the most critical issue 

on the table. 

I often feel that they could empowered to do more to advocate tor minorities in the contracting 

process. They should have the authority to make sure minorities arc considered and included in 

every procurement possible. Let's use the "Roony Rule" for contracting. (As required for 

football coaching jobs, the team must look at 5 minority candidates for the job.) Every federal 

contract must have at 5 minority businesses actively considered for the contract and signed off 

by the OSDBU. 
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4. Prompt Payment for Small Business Contractors 

Thanks for your etlort to support prompt payment for minority contractors. It is absolutely 

critical to small businesses -and even more important to small minority businesses. Without 

question: 

• Minority businesses will often have financed projects with high-interest debt financing. 

e.g., credit cards, alternative lending sources, factoring, lines of credit. 

• They will need to pay their employees as soon as they can in order to keep them for the 

next job. 

• They need to pay their suppliers quickly in order to maintain business ties with them. 

Late payments will cause their suppliers to demand payments up-front which many finns 

will not have the capital to do. They will then lose more contracts. 
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BACKGROUND 

Minority-owned small businesses play an important role in the 

nation's economic health by driving job creation, raising wages, 

and elevating better standards of living in communities throughout 

the United States. Business ownership is also a critical pathway for 

Blacks and Hispanics to close the racial wealth gap--an increase in 

entrepreneurship among people of color can create income for both 

entrepreneurs and the people of color who work at the businesses. 

Over the past two decades, the racial and ethnic composition of 

the United States has changed, and so too has the racial and ethnic 

composition of U.S. businesses. Parity is achieved when the percent 

of minority-owned businesses approximates the percent of the 

minority population. In the 10 years between 2002 and 2012, the 

share of minority-owned small businesses increased-and the rate 

of increase far outpaced changes in population. However, given 

the relatively small base, minority-owned businesses still remain 

dramatically underrepresented. 

In 2012, Blacks made up 13.1 percent of the population, yet only 

owned 2.1 percent of classifiable sma!J employer firms and only 

made up 1.1 percent of sales (average receipts of $866,866), 1.9 

percent of employees, and 1.4 percent of payroll (average wages 

of $28,594. Hispanics made up 16.9 percent of the population, yet 

only owned 5.6 percent of classifiable small employer firms and 

only made up 3.4 percent of sales (average receipts of $1,021,506), 

4.5 percent of employees, and 3.6 percent of payroll (average 

wages of $30,110. These employee and payroll figures speak to 

a disadvantaged community and lasting economic effects-the 

number of employed workers and how well those workers are paid. 

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MISSION: IMPACT 

Starting a new firm or growing an established business requires 

capital, but Black and Hispanic businesses are reported to 

have higher barriers to capital access. The challenges are well 

documented and many solutions have been proposed, but 

to achieve change, we need to move ideas into action. The 

federal government actually has a lot of programs that can help. 

Between the Small Business Administration's (SBA's) Community 

Advantage Loan Program, Treasury's Community Development 

Financial Institutions (CDFI) Fund), Commerce's Minority Business 

Development Agency (MBDA), and the Department of Agriculture's 

Office of Small and Disadvantaged Business Utilization(OSDBUL 

there is potential to mobilize resources that drive job creation and 

economic growth, especially in minority communities throughout 

the country. We need to leverage these resources, as well as 

develop and execute new solutions. 

Building from a series of meetings with local stakeholders in June 

2016 convened by the Milken Institute and the SBA's Los Angeles 

regional office, the Milken Institute and the SBA convened a national 

roundtable at the White House to review the stubborn barriers to 

capital access that impede Black and Hispanic Americans from 

starting and growing their businesses. The aim of this roundtable 

was to discuss opportunities and develop a plan to overcome 

inhibiting hurdles. Representatives from financial institutions, 

regulatory agencies, community groups, research institutes, and 

others considered how to increase not only the number and value 

MllKEN INSTITUTE PARTNFI'!SH!P FOR LENDING \N iJNDERSERVED ~·\AR:O:::fTS !PLUM\ PHASF l SUMMARY 
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of loans to minority~owned businesses, but also the number of 

successful (growing) minority~owned small businesses in Black and 

Hispanic communities employing Black and Hispanic workers. 

That is why the Mil ken Institute and the SBA formed the Partnership 

for Lending in Underserved Markets (PLUM) initiative-a two-year 

pilot program to develop actionable solutions to address long~ 

standing structural problems that inhibit minority~owned small 

businesses from accessing capital and growing their operations. 

The focus of this initiative is on classifiable small employer firms vs. 

non~ employer firms {sole proprietors) that may generate income for 

an individual, but are tess likely to make an economic impact in their 

communities as they do not create jobs and therefore do not achieve 

the multiplier effect of associated additional economic activity. 

Also, a deliberate commitment was made to acknowledge and pay 

attention to the different financing {and technical assistance) needs 

of start~ups vs. established firms. 

Baltimore, Maryland and Los Angeles, California were selected 

as the pilot cities. The Baltimore protests in the wake of the 2015 

death of Freddie Gray while in police custody brought attention 

on a national level to the consequences of long-standing racial 

tension and community divestment. Los Angeles is a microcosm 

of racial and ethnic diversity with an instructive mix of overlapping 

jurisdictions and governance structures. Both cities have local-level 

actors with the will and infrastructure to activate good ideas. 

The initiative is divided into Uuee 

Phase !--Problem Definition: Identify and analyze root 

causes affecting lending to minority-owned small businesses. Create 

working groups in Baltimore and Los Angeles to identify specific 

challenges related to the loan underwriting process, public policy, 

and economic development. Initiate research on these topics at the 

national level. 

MILI(EN INSTITUTE PARTNERSHIP FOR LENO!NG !N UNDERSEHVFD MARKETS iPLUMJ PHASE I SUMMARY 
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Phase 11-Solution: Identify solutions and opportunities 

for action. Action groups develop strategic plans with defined 

objectives, tactics, champions, and an execution timeline. Nationally, 

the Mil ken Institute develops policy briefs and convenes Financial 

Innovations Labs® and other targeted research and activities to 

identify actionable recommendations to address national policy 

priorities and the loan underwriting process. 1 

Begin to execute the strategic 

plans and other recommendations developed during Phase II. For 

pilot cities, learn what works and establish best practices, as well 

as learn what does not work and where to tweak program and 

approach. Release final reports summarizing the two-year effort and 

publish outcomes of Financial Innovation Labs and other national 

activities. 

PHASE 1: PROBLEM DEFINITION 

PLUM-Baltimore launched in September 2016 and PLUM-Los 

Angeles launched in October 2016. In both cities, the Milken 

Institute and SBA first convened steering committees composed 

of local stakeholders to oversee and guide pilot efforts. Launch 

events were held with a broader task force of government officials, 

data providers, economic development representatives, business 

resource specialists, traditional and alternative lenders, and small 

businesses. It was vital to hear from practitioners and community 

groups on how they defined the universe of local challenges in order 

to later prioritize issues to address. 

Working groups were created to identify specific issues related 

to lending, public policy, and economic development. Through 

the fall and winter months, working group members shared their 

knowledge, expertise, and experience to describe the minority 

small-business and lending environments in Baltimore and Los 

Angeles. They provided anecdotal stories, presented qualitative and 

quantitative survey data, shared local studies, and engaged with 

additional stakeholders. Additionally, the Mil ken Institute explored 

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the issues at the national level, including conducting preliminary 

small business data analysis. 

PHASE II: SOLUTION PRIORITIZATION 

In January and February 2017, the Milken Institute and the SBA 

reconvened the Baltimore and Los Angeles task forces to summarize 

the discussions thus far, share what had been learned, and ask the 

groups to choose a path forward. Based on the issues identified 

above, the Milken Institute prepared a survey and asked task force 

participants to prioritize the challenges that PLUM would take on 

in Phases II and Ill. While participants found it challenging to rank 

activities, the exercise provided the SBA and the Milken Institute 

insight into participants' priorities at the national and local levels. 

Based on the combined survey results, additional discussions with 

PLUM participants and stakeholders, and consideration of what 

other partners and groups were doing, the Milken Institute selected 

the following priority areas for PLUM to engage: 

Local Research: Gather data-driven insights on minority-owned 

small businesses, the lending environments, and the industry 

sectors and geographic clusters to provide the evidence base 

to enhance access to capital for new and growing Black- and 

Hispanic-owned small businesses. 

local Policy: Engage with local and county officials to establish 

champions to drive the PLUM effort forward. 

Technical Assistance {TA) Best Practices; Support efforts to 

identify best practices and standardize TA efforts focused on 

individual TA providers, lenders, and new and established small 

businesses. 

National Policy: Provide thought leadership and support to 

policymakers, federal officials, and regulators. 

Underwriting: Convene industry stakeholders, policymakers, and 

regulatory officials to test- drive alternative underwriting models 

to enhance investment in creditworthy, minority-owned small 

businesses, and improve standardization in this space. 

Investor Capacity: Create a participation fund to enhance the 

capacity of local investors to provide capital to minority-owned 

small businesses in a responsible manner. 

MILKEN INSTITUTE PARTNERSHIP FOR lfNOING IN UNDfRSfRVrD MARKFTS iPLJM) Pfl4SE! SUM'v\ARY 
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Subsequently, the Phase I working groups were dissolved and 

new action groups were constituted to cover each of the priority 

areas and identify solutions and opportunities for action. The cities 

of Baltimore and Los Angeles are now tailoring their efforts for 

maximum local impact. At the national level, the Milken Institute is 

developing policy briefs and convening Financial Innovations Labs 

and other targeted research and activities to identify actionable 

recommendations to address public policy and the loan underwriting 

process. 

Phase II extends through the end of 2017. 

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Minority~owned small businesses play an important role in 

the nation's overall economic health, driving job creation, 

raising wages, and bettering standards of living in communities 

throughout the United States. Business ownership is also a critical 

pathway for Blacks and Hispanics to close the racial wealth gap.' 

Per the Ewing Marion Kaufmann Foundation, an increase in 

entrepreneurship among people of color can create income for 

both the entrepreneur and the people of color who work at the firm. 

For example, if half of the employees working at businesses owned 

by people of color are also people of color, a 10 percent increase 

in the number of employees and firms owned by people of color 

could lead to approximately one million new jobs, as well as wealth 

creation, for people of color. Over the past 30 years, the average 

wealth of White families has grown by 84 percent-1.2 times the 

rate of growth for the Hispanic population and three times the 

rate of growth for the Black population. If the past 30 years were 

to repeat, the next three decades would see the average wealth of 

White households increase by over $18,000 per year, while Hispanic 

and Black households would see their respective wealth increase 

by about $2,250 and $750 per year.' 

"While the three decades have seen the wealth of 

Latino and households increase from and 

in 1983 to and in 2013, the trends at 

the median show latino and Black the wrong 

direction. In fact, when consumer are excl11ded, 

median wealth for Black am! Latino families lms down over 

the years from am.l and 

in 2013, If current trends contim.1e, Black and 

latina families at median never reach the level of wealth 

of White families 

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TRENDS: MINORITY-OWNED BUSINESSES IN CONTEXT 

Between 2002 and 2012, the population of the United States grew 

about nine percent, from 288 million to 314 million (see Table 1].' In 

2002, minorities made up 31.8 percent of the total population (12.8 

percent Black, 4.1 percent Asian, and 13.4 percent Hispanic). By 

2012, these shares had increased by 37 percent, 13.1 percent, 5.1 

percent, and 16.9 percent. The largest increases occurred among the 

Hispanic and Asian populations. The Hispanic population increased 

by 37.3 percent and the share of Hispanics to the total population 

increased by 25.8 percent. The non·minority population grew just 0.8 

percent and its share of the total population fell by 7.6 percent. 

Table 1. U.S. Population, 2002·2012 

2002 2007 2012 

Population Share of Population Share of F'opulation Share of 

Total Total Total 

Total 287,625.193 301,231,207 313,914,040 

Block 36,684,650 12.8% 38,935,533 12.9% 41,204,793 13.1% 

Asian 11,649,265 4.1% 13.934.641 4.6% 16,145.821 5.1% 

Hfspanic 38,617,620 13.4% 46,186,853 15.3% 53,027,708 16.9% 

Minority 91.484,653 31.8% 104,219,813 34.6% 116.208,385 37.0% 

Non-Minority 196,140,540 68.2% 197,011,394 65.4% 197,705,655 63.0% 

Stiiltes. andCOiJilltes April/, 2010 roJ(,tv f. 2012 

As the racial and ethnic composition of the country changed, so too 

did the racial and ethnic composition of U.S. businesses.5 In fact, in 

the 10 years between 2002 and 2012, not only did the number and 

share of minority small businesses increase, the rate of increase far 

outpaced changes in population. 

For example, while the Black population increased 12.3 percent 

between 2002 and 2012, the number of Black-owned small 

businesses increased 115.8 percent (see Table 2]. Blacks went from 

making up 12,8 percent of the population in 2002 to 13.1 percent 

StllttlS Apli11,200DtoJulyl, 

2002·2012: 

& Populati-on &Share 

of Total 

9.1% 

12.3% 1.9% 

38.6% :27.0% 

37.3% 25.8% 

27.0% 16.4% 

0.8% ·7.6% 

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of the population in 2012-a 2.9 percent increase. Yet Black-owned 

businesses went from making up 5.2 percent of small businesses 

in 2002 to 9.4 percent of small businesses in 2012-a 79.5 percent 

increase. The gains were greater for non-employer businesses, yet 

even among classifiable employer small businesses, gains outpaced 

population growth. 

Table 2. Changes in Blaek Population and Business Ownership 2002~2012 

2002 21107 2<112 

Count Share Count Sha.-e Count Share 

Population 36,684,650 12.8% 38,935,533 12.9% 41,204,793 13.1% 

An Small 1,197.480 5.2% 1,921,760 7.1% 2,584,300 9.4% Bualn8$5tts 

Non· 

Employer 1,103,049 6.3% 1,815,298 8,5% 2.475,266 11.1% Small 

8usinesses. 

a.-t• 

Elnf)loy&T 94.431 1.7% 106,462 1.9% 109,034 2.0% Sma» 

8usinftS8S 

Like Black small-business owners, Hispanics more than doubled 

their numbers between 2002 and 2012 (from 1.6 million firms to 3.3 

million} [see Table 3]. Their relative gains were slightly less than 

Black owners overall, but Hispanics had much stronger growth 

among employer firms-a potential indicator of job creation. 

Table 3. Changes in Hispanic Population and Business Ownership 2002-2012 

2002 2007 2012 

Coont Share Count Share Count Share 

Population 38,617,620 13.4% 46,196,853 153% 53,027.708 16.9% 

All Small 1,573,282 6,9% 2,280,089 83% 3,305,625 12.0% Businesses 

NonErnf:)loyer 1,373,922 7.9% 2,011.417 9.4% 3,018,371 13.6% Small 

Bulin estes 

Ct41ssi:fiabla 

Emplovet 199,360 3,6% 248,672 4.3% 287,254 5.3% Small 

Businesses 

2002-2012 

a count A Share 

12,3% 2.9% 

115.8% 79.5% 

124.4% 76.4% 

155% 17.6% 

2002-2012 

t. Count A Share 

37.3% 25.8% 

1HU% 74.7% 

119.7% 72.7% 

44.1% 46.8% 

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STATUS OUO: PERSISTENT UNDERREPRESENTATION 

While population and business trends indicate minority-owned 

businesses are gaining ground, analysis of the 2012 data point to 

clear disparities in minority small-business ownership. Minority 

small-business owners remain underrepresented compared to 

their proportion of the population, and both Black- and Hispanicowned businesses fare below even the minority averages. In 

2012, 37 percent of the U.S. population identified as minority [see 

Table 41. yet only 17.7 percent of the 5,129,266 classifiable small 

employer firms were minority owned {see Table 51. 6

·

7 And while 

minority-owned firms generated $1 trillion in sales (average receipts 

of $1.1 million), employed 6.3 million people, and accounted for 

$192 billion in payroll (average annual wages of $30,544), the 

underrepresentation compared to their share of the population 

was even worse across these categories: sales (11.8 percent), 

employment (14.1 percent). and payroll (11.4 percent). 

Table 4. U.S. Population, 2012 

Tatal 

Black 

""'"" Hispanic 

Minority 

Non•Minorlty 

313,914.04() 

41.204.793 

16.145.821 

53,027,708 

116,208,385 

197.705,655 

2012 

62.89% 

pilyroii.F;nally,<lf!h(l5.4P1t1hon 

Nnploycrhrmll.,abmJt277JJIJO 

(5p$1"(:i;l\t)WNBpl1iJI~l-Jeld, 

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Table 5. U.S. Population, 2012 

Number of Percent S Safe& (SOOOsJ .....,.,, Numbet of Percent 

Firms of Total of Total Employees of Total 

Total 5,129,266 8,616.304,593 44.697,223 

Black 109,034 94,517,860 839,673 

AsJan 480,784 9.37% 577.862.896 6.71% 3,222.635 7.21% 

Hispanic 287,254 293,431,631 1,988,218 

Minority 908,183 1,014.425,144 6,303,197 

Non--Minority 4,150,400 80.92% 7,516.131,229 87.23% 37,805,181 84.58% 

SoiJrCe US Cen:ws Bure1w. 2012 Sarver of BVSiN!SS Ownms 

In 2012, Blacks made up 13.1 percent of the population, yet only 

owned 2.1 percent of classifiable small employer firms and only 

made up 1.1 percent of sales (average receipts of $866,866), 1.9 

percent of employees, and 1.4 percent of payroll (average wages 

of $28,594. Hispanics made up 16.9 percent of the population, yet 

only owned 5.6 percent of classifiable small employer firms and 

only made up 3.4 percent of sales (average receipts of $1,021,506), 

4.5 percent of employees, and 3.6 percent of payroll (average 

wages of $30,110. These employee and payroll figures speak to 

a disadvantaged community and lasting economic effects-the 

number of employed workers and how well those workers are paid. 

S Payroll (SOOO,J 

1,686,452,229 

24,009,337 

99,254,497 

59,864,338 

162,522.074 

1.474.033,739 

12 MILKEN INSTITUTE PARTNERSHIP FOR LENDING IN UNDERSEFIVED MARKETS !PLVMI PHASE I SUMMARY 

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c:~f1btal 

5.99% 

87.40% 
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Starting a new firm and growing a business requires capital. From 

start-up funds to expansion capital, sales require investment in 

the business enterprise, and Black and Hispanic businesses are 

reported to have lower levels of available working capital and profits 

to reinvest in their growth. There is extensive research on these 

barriers to capital access from university scholars, government 

organizations, think tanks, community groups, and advocates 

(see Appendix A for a literature review). The challenges are well 

documented and many solutions are proposed. Yet to achieve 

change, we need to move these ideas into action. 

Starting in early 2016, the Milken Institute and the SBA Los Angeles 

regional office held a series of meetings at the Los Angeles office 

of the Federal Reserve Bank of San Francisco with stakeholders 

from the business, lending, and regulatory communities. These 

meetings helped create consensus on the need for more capital 

going to minority-owned small businesses and to define the gaps 

in capital access-the group also realized that this was an issue 

that demanded national attention. Therefore, in June of 2016, the 

White House officially convened a meeting co-hosted by the SBA 

and the Milken Institute to review these inhibitors to capital access 

tor Black and Hispanic Americans to start and grow their businesses 

in order to discuss opportunities and develop a plan to overcome 

these hurdles. Representatives from financial institutions, regulatory 

agencies, community groups, research institutes, and others 

WhitelfouseConvenlngParticipants 

Hope Cred<t Unwn 

considered how to increase not only the number and value of loans r,opl" F1'1'd 

to minority-owned businesses, but also the number of successful 

{growing) small businesses in Black and Hispanic communities. 

We formed the Partnership for Lending in Underserved Markets 

(PLUM) initiative-a two-year pilot program to develop actionable 

solutions to address long-standing structural problems that inhibit 

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minority-owned small businesses from accessing capital and 

growing their operations. The Mil ken Institute agreed to provide 

direction and research support and engage stakeholders, while the 

SBA committed to lending its expertise and available data. Key 

stakeholders joined task forces and related working groups in each 

city to provide local market context. 

We chose to focus on classifiable small employer firms versus 

non-employer firms {sole proprietors), which may generate income 

for an individual, but are less likely to make an economic impact 

in communities, as they do not create jobs and therefore do not 

achieve the multiplier effects of associated additional economic 

activity. Yet, the age and growth stage of small businesses-i.e., the 

entrepreneurs vs. growing businesses-was another classification 

we deliberately wanted to address. 

START-UPS 

Start~ups are new and young firms {zero to two years old) and 

account for nearly all net new job creation.u Of the 5.1 million 

~mp1oyer.s.1:Jutwf1ohadp,wn'>ll 

durin<,) oth~n pay penod~> ctm "'tl 

employer small businesses in the 2012 U.S. Census Bureau's Survey 'fwm{lMarmnKuutm;;nn 

of Business Owners, 59 percent reported and knew the age of their 

business. 10 Almost 16 percent {299,414) of these businesses were 

start-ups (between zero and two years old). Over three-quarters 

of these firms (78 percent) employed between zero and four 

employees. 11 Companies less than one year old have created an 

average of 1.5 million jobs per year over the past three decadesY 

White start~ups are important sources of job creation, they are also 

inherently volatile, with a high exit rate. 13 Many young firms exhibit 

an "up or out" dynamic in which innovative and successful firms 

grow rapidly and become a wellspring of job and economic growth 

or quickly fail and exit the market, allowing capital to be put to more 

productive uses. 14 While these businesses have high churn rates 

XCV,Numoor2,May2(l13 

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(opening and closing frequently), they contribute less to net job 

creation than high~growth businesses. They are, however, critical 

to America's middle class. These "Main Street" or "mom~and-pop" 

small businesses are the dry cleaners, mechanics, and medical 

clinics that form the fabric of our communities. Many of these 

businesses exist largely to support a family and are not principally 

focused on expansion. 15 

HIGH-GROWTH START-UPS 

As for "high-growth start-ups," there is no singular definition for 

these businesses that grow bigger and faster than the rest. However. 

those that exist tend to focus on either firm attributes, such as 

"secured venture capital funding" or "participated in an accelerator 

programu or on business performance metrics such as revenue 

growth, employment, or exits {e.g., the firm was acquired or went 

public). 15 Though few in number, high-growth businesses have a 

big impact on the economy. The Kaufmann Foundation summarized 

key research on high-growth businesses and found that these firms 

account for up to 50 percent of new jobs created. A recent Harvard 

study cited research indicating high-growth start-ups are responsible 

for 20 percent of gross job creation. 17 Regardless of the difference 

in percentages, these firms differentiate themselves from other 

companies by expanding not just in size, but also in number of new 

locations-creating new opportunities in diverse geographic areas 

and encouraging subsequent employment growth in their related 

industries. 15 They are important engines of dynamism in local 

economies-adding jobs and spurring innovation. 19 

GROWING BUSINESSES 

Again, there is no single definition for this group. The Federal 

Reserve defines growing businesses as those that have increased 

revenue or maintain employment in the next 12 months.20 

(01fi 

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We can supplement this definition and distinguish growing 

businesses from high-growth start-ups by adding a criterion that 

growing businesses are at least five years old. 

According to the Bureau of Labor Statistics, about half of all new 

establishments survive five years or more and about one-third 

survive 10 years or more. The probability of survival increases with a Bus•nessEnlrtoyment 

firm's age and survival rates have changed little over time.n 

While start-ups are the economy's primary job creator, in the last 

two decades about 60 percent of the private sector's net new jobs 

have been created by existing establishments (vs. about 40 percent 

from the churn of start-ups minus closures). 22 ln addition to job 

creation, established firms help to stabilize communities. 

In 2012, slightly more than half of all employer small businesses 

were established between 1990 and 2007. These firms (five to 22 

years old) employed 13.7 million, about 45 percent of the reported 

working employer small-business population.23 

With these size and age parameters in mind, the Milken Institute and 

SBA selected Baltimore, Maryland and Los Angeles as the pilot cities 

for the launch of the PLUM program. The Baltimore protests in the 

wake of the 2015 death of Freddie Gray in police custody brought 

national attention to the consequences of longstanding racial 

tension and community divestment. Los Angeles is a microcosm 

of racial and ethnic diversity with an instructive mix of overlapping 

jurisdictions and governance structures. Both cities have local-level 

actors with the will and infrastructure to activate transformational 

ideas. 

We divided the program into three phases: 

Phase !-Problem Definition: Identify and analyze root causes 

affecting lending to minority-owned small businesses. Create 

working groups in Baltimore and Los Angeles to identify specific 

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challenges related to the loan underwriting process, public 

policy, and economic development. Initiate research on these 

topics at the national level. 

Phase 11-Solution Prioritization: Identify solutions and 

opportunities for action. Action groups develop strategic plans 

with defined objectives, tactics, champions, and an execution 

timeline. Nationally, the Mil ken Institute develops policy briefs 

and convenes Financial Innovations Labs and other targeted 

research and activities to identify actionable recommendations 

to address national policy priorities and the loan underwriting 

process.2

' 

Phase Ill-Implementation: Begin to execute the strategic plans 

and other recommendations developed during Phase II. For pilot 

cities, learn what works and establish best practices, as well 

as learn what does not work and where to tweak program and 

approach. Release final reports summarizing the two-year effort 

and publish outcomes of Financial Innovation Labs and other 

national activities. 

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PLUM-Baltimore launched in September 2016 and PLUM-Los 

Angeles launched in October 2016. In both cities, the Milken Institute 

and SBA first convened steering committees of local stakeholders 

to oversee and guide pilot efforts. We then held kick-off events 

with a broader task force of government officials, data providers, 

economic development representatives, business resource 

specialists, traditional and alternative lenders, and small businesses. 

It was important to hear from practitioners and community groups 

about how they defined local challenges. In addition, we needed to 

survey the universe of challenges in order to later prioritize issues to 

address. 

8&1timore st.enng Committee Co-Chairs 

ArorrBetm, Ma~:~aging Director, Center for financial Ma~ets. Milkeft Institute Eugene Cornelius. Jr., Deputy Associate Administrator,. Field Opetatlons, SBA ~ Hatkins, Jr., Ctlairman, President, and CEO, The Harbor Bank of'Maryland 

Baltimote Stterit\iJ Comrrilttee 

Jorge E:duar~Cutitto, Chairman, Board of Oir~ctors, Maryland Hb~PIHltc Chamber of Comm~rc~ 

G~ C~ey, Commissioner, Ol\4$!on of Financial Regulation~ Maryland Department of labor, Licensing and A~gulation 

Jliyfus Dosw.lf, Pmldent & CEO. The Juxtopla Group Howard H~, President & CEO, G(eater &aft! more Urban teague Sun McCabe, Administrative-Vice President. Business and Professional Banking, M&T Bank Oiane Mc,Coy, Presldent & CEO, Associated Stack Charities PauJ,T~ytOt, ~xecutive Olrectot, 8altimore City Small Business Resource Center $tanley Tucker, President & CEO,,Meridian Management Group Amokl William$, Managing Director, Abrams, FO!>ter"Nole & Williams, P. A, 

Alicia Wilson, Vice President for Community Aftaits and legal Advisor, Sagamore Development 

lO$ Angehts Steering ConunittQCo.ct.aiit 

Kevin Ktowden, €X$utlve Dlr&etor, Milken Institute California Center Vidor Parker, los Angeles District Oirect-or, Smail Business Administration Mark Robertson, President & CEO, PCR Corp 

Los An~ Steering Committee 

Frank Agoirr•, Business Development Manager. CitY of Los Angeles Mk:lmtf Sanner, Chief Executiv$- Officer, LA LOC Sandy Cajas,. President & CEO, Regional Hispanic Chamber of Commerce 

i~':;..Ski~~~Jd:~G'!~!;Et.~sa,{~~~t~~':l:~:~~~~ Chamber of Commerce Ruben Guerra, Chairman &. CEO, Latin Sosine$$ Association Antonio Manning, Global Philanthropy Executive, JP Morgan Chase Ann Sewill, Vice ,President, California Community Foundation Tunua Tbi'tl$h-Ntuk, Exee~,~~ive Oire-ctor,local Initiatives Support Corporation iUSC) Sal Varela, Olrectbr, Parr American aank Gilbert V~Mqt.iu, LA Latino Chamber irl Commerce Jose. Villalobo$, Senior Vice President, TELACU Erie Weaver, Chief Executive Officer, Opportunity Fund 

Noto· AI! Baltimore membersasol S(Jptember 2016, all LO$ Ar.gei!ls mem/Jm$M of Oc~ober 2016 

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To ensure that we captured all the structural issues affecting 

minority-owned businesses' access to capital. we created working 

groups to identify specific issues related to lending (e.g., at 

what point(s) is the underwriting process breaking down? What 

are the issues securing other financing, such as crowd funding 

investments?), public policy (e.g., which government interventions 

are helpful and which ones are impediments?), and economic 

development (e.g., what is preventing more minority entrepreneurs 

from starting new businesses? What are the unique challenges 

affecting growing businesses?). 

Baltimore. MD 

Lender Wotkif!g Group 

Polley aM Regulatory Working Group 

Economic Oevetopment Working Group 

KEY FINDINGS 

los Anoe'es. CA 

lender Working Group 

Policy and Regulatory Wonting Group 

Entrepren!)urial Ecosystem-Emerging Businesses Working Group 

Econornit: Oevelopment for Established Businesses Working Group 

In the fall and winter of 2016-17, working group members shared 

their knowledge, expertise, and experiences to describe the 

minority-owned-small-business and lending environments in 

Baltimore and Los Angeles. They provided anecdotal stories and 

quantitative survey data, shared local studies, and engaged with 

additional stakeholders. Additionally, the Milken Institute explored 

the issues at the national level, including conducting some 

preliminary small-business data analysis. The key issues raised 

during Phase I are summarized below. 

lending and Other Financing 

Underwriting 

After the great recession, many minority homeowners saw their 

home values and credit scores wiped out due to the worst financial 

crises since the Great Depression. As a common source of collateral 

used in the traditional underwriting process, the decline in home 

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equity values (among other issues) made it far more difficult for 

minority small-business owners in particular to secure capital. 

Alternatives were needed. 

Technological advancement and the proliferation of data over 

the years has opened up new avenues for small businesses 

to unlock capital. New, alternative underwriting models can 

incorporate far greater criteria to more accurately assess the 

overall creditworthiness of a small business when compared to 

traditional underwriting processes. Both traditional and non~bank 

lenders commented on the difficulties and potential of incorporating 

alternative data into their underlying credit methodologies. 

For instance, traditional lenders commented on the difficulty of 

adopting alternative underwriting methods citing the uncertainty 

of their effectiveness, especially given the implementation hurdles 

(e.g., time it takes to fully understand the algorithms used in 

assessing credit risk, testing those algorithms, and documenting the 

process for regulators without knowing how regulators will react). 

Non~bank lenders were quick to point out that innovative platforms 

still use the "Five C's" of credit analysis {character, capacity, capital, 

collateral, and conditions) just like traditional lenders. Although 

they use the traditional means, they also pool that data with other 

data pulled from services such as Quickbooks, payroll processors, 

and other data metrics such as shipping analytics to provide for a 

broader credit analysis of the business, and to develop mechanisms 

that indicate the types of financing products companies really need. 

Non~bank providers also commented on the need for the Internal 

Revenue Service (IRS) to build an application programming interface 

(API) for its Income Verification Excess Service to provide lenders 

with additional data points to more accurately assess a business 

borrower. 

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Meanwhile, microlenders pointed out the tack of empirical analysis 

on their own models and algorithms in use domestically, compared 

to the vast quantities of research conducted on microlenders 

operating overseas, particularly in developing economies. The lack 

of academic inquiry into domestic microlenders makes it difficult 

to develop a critical mass of understanding in how crucial these 

platforms are for small businesses. 

Standardization and Best Practices 

One of the key issues that surfaced during PLUM meetings was 

the lack of standardization and best practices in the small-business 

lending space. According to former Treasury Secretary Jack Lew, 

8,000 small and microbusinesses are denied credit each dayroughly two million in a given year." Of those declined, roughly 

one-third are considered creditworthy using currently available 

underwriting methodologies, proving, once again, the significant 

product mismatch that occurs between lenders and minority-owned 

small businesses. 26 ln conversations with PLUM participants and 

external stakeholders, discussions focused on the development of a 

loan participation fund, which would provide lenders with balance 

sheet relief in originating small-business loans and also act as an 

incentive for lenders to provide standardization across a range of 

small business products in a responsible and more transparent 

manner. 

While supportive, a few participants noted that the financing 

structure of a small business is more important than the 

standardization of products, as capital needs of a small business 

may need a bespoke form of financing unique to that small business' 

need. 

Patient Capital 

There was particular concern from participants on the lack of long¥ 

term capital to minority-owned small-business firms. In Baltimore, 

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for instance, discussions centered on how to best promote 

equity capital investment. 27 Similarly to the concerns expressed 

earlier about investor perceptions of the city, participants were 

clearly concerned about the lack of equity available to the citY's 

entrepreneurs. Participants viewed the identification of a local 

champion capable of bringing investors and small businesses to the 

table as a top priority for the PLUM initiative in Baltimore. This is not 

just a Baltimore-specific issue, but a national issue as welt as the 

average amount of new equity investments in minority firms across 

the U.S. in 2010 was roughly $3,400, or 43 percent the level of nonminority-owned firms. 26 

In Los Angeles, participants spoke to the need to promote state 

legislative efforts in implementing intrastate crowdfunding in 

California. While Maryland is one of the 35 or so states to have 

implemented intrastate crowdfunding, California has yet to pass 

legislation in this space. One participant noted the importance of 

local investing and the opportunities it provides to drive wealth 

creation and capital to underserved communities in particular. 

Similarly, intrastate crowdfunding offers the abilitY for small 

businesses to apply for hybrid financing with a certain portion raised 

during the crowdfunding effort acting as collateral for financing from 

a traditional financial institution. 

However, one participant in Baltimore was concerned about drawing 

funds from non-accredited investors without the education and 

support that accredited investors often have. Nevertheless, one 

participant from the PLUM-Los Angeles Task Force observed that the 

use of a special purpose vehicle in intrastate crowdfunding would 

reduce the complexity of a large number of investors investing in a 

small business. 

Financing Education 

The lack of understanding and education regarding financing 

alternatives that go beyond traditional bank loans hinders minority22 MILKEN INSTITUTE PAf\fNEBSHIP FOR LENDING IN UNDEriSERVED MARKETS {PLUM! PHASE l SUMMAA'I 
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owned small businesses from accessing the right kind of financing 

products more tailored to the capital demands of a small business. 

A PLUM-Los Angeles partner, the Business Resource Group (BRGl. 

in collaboration with the California Black Legislative Caucus, hosted 

three Black roundtable events in and around LA County between 

September-December 2016. Businesses were asked to share their 

experiences, challenges, and needs as they related to accessing 

capital, revenue and contracts, and building wealth. Approximately 

169 businesses and 22 community organizations participated. 

Many businesses expressed a need to better understand the 

differences between consumer and business banking. They said 

that existing programs teach about credit scores or the documents 

lenders want in a loan package, but they do not help businesses 

understand the factors considered for approving a loan. Some 

questions asked by participants included: 

~Do lenders really look at the whole story? 

~Are mitigating factors considered? 

Before putting in the effort, what is the actual likelihood of obtaining a 

loan? 

Roundtable participants also shared that they really are not aware of 

nor do they understand alternative capital options, specifically: 

- Bitcoin for small businesses 

~ PayPalloans 

-Gap financing 

-Angel investors and other venture capital financing 

-Alternative collateral and guarantee programs 

-Seed capital for inventors and innovators 

- Crowdfunding 

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Also, 90 percent of Black roundtable participants were unaware of 

available financial subsidies for innovation, energy efficiency, and 

disability access, as well as other financial incentive programs such 

as state tax credits. 

Bank Referral Approaches 

Both Los Angeles and Baltimore participants touched on the deficits 

of current lender referral programs when prospective borrowers 

are declined from traditional lenders. A primary concern is whether 

small-business owners are being steered to products and services 

that meet them where they are in the financing process. 

At the BAG roundtables in Los Angeles, although 90 percent of 

businesses who were declined loans were told by banks why there 

were denied, most (70 percent) did not receive any guidance or 

information on steps that they could take to improve their ability to 

obtain bank financing. Working groups and roundtable participants 

questioned whether traditional institutions are simply steering small 

businesses to their affiliates or sending them to community banks, 

CDFis, alternative finance platforms, and other capital providers that 

may not be the most appropriate, comfortable, or safest match. 

One example is that there is a critical disconnect between COFis 

and small businesses located in underserved communities. Of the 

2.2 million small businesses located in low-income communities, 

only between 2 and 5 percent are receiving financing from CDFIS.19 

CDFis operate in a fragmented industry community with more than 

1,000 individual entities and many have not adapted to changes 

in the landscape of financial technology.3° Further, working group 

members consistently reported that CDFis are undercapitalized and 

not enough of them are located in minority geographies. 

Fear and mistrust of financial institutions and community lenders 

is another example. At the BAG roundtables in Los Angeles, many 

Black business owners reported that the nonprofit lenders to whom 

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they were referred did not understand their cultures, and specifically 

that there are not enough Black lenders in their communities. Some 

Black business owners said that they view many nonprofit lenders 

as outsiders, and that they prefer to do business with banks and 

non profits that they know and trust. 

Predatory Lending 

Given the struggles business owners face in determining which 

financing providers are well suited to the type of business (and 

market) and can provide financing in a responsible manner, a few 

participants (particularly those focused on business development) 

were interested in the idea of developing a Better Business Bureau 

list of approved lenders at the local level. This would provide small 

businesses with a trusted source that they could turn to when 

searching for responsible lenders operating in the city/area, with 

minimum levels of disclosure thresholds determined by a third 

party, the office of the mayor, or some other standards currently in 

place (such as SMART Box Initiative or Small Business Borrowers 

Bill of Rights). 

Participants in both cities noted that minority~owned small 

businesses are susceptible to predatory lenders who are able 

to effectively market themselves through cold calling or online 

mediums, which potentially places owners at substantial financial 

risk. At the BRG roundtables, some business owners shared that 

when their loans were declined by banks, they were referred to 

a nonprofit lender charging exorbitantly high interest rates. One 

Opportunity Fund report found that "the average alternative loan 

they analyzed carried an annual percentage rate (APR) of 94 percent, 

with one loan reaching a shocking 358 percent." 31 

Because small-business owners and regulators often do not fully 

understand the differences between various financial products 

offered to them, there is a high likelihood that borrowers select a 

product that is ill suited and potentially costlier than products more 

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suited and available from responsible financing providers (e.g., 

merchant advances and payday-like loans vs. a CDFI). 

In an effort to provide for a more responsible (and responsive) 

financing system for minority-owned small businesses, participants 

also highlighted their concerns regarding brokers operating in the 

small business lending space. In the alternative financing space 

in particular, there is the question of whether brokers have small 

businesses' best interests at heart, as there is no real regulation or 

fiduciary responsibility that brokers must adhere to. As noted by 

participants in Baltimore and Los Angeles, brokers' main concern is 

their commission, and small businesses are often steered towards 

financing providers based on commission, not on product suitability, 

resulting in higher costs for the small-business owner. 

7(a) Loan Adjustments 

The SBA's flagship 7(a) Loan Program has facilitated more than $26 

billion in financing to small businesses nationwide and operates 

at zero taxpayer subsidy with default rates of less than 1 percent.32 

Despite the program's benefit to small-business finance and growth, 

the program is not effectively targeting minority-owned small 

businesses. For instance, Blacks and Hispanics currently make up 

less than 10 percent of overall SBA 7(a)-guaranteed lending to U.S. 

small businesses. 

Separata from the distribution of 7(a)-guaranteed loans, the way in 

which the program assesses non- performing loans is a significant 

problem, leaving lenders with no flexibility in being able to help 

small businesses adjust their finances, resulting in increased 

defaults in times of stress and heightening the credit risk of the 

business owner. 

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Policy and Regulation 

Data Reporting and Analysis 

Access to reliable and timely small-business and lending data is key 

to crafting effective policy recommendations to increase lending 

to Black and Hispanic small-business owners. Without complete 

data, it is difficult to identify lending deficits and opportunities for 

investment in specific neighborhoods or to target demographics. 

The groups raised several challenges with existing data collection 

and analysis. 

~It's not "apples to apples," Various definitions of what is 

a small business and a small-business loan make analysis 

difficult. Typically, small businesses are defined in terms of a 

size standard, which is often stated in the number of employees 

or average annual receipts. The U.S. Census Bureau, Federal 

Reserve, and SBA all define small businesses as any business 

with less than 500 employees. Certain government programs 

(such as SBA loan programs and contracting opportunities} are 

reserved for small-business concerns, and in order to qualify 

businesses must satisfy SBA's definition of small-business 

concerns along with the size standards for small business, 

which often vary by industry.33 Then, there are small-business 

advocacy groups. The typical member of the National Federation 

of Independent Business (NFIB) employs 10 people and reports 

gross sales of about $500,000 a year. 3

• The Small Business and 

Entrepreneurship Council loosely groups businesses into three 

tiers by number of employees: fewer than 100 is considered 

small, a midsized business is 100 to 500, and a company with 

more than 500 is large." At the June 2016 Milken lnstitute-SBA 

White House roundtable, the SBA shared there are more than 

40 definitions at the federal level on what constitutes a small 

business.36 

Not all lenders are required to report small-business lending 

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data. Under the Community Reinvestment Act, banks and 

thrifts report small business and farm data, and community 

development data if they have total assets greater than $1 billion 

dollars. The regulations miss the lending activities of the small 

and mid-size banks whose commercial loans portfolios tend to 

consist mostly of small-business loans. In addition, smaller banks 

may be the most predisposed towards lending to the smaller, 

locally owned businesses. 

Participants, particularly in Baltimore, were cautious in their 

assessment of the Consumer Financial Protection Bureau's 

(CFPB) approach to the collection of small-business data. While 

efforts are ongoing at the CFPB to build out their small-business 

office, participants questioned how the Bureau intends to collect 

small business lending data under Section 1071 of the DoddFrank Wall Street Reform and Consumer Protection Act. Certain 

lenders were concerned that this would add extra compliance 

burden, especially given the lack of clarity on what constitutes a 

small business (mentioned above). which would increase costs 

and prevent them from focusing on lending and the success 

of a small business. Other lenders noted that the CFPB is 

already entering commercial banks and examining fair lending 

applications, approvals, and denials, and performing tests 

based on the name and/or zip code provided, therefore efforts 

are redundant. Others noted that banks are already obligated 

to collect information pertaining to consumer lending and that 

the infrastructure in place could be amenable to how the CFPB 

intends to collect smaiiMbusiness data. 

-There is no consistent reporting for CDFis (who are often 

recipients of investments from large banks). Again, we are 

missing a piece of the market. 

- Extensive reporting requirements can create administrative 

burdens on lenders, which ultimately may translate to higher 

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costs for customers. 

In Los Angeles in 2012, the Los Angeles City Council adopted a 

"responsible banking ordinance" that requires banks doing business 

with the city to disclose detailed data on loans (including smallbusiness lending) and foreclosure activity by community. Banks that 

decline to provide the information are deemed unqualified to bid for 

a piece of the city's billions of dollars in deposits and pension funds. 

However, much of the information is already reported under federal 

law. At the time, proponents said that the federal data could be 

hard to find in voluminous federal banking reports and that the new 

law would bring the information together on a city website that the 

public could search by census tract. Yet to date this information is 

not readily available (e.g., it is not available on ~ta.lacity.org). 

Some participants in both cities questioned the overall extent to 

which PLUM should be engaged on this issue given the forces in and 

around Washington, D.C., in support of or opposition to the CFPB's 

efforts, and what sort(s) of accomplishments could be derived from 

PLUM applying resources into this space. 

Overall, many agreed that there is a need for accurate data to inform 

effective policy to help increase access to capital. However, the lack 

of clarity in how reporting standards would be implemented had 

some stakeholders concerned (e.g., bankers do not know how new 

or revised regulations would affect their bottom line}. 

Tax-Based Incentives 

The New Markets Tax Credit Program (NMTC) provides tax credits 

to spur private investment in underserved communities.37 Since 

inception, the program has funded more than 5,400 businesses 

leading to the creation or retention of 275,000 jobs, with nearly 

three-quarters of NMTC investments made in highly distressed 

areas. The program also generates $8 dollars of private investment 

for every $1 dollar invested by the federal government. 

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However, during PLUM meetings, lenders discussed the difficulties 

associated with obtaining NMTC funding due to the required 

paperwork, while non-bank financing providers highlighted the 

difficulty of participating in the program as the evaluation of firms 

interested in NMTC funding is largely viewed through a traditional 

financial lender lens. Apart from the difficulties of participating, it 

was also noted that NMTC has long favored real estate investment 

over investment in small businesses, particularly those most 

underserved. 

State Guarantee Programs 

Both los Angeles and Baltimore task force participants cited the 

need for greater awareness among small businesses and lenders 

of the variety of state guarantee programs available to them. Both 

groups also encouraged the use of PLUM as a resource for educating 

lenders on the benefits of leveraging the guarantee to make inroads 

into Hispanic and Black communities that they would not have made 

otherwise. In Los Angeles, participants noted the lack of a secondary 

market as detrimental to the use of state guarantees. 

58/Cs 

The SBA's Small Business Investment Company program provides 

long-term equity and/or debt to qualifying small businesses. SBICs 

are privately owned, managed, licensed and regulated by the SBA, 

which provides a guarantee on top of qualifying investments to 

small businesses. 

Participants discussed how the process to set up an SBIC and 

distribute funds is very convoluted. In addition, the program is 

geographically concentrated with only a few states receiving 

more than half of SBIC investment (California, New York, Texas, 

Massachusetts, Illinois, and Florida), and less than a quarter of SBIC 

investments were made to low- and middle-income areas in 2014. In 

addition, SBICs can voluntarily report data regarding the percentage 

of investments made to minority, women, and veterans' small 

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businesses, and concerns remain as to the viability of the data and 

the lack of standardization in the reports. 

Economic Developrnent 

Technical Assistance 

Small-business technical assistance (TA) refers to the support 

provided to small businesses beyond financing, for example: 

capital opportunities, business planning and operations, employee 

recruitment, and specialty training (e.g., e~commerce). Technical 

assistance is a big topic in of itself and the economic development 

(ED) working groups in Baltimore and Los Angeles identified several 

challenges and areas for improvement: 

- Location, coordination, and quality of services: The geographic 

separation between TA providers and lenders came up 

consistently throughout the ED groups as a key TA challenge. 

Co-locating service providers and lenders would facilitate a 

smoother and more comprehensive lender referral process 

(see page X for prior commentary on the lender referral 

process). Similarly, locating TA services in geographically 

convenient locations in the first place also made a lot of sanse 

to group participants. For example, Black business owners who 

participated in the BRG roundtables and who were located in the 

South Bay and Westside cities shared that they do not want to 

drive into downtown or south Los Angeles to access business 

assistance services. 

ED working group members also discussed the need for 

extended and flexible hours to meet the needs of business 

owners. The Los Angeles Emerging Businesses Working Group 

identified a lack of coordination between investment in business 

and the anticipated size and scale of the eventual operation. 

They discussed how regional incubators could partner with focal 

governments and educational entities to provide a standard 

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framework for technical assistance and mentorship that could be 

utilized to educate and prepare entrepreneurs to not only apply 

for credit successfully, but also apply for the right kind of credit 

needed to start growing their businesses. 

This general notion of enhancing or standardizing the quality 

of technical assistance providers in the market place was also 

raised. A "Better Business Bureau" of approved TA providers 

could ensure that the providers are prepared and capable of 

meeting the needs of the target businesses in their markets. 

-Data standardization: As was discussed in the policy groups, the 

ED groups said that the lack of standardization of data-sharing 

tools and practices among public and private sector TA providers 

serves to create numerous additional obstacles both to lenders 

and to small businesses by increasing the costs and complexity 

of risk assessment for both primary and secondary lenders. 

Developing standards for anonymous data sharing that includes 

geographic components for applicants and borrowers, as well 

as standardizing standards of measurement between different 

federal and state agencies, should significantly reduce costs 

in risk assessment as well as expedite the approval process, 

particularly for newer borrowers. 

-Education and mentorship: As was mentioned in the lender 

working groups, the economic development groups in both 

cities felt TA should include not just basic financial literacy 

education, but financing education too, as well as offer basic 

management training. The Los Angeles Established Businesses 

Working Group observed that growing businesses lack strategic 

advising and resources. These firms are often held back by 

either misunderstanding of risk, limited market knowledge, or 

mismatch of appropriate capital opportunities. Accelerators, 

for example, might provide access to relationships with other 

business owners and lenders that enable businesses to scale. In 

Baltimore, the group emphasized that locating accelerators 

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(and incubators for start~ups) in geographic areas of need could 

increase access to these critical opportunities. 

-Industry clusters: The ED groups in both cities all commented 

on the lack of strategic targeting of industry clusters for growth 

industries and tailoring theTA for those industries and clusters' 

specific needs. The Baltimore group felt that clustering TA 

providers into coordinated activities would be helpful. Regional 

creation of accelerators based on growth sectors {bioscience, 

entertainment, renewable energy, transportation, construction/ 

facility services, utilities, IT/professional services, and healthcare/ 

social services) that includes targeted TA based on the individual 

cluster would facilitate a heightened ability to obtain capital and 

scale. 

-Marketing and outreach: All of the ED groups acknowledged 

that there are some great resources available to entrepreneurs 

and to those looking to grow their businesses, but that marketing 

and outreach efforts fall short. There is a lot of opportunity to 

streamline and connect potential and existing small-business 

owners with in~ person and online support. 

Procurement and Supplier Diversity Programs 

There are hundreds of programs to encourage government or 

private sector contracting with minority- owned businesses, yet 

most of these programs are voluntary, and those with statutory 

mandates lack enforcement. Working groups mentioned companies 

using a "bait and switch" approach whereby companies say they 

will use a minority-owned firm and then replace the firm after a 

contact is secured. 

BRG roundtables participants reported the following barriers and 

challenges that adversely impact their ability to leverage contract 

opportunities: 

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-Insufficient expertise or time to plan, market and implement a 

new a sales strategy (including support} to develop and submit 

sales proposals and bids 

-Limited legal resources to structure joint ventures and partner 

on contracts 

- Lack of marketing staff to find new contract opportunities 

-Lack of relationships or access to contacts to win new business 

- Many are not registered as a disadvantaged or minority 

businesses 

The groups brainstormed how to strengthen procurement and 

supplier diversity programs via both "carrot" and "stick." The Los 

Angeles Policy Working Group also spoke about procurement and 

specifically mentioned programs with the Los Angeles Unified 

School District (LAUSD), LA Metro, the California Public Utilities 

Commission (CPUC), the Los Angeles Department of Water and 

Power (DWP), and others. 

One participant noted that large companies that take diversity 

seriously develop their own in-house mentoring and training 

programs to create their own pipeline of suppliers. 

Overlapping Jurisdictions 

In Los Angeles, a multitude of jurisdictions (cities, county} creates 

regulatory confusion and complexity. Municipal self-interest and 

limits on municipal financing to restricted geographies means 

centers of minority-owned business activity may not align within 

existing programs. 

Enterprise Zones, which were abandoned in 2014, may be a helpful 

construct in which to think about small-business development.38 

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The Enterprise Zone Program, under the California Department of 

Housing and Community Development, had been responsible for 

the designation and administrative oversight of the 42 Enterprise 

Zones authorized by the state legislature. Targeting economically 

distressed areas throughout California, the program provided 

special incentives designed to encourage business investment and 

promote the creation of new jobs. The purpose of the program was 

to stimulate economic development by providing tax incentives 

to businesses enabling private sector market forces to revive the 

local economy. Each Enterprise Zone was administered by its local 

jurisdiction working with local agencies and business groups to 

promote economic growth through business expansion, attraction, 

and retention, while providing an environment to nurture business 

creation as well. 

The group considered the idea of revisiting regional "hot spots" 

or development zones where there are high concentrations of 

Black and Hispanic smaiiMbusiness owners who would benefit from 

pilot activities during future phases of the PLUM initiative. Several 

participants said policies should be crafted to prevent unintended 

gentrification in the development zones. 

Financial Literacy for Youth 

There was some discussion among participants in Baltimore and 

Los Angeles on the importance of educating younger generations 

on how to run a business and to develop an understanding of basic 

finance. This could include how to develop and successfully market 

a product and understand balance sheet and cash flow analysis. 

Participants highlighted the need to track younger students as they 

go through the programs and look to become entrepreneurs to fully 

assess how successful current efforts are at promoting financial 

literacy. 

Community Perception 

Participants, particularly in Baltimore, discussed the difficulties the 

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the city, thereby making it difficult for small businesses operating in 

the area to attract investment interest and open up new avenues of 

raising capital for small businesses. 

Prioritization of !ssues 

In January and February, the Milken Institute and the SBA 

reconvened the Baltimore and Los Angeles task forces, respectively, 

to summarize the discussions thus far, share what had been learned, 

and ask the groups to choose a path forward. Based on the issues 

identified above, the Milken Institute prepared a survey of seven 

solution-oriented strategies with 23 associated activities on which 

PLUM might engage (see Appendix 8). Task force participants 

assigned a rating next to each activity on a scale of one to five (One: 

No need to focus on; Five: Must-do). While challenging to rank 

activities, the exercise provided the SBA and Milken Institute insight 

into participants' priorities at the national and local levels (see 

Appendix C for complete survey results). 

In Baltimore, more than 60 task force members came together 

and helped identify the following as Baltimore's priority areas 

for engagement, all of which are solutions to the issues that are 

negatively impacting minority small businesses and their ability to 

access capital identified during Phase 1: 

1. Financial literacy for youth 

2. Technical assistance best practices 

3. Baseline data 

4. Marketing PLUM 

5. Improved underwriting 

The top five priority areas for engagement in Los Angeles, as ranked 

by 40 task force members, were: 

1. Marketing PLUM 

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2. CRA rightsizing 

3. Improved credit scoring/underwriting 

4. Co~location of TA providers and small-business lenders 

5. Customized TA approaches 

Between both cities, the lender groups also ranked highly 

incentivizing standardization and best practices by lenders with a 

secondary market fund as the "carrot" and also exploring improved 

credit scoring and underwriting models. The policy groups favored 

rethinking tax-based incentives, state guarantee programs, and 

supplier diversity programs, and the economic development groups 

strongly supported improving the lender referral process and 

establishing technical assistance best practices. All groups in both 

cities would like to have a better understanding of the baseline 

minority small-business lending environment (i.e., access to data). 

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Based on the combined survey results, additional discussions with 

PLUM participants and stakeholders, and consideration of what 

other partners and group are doing, as well the capacity of the PLUM 

constituency, the Mil ken Institute selected the following areas for 

PLUM to engage: 

Local Research: Gather data~driven insights on minority-owned 

small businesses, the lending environments, and the industry 

sectors and geographic clusters to provide the evidence base 

to enhance access to capital for new and growing Black- and 

Hispanic-owned small businesses. 

Local Policy: Engage with local and county officials to establish 

champions to drive the PLUM effort forward. 

Technical Assistance Best Practices: Support efforts to 

identify best practices and standardize TA efforts focused on 

individual TA providers, lenders, and new and established small 

businesses. 

National Policy: Provide thought leadership and support to 

policymakers, federal officials, and regulators. 

Underwriting: Convene industry stakeholders, policymakers, and 

regulatory officials to test- drive alternative underwriting models 

to enhance investment in creditworthy minority-owned small 

businesses and improve standardization in this space. 

Investor Capacity: Create a participation fund to enhance the 

capacity of local investors to provide capital to minority-owned 

small businesses in a responsible manner. 

In late February and March, the Institute shared the path forward 

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with the respective steering committees. We dissolved the 

working groups and formed action groups covering each area to 

identify solutions and opportunities for action. Like the working 

groups, Baltimore and Los Angeles are tailoring their efforts for 

maximum local impact. At the national level, the Mil ken Institute is 

developing policy briefs and convening Financial innovations Labs 

and other targeted research and activities to identify actionable 

recommendations to address public policy and the loan underwriting 

process. 

Phase II will run through 2017. 

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APPENDIX A. LITERATURE REVIEW 

Institutional 

Diana Farrell and Chris Wheat, Cash is King: Flows, Balances, and 

Buffer Days, JPMorgan Chase & Co. Institute, September 2016. 

Available at: www ipmorgaochase.com/coroorate/institute/reportcash-flows-balances-and- buffer:J!ays.htm 

Trade Association/Coalitions 

Connie Evans and Ingrid Gorman, The Tapestry of Black Business 

Ownership in America: Untapped Opportunities for Success, 

Association for Enterprise Opportunity, February 2017. Available at: 

www aeoworks.orglimages/uploads/fact sheets/AEO Black Q.\YillllL 

Business Report 02 16 1 7 FOR WEB.pdf 

Connie Evans, Tammy Halevy, The Big Picture: A Larger View of the 

Small Business Market- Tapping the Power of Big Data Analytics, 

AEO, May 2016. Available at: www.agoworks.orgjpdf/the-big- picture. 

ru!f 

N/A, Micro Capital Task Force: Moving Money to Main Street, 

Association for Enterprise Opportunity. Available at: l!Y:<Y.>Y,.rutOY!lQL).:Jh 

Q.C9LmJf!MCTF Congressional BriefilllUJne-PageJ".I2Qf 

N/A, Opinions of Small Employers, National Federation of 

Independent Business Research Foundation, 2016. Available at: 

www.nfib.com/assets/small~employer-survey-nfib~J.!WHif 

N/A, Project Cue, Association for Enterprise Opportunity. Available 

at: www.aeoworks.org/index.php/site/page/category/project cue/ 

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Arch ana Pradhan and Josh Silver, National Community 

Reinvestment Coalition Analysis: Small Business Lending Deserts 

and Oases, National Community Reinvestment Coalition, September 

2014. Available at: yvww.ncrc.org/resources/reports~aod~research/ 

item/973~ncrc~analysis-sma!l-business-lending- deserts-and-oases 

Josh Silver, Small Business Loan Data: Recommendations to 

the Consumer Financial Protection Bureau for Implementing 

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010, National Community Reinvestment Coalition, 

2014. Available at: www.ncrc.org/images/PDFs/rukQ..'1Jfll!l.!lJ.!il.t.i2m.:19~ 

cfpb-on-small-busjness-loan-data.pdf 

Holly Wade and William Dunkelberg, NFIB Small Business Economic 

Trends, National Federation of Independent Business, February 

2017. Available at: ~&QID/~BET-Feb-2017.pdf 

Nicole West, Bruce Mitchell and Jason Richardson, Home Mortgage 

and Small Business Lending in Baltimore and Surrounding Areas, 

National Community Reinvestment Coalition, November 2015. 

Available at: www ncrc org/resoyr.!"&§lrsmorts-and-research/ 

item/1098-home-mortgage-and-small-business-lending-in·baltimorn: 

a nd~surrounding~areas 

Government/Regulatory 

Ray Boshara and William Emmons, After the Fall: Rebuilding Family 

Balance Sheets, Rebuilding the Economy, Federal Reserve Bank of 

St. Louis, May 2013. Available at: www.stloujsfed.org/-/media/Files/ 

PDFs/publications/pub assets/pdf{ar/20 12/ar12 complete. pdf 

Ken Cavalluzzo and John Wolken, Small Business Loan Turndowns, 

Personal Wealth and Discrimination, Board of Governors of 

the Federal Reserve System, July 2002. Available at: www. 

federalreserve.gov/pubs/feds/2002/200235/200235pap.Rdf 

41 MILKEN INSnTUTE PARTNERSHIP FOA LFND!NG IN UNDERSERVED MARKETS iPLiJMJ PHASE t SUMMARY 
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Darryl Getter, The Effectiveness of the Community Reinvestment 

Act, Congressional Research Service, January 2015. Available at 

lliY!lW fas.orolsgplcrslmisc/R43661.pdf 

Arthur Kennickell, Myron Kwast and Jonathan Pogach, Small 

Businesses and Small Business Finance during the Financial 

Crisis and the Great Recession: New Evidence From the Survey of 

Consumer Finances, Board of Governors of the Federal Reserve 

System, February 2015. Available at: wwwfederalreserve gov/ 

econresdata/feds/2015/file~~ 

Letter by 13 U.S. Senators to federal regulatory bodies in charge 

of CRA oversight on October 2016. Available at: www.scrjbd.com/ 

document/326529525/Booker-Merklev-CRA-Letter 

Jacob Lew, Growing America's Small Businesses at the Capital 

Access Innovation Summit, U.S. Department of the Treasury, June 

2013. Available at: www.treasury.gov/press~center/press~ releases/ 

Pages/jl1979.aspx 

Michael McManus. Minority Business Ownership: Data from 

the 2012 Survey of Business Owners, U.S. Small Business 

Administration Office of Advocacy, September 2016. Available 

at: www.sba.gov/sites/defau!Uflles/advocacy/Minority-Owned~ 

Businesses~in-the-US.pdf 

Gregory Meeks and Cedric Richmond, How OCC's fintech 

plan can make CRA relevant again, American Banker, January 

2017. Available at: www.americanbanker.com/opinlQDL 

how-aces~ fi ntech-pla n-ca n~m ake-cra-relevant-agai n 

42 MILKEN INSTITUTE f'ARTN[RSHJP FOR lENDING JN tJND(RStR.VED MAfiJ([TS !Pl tJM) PHASE I SUMMARY 
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Claire Kramer Mills, Maria Carmelita Recto, Ellyn Terry, Emily 

Wavering and Brett Barkley, 2015 Small Business Credit Survey: 

Report on Employer Firms, Federal Reserve Banks of New 

York, Atlanta, Boston, Cleveland, Philadelphia, Richmond, and 

St. Louis, March 2016. Available at: www.clevelan~ 

community·development/small-busjness/about-lbe:iillnl:.illll!ll: 

lli.llii.o..~§ll:kf~Urvey/2015-joint-small-business-credit-§U r~llli!llL 

Claire Kramer Mills, Ellyn Terry and Ann Marie Wiersch, 2015 

Small Business Credit Survey: Report on Nonemployer Firms, 

Federal Reserve Banks of New York, Atlanta, Boston, Cleveland, 

Philadelphia, Richmond, and St. Louis, December 2016. Available 

at: www.cleyelandfed.~unjty-developmeot/srnall· b~ili 

about-the-jojnt-smaii-~LeJii1:2urvey/2015-joint-smallbusi ness~cred it~su ryey.aspx 

N/A. $10 million in tax credits awarded on $50 million of 

investments in underserved communities through final COIN CDFI 

Tax Credit Program, California Department of Insurance, December 

2016. Available at: www.jnsurance.ca.gov/04QO~QJ.llil:J2~ 

releases/2016/release 147-16.cfm 

N/A, Addressing the Financing Needs of Small Businesses: 

Summary of Key Themes from the Federal Reserve System's 

Small Business Meeting Series, Board of Governors of the Federal 

Reserve System, July 2010. Available at: www.federalreserve.gov/ 

newseventsfconf.erenceslsbc small business summary.pdf 

N/A, Key Dimensions of the Small Business Lending Landscape, 

Consumer Financial Protection Bureau, May 2017. Available 

at: www.consumerfinance.gov/data~research/research-reports/ 

~nsions-small~business-!ending-tandscape/ 

43 MILKEN INSTITUTE PARTNfRSHiP FOR LFND!NG IN UNDF.RSERVfD MARKETS lPlVMJ PHASE! SUMMARY 
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N/A. Small Business Finance Frequently Asked Questions, U.S. 

Small Business Administration Office of Advocacy, July 2016. 

Available at: www.sba gov/sitesidekillill~o.~~Ql§_. 

WEB.pdf 

N/A, Treasury Announces $7 Billion Allocation Of New Markets Tax 

Credits, U.S. Department of the Treasury, November 2016. Available 

at: www. t reasu ry.goylpress~ce nte r/press-releases}Pagesli 10615.aspx 

Alicia Robb, Access to Capital among Young Firms, Minority-owned 

Firms, Women-owned Firms, and High-tech Firms, U.S. Small 

Business Administration, April 2013. Available at: www.sba.gov/ 

sitesidefaultlfiles/files/rs403totl2l.pdf 

Alicia Robb and Robert Fairlie, Disparities in Capital Access between 

Minority and Non-Minority-Owned Businesses: The Troubling 

Reality of Capital Limitations Faced by MBEs, U.S. Department of 

Commerce, January 2010. Available at: www.mbda.gov/sit~~ 

files/DisparitiesinCapitaiAccessReport.pdf 

Academic 

Rebel Cole, How Did the Financial Crisis Affect Small 

Business Lending in the United States71 DePaul University, 

November 2012. Available at: www.sb~~ 

how-did-financial~crisis-affe~ll:Q_usiness:..._Uin.Qi . .rut:..l!!litQQ::~ 

Marshall Lux and Robert Greene, The State and Fate of Community 

Banking, Harvard Kennedy School Mossavar-Rahmani Center for 

Business and Government, February 2015. Available at: www.h~ 

~ctYL=Ill~!!lJ:£!lgi.Qy_Qfu:_'Lti9JJJll_<J~Q/i;!~Jldi 

Karen Mills and Brayden McCarthy, The State of Small Business 

Lending; Credit Access during the Recovery and How Technology 

May Change the Game, Harvard Business School, July 2014. 

Available at: yvww.hiJ.s.JJ.lliilfaculty/Pu_bJlJ;.i;!!ilwillQFiles/15· 

004 09b 1 bf8b-eb2a-4e63-9c4e-Q37 41770856f.pdf 

44 MILKE~ I~STITUTE PARTNERSHJP FOR tENDING IN UNOEf\StRVED ".1AI\I\fTS \Pl UMI PHAS[! SUMMARY 
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Karen Mills and Brayden McCarthy, The State of Small Business 

Lending: Innovation and Technology and the Implications for 

Regulation, Harvard Business School, November 2016. Available at: 

hbswk hbs.edu/jtemlthe-state-of-small-bus~L@ill..J'lll:in_flQ\'!Ui.l1!!: 

and-technology-and~the- implications-for-regulation 

Nonprofit/Think Tank 

Oscar Perry Abello, Bank Merger Reinvestment Plan 

Targets Small Business Lending, Next City, November 

2016. Available at: www.nextcjty.ora/daily/eotry/ 

bank-merger-reinvestment-plan- small-b~tmlQ.ing 

Dedrick Asante-Muhammad, The Racial Wealth Divide in Baltimore, 

Prosperity Now, January 2017. Available at:~~ 

orglfiles/resources/Racial Wealth Divide in Baltimore ~ 

Dedrick Asante-Muhammad, Chuck Collins, Josh Haxie and Emanuel 

Nieves, The Ever-Growing Gap: Without Change, African-American 

and Hispanic Families Won't Match White Wealth for Centuries, 

Prosperity Now, August 2016. Available at www.orosperitynow.org/ 

resources/ever-growing-g~ithout-change-african-american-andlatino-fami!ies-wont-match-whllli 

Daniel Brett and Tom Woelfel, California Organized Investment 

Network Impact Report: Examining Investments Made in California 

from 2011 through 2015, Pacific Community Ventures, June 2016. 

Available at: www.insurance.ca.gov/0250- insurers/0700-~10-PubNews/upload/CQIN-Impact-Report-Finai-Diqital.pdf 

Gwendy Donaker Brown, Caitlin McShane and Eric Weaver, 

Unaffordable and Unsustainable: The New Business Lending, 

Opportunity Fund, May 2016. Available at: www.opportunityfund. 

org/assets/docs/U n afford able%20a nd% 20U nsustai nab! e- T_b_~.'lj,_ZQ 

New%20Busines~ding%20on%20Maio.:l9~L 

Opportunity%20Fund%20Research%20 Report May~Qf 

45 MILKEN INSTITUTE PARTNERSHIP FOR LE'ND!NG IN UNDERSERVED MARKETS (Pl \iMJ PHASE f SU,~~MARY 
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Sarah Surd-Sharps and Rebecca Rasch, Impact of the US Housing 

Crisis on the Racial Wealth Gap Across Generations, Social Science 

Research Council, June 2015. Available at: www.aclu.orgifilesl 

~~r.imlend final.pdf 

Spencer Cowan, Patterns of Disparity: Small Business Lending in 

Chicago and Los Angeles-San Diego Regions, Woodstock Institute, 

January 2017. Available at: www woodstockinst.orglsites/dllfill!lU 

files/attachments/Patterns%20of%20Disparity.pdf 

Melany De La Cruz-Viesca, Zhenxiang Chen, Paul Ong, Darrick 

Hamilton and William Darity, Jr., The Color of Wealth in Los Angeles, 

Federal Reserve Bank of San Francisco, March 2016. Available at: 

www aasc ucla.edu/besoi/Color of Wealth Report.pdt 

Emily Fetsch, Including People of Color in the Promise of 

Entrepreneurship, Ewing Marion Kauffman Foundation, 

December 2016. Available at: www.kauffman.org/ 

what~we-do/resources/entrepreneurship- policy-digest/ 

in cf ud in g~oeople-of-co! or-in-the-pro mise-of-e ntreoren e u rsh ip 

Emily Fetsch, The Economic Impact of High-Growth Startup, Ewing 

Marion Kauffman Foundation, June 2016. Available at: www. 

kauffman.org/what-we-do/resources/entrepreneurship-policy-diqest! 

!be- economic.:ir:rl.Qe.C1 of-high-growtU~ 

I an Hathaway and Robert Litan, Declining Business Dynamism in 

the United States: A Look at States and Metros, The Brookings 

Institution, May 2014. Available at: www.brookings.edu/rosearch/ 

declin i ng·bus in ess·dyn am ism-in· the-un i ted-states-a·look"at- states· 

Jill!i.:J.ng_IIQ 

Adam Hoffer, Stephen Miller and David Wille, Small-Business 

Financing after the Financial Crisis: Lessons from the Literature, 

Mercatus Institute, August 2016. Available at: www.mercatus.org/ 

~lliM='l.tUs-M[IIer-Small-!)usin~ss-Fin~JJ.Dllii:YLllitl 

46 MILKE, INSTITUTE PARTNERSHIP FOR LENDlNG !N UNOERSERVtD MAilKETS iP1 UMl PHASE l SUMMAI\Y 
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Joyce Klein, Bridging the Divide: How Business Ownership Can Help 

Close the Racial Wealth Gap, The Aspen Institute, January 2017. 

Available at: www.aspeninstitute org/publications/bridging- dividebusiness-ownership-can-help-dose-racial-wealth-gap/ 

N/A, Investing in the Success of African-American-Owned Small 

Businesses: Recommendations for Increasing Access to Capital, 

VEDC, October 2015. Available at: www.ipmoroanchasMill!ll 

corporate/newsldocumentlvedc-investing-in-success-of-aaosb.pQf 

Angela Reyes, Kenan Fikri and John Lettieri, Dynamism in Retreat: 

Consequences for Regions, Markets and Workers, Economic 

Innovation Group, February 2017. Available at: wwweig org/wpcontent/uoloads/2017/02/Dynamism-jn-Retreatpdf 

Alicia Robb and Arnobio Morelix, Startup Financing Trends by Race: 

How Access to Capital Impacts Probability, Ewing Marion Kauffman 

Foundation, October 2016. Available at www.kauffman.org/ 

what-we-do/research/2016/startup-financing-trends-by-race-howaccess-to- capital-impacts-profitability 

Maya Rockeymoore and Elvis Guzman, The Racial Wealth Gap: 

Hispanics, Center for Global Policy Solutions, April 2014. Available 

at: www.globalpolicysolutions.org/wp- content/uploads/2014/04/ 

Racia!WealthGap Hispanic Final.pdf 

Mark Willis, It's the Rating, Stupid: A Banker's Perspective on 

the CRA, Ford Foundation, 2009. Available at: www.frbsf.om/ 

communitv-devjitlopmentlfiles/its rating stupid1.pdf 

Media 

ian Mount, Why It's Getting Harder, and Riskier, to Bet the House, 

The New York Times, November 2011. Available at: l!Y.~!!Y1i.~ 

com/2011112/01/businessfsmallbusiness/why-business- ownersroutinely-bet-the-house-and-why-its-getting-hardlli:lQ-do.htrn! 

47 MILKEN INSTITUTE PARiNERSHIP FOR LENDING tN UNDERSERVm MARKFTS {P{ UMl PHASf. l SUMMARY 
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Ruth Simon and Tom McGinty, Loan Rebound Misses Black 

Businesses, The Wall Street Journal, March 2014. Available at:~ 

wsj comlartjcles/SB 1 000142405270230458500457941702157JM!!W.l.Q 

Other 

Maria Gotsch and Robert Gach, Fin Tech's Golden Age: As fintechs 

move from competition to collaboration, Wall Street has a unique 

opportunity to advance, Accenture, July 2016. Available at:~ 

acceoture.comlt20160724T221504w Ius-en/ acnmedja/PDF-261 

Accenture-FinTech- New-York-Competition-to-Collaboration.pdf 

N/A, Bank Referrals to Designated Finance Platforms, British 

Business Bank. Available at: www british- business-bank.co.uk/ 

bank-referrals/ 

Pat Phelan, Fraud in the Digital Age: Loan Stacking and Synthetic 

Fraud, TransUnion, October 2016. Available at: wwwtransuni.Q!h 

comlbloglfraud-in-the-djgital-age-loan-stacking-and:§¥D1.bJlli«::fil!lli! 

Barbara Polsky, Brian Korn and Craig Miller, Collaboration Between 

Regional and Community Banks and Fin Tech, Manatt, October 

2016. Available at: www.manatt.com/losjghts/White· Papers/2016L 

Growing-Together-Collaboration-Between-Regional-a 

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APPENDIX B. PHASE I SURVEY 

Strategy 

1~ linprove evi~nee: 

baSe for Pi:-t.J~: 

At!tivf:ty 

Find baseline of current l~vels oftendlng and existing 

opportunities. 

Support regulatory efforts tQ mandate 

small businesS data collection, 

Market PlUM. 

Description 

Conduct research to create a baseUne of curtent levels of lending and existiriq 

opportunities in target underserved mark~ts. 

Work with partners to support Dodd-Frank l071 

(small business data coltectiot'i)." 

Identify champions across multlple jurisdictions 

levels who will join in devek:lping 

a marketing strategy, 

2. linprova m~r~t Enhance supplier diversity programs. 

'OJ)j)Qrt~!li:ttes:for :sinal! Make mandatory what are currentlY voluntary 

supplier diversity programs of state procurement, ensure effective enforcement mechanisms are Jn place, and improve program efflcienc.y {shorten 

program certification times and stream lim;, 

bureaucracy), 

bl.f$fnesses. 

3. Imptave struCt~ral 

limitat!Qna~f 

smalt4:>;t~siriess 

lendetfli'laMing lj1 underserved m~u'lrets. 

4,, fncrease equity! patitot capital in 

undel"$erved markets. 

Develop a suppi!er rllentq.r program. 

Improve access to targe market opportunities. 

lncentivb:e standarditation'and best pradices by tenders with :& secondary market fund as a carrot. 

Tax-.based incentives. 

i::nhance state gUarantee pr~rams. 

Support place-based SBIC. 

Improve c~dft underwriting. 

Support ~RA rightsizing. 

fmprove 7(a) loan adjustment$.. 

Primes take on sub-primes menWE:~< small businesses, who then gain ~xperience. t.o betorn:e primes on future proje~ The sub•primes wot~ld 

need to b& from target commun:ltie& to ensure the 

spread of economic ~rowth to those 

communities. 

Structure minority-owned business requirements 'for development projects. for example, as part of 

a Community Benefits Agreement. Like- affordable 

housing requirements (e.g.~ LAX). 

Support the creation of a see~dary market 

fund that Citn provide capital tas an incentive) 

,to fenders within a short-term period a_fter originating specific foans that conform to best 

practices. 

Identify opportunities via New Market Tax 

Crf!dit program, 

Support efforts. for state toan guarant~e ptograms to leverage federal {SSA) guarant~ structure with 

tower subsidies. 

Identify champion to lead in the creation of a place·based SBIC that can help fund small- bw~iness lenders in target unders-erved 

markets. 

Create a regulatoty s.andbo:oc at appropriate level !state vs. federal) to adllat'lte new models of 

credit scoring/underwriting. 

Support n.atlonaii[)Qlslation to strengthen eRA 

rules in support of underserved markets. 

Identify improvements in the SBA Advantage 7(~) loan program to increase utilization. E.g., 

flexibility in National Priorities. List !NPU requirements. 

Promote angel network of investors. Suppon anchor ehampion/pl.!rtner to $Cte~n and 

host quarter1y pitch event of entrepreneurs. 

Promote intrastate equity crowdfunding. Support stato fegistation that enables the growth of Internet-based intrastate equity 

crowdfunding. 

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Strategy Activity 

5. lmprov& teehnlcat Support co-location of TA 'and small~ 

assltttance. business lenders. 

&.Improve 

tr~nSpa/tmcy ahd, effie~ '()f~B~J:ender 

engag.ement in on<H.~rse{Ved markets. 

(. Supportsmalh 

bmin$S:Sllnketf urban deV&fopment. 

Customize TA approach. 

Support ffnaneialliterac.y mo;tntodng for youth In unttersetved markets. 

Improve bank rf:l:ferral :appro&(:hes. 

Develop "BBB~type" approved Jist of 

lenders. 

Enforce existing and future. policies, 

Promote broker regulation. 

Identify and promote potential urban deveto.pm~nt proj~s {e.g., lnf!ovatiQn Village, Port Covington). 

..... _. In key :tip codes. work with selm.:tsmalf.buslness tenders to have 'embedded TA provider& that can assist with both education or tertdetso and provide :support for smaU businesses. 

lmprow efficiency of traditional iA.. while 

supporting the ereatioo of accelerator clusters in 

high·g~h sectors ,lbioscjeoce,'ehterta_~nll'«!nt 

reMwabl~ energy, transpnrtatJon, co~sJt~etion/ 

facility ~rviclW:. utillti.es. 1T/professlortat services, and healthca.re/social service$) and lnct~b-ators for other established -&ed:orS. 

W~:rrk with youth mentoring organi:tati~ns to introduce smaUwbuslne:ss fiMneiaf tlteracy training. 

Support the scat~ up of the lreasury's'Project (l 

to lnc:entivi:ze bank referrals ptsmall-buslnes$- dec1iMS to CD~ Is (and other :alternM:Ive finance providers!. 

Work with Small Business BiH offUghWSMAAT 

Box to create a list of standards that lenders {e.g., dlsdo'Sures and/Or product types} mu,st ag(ee to and J?Ublish a fist imanag{td by city tead~rshtp) of 

tenders that have provided certifiCation. 

tAr!~i~~~~~de~:tt~~:tp~>~~~::::~,,ulations 

Support creation of {and regulation oil sta;ndards to gove:m small-business lender brokers' fiduciary :responsibility. 

Create- a standard for what a small·business~ 

linked urban development prog~m needs to look tike, identify potential e-xiU'I1pf~s, l'ttld prOmote them a!:l a guidepost for the facilitation oi future economic development and hOw it wm be accomplished, 

50 MllKEN INSnTUTE PARTNERSHIP FOR U'NOJNG IN '-INDERSERVFD MARKETS lPLLIM\ PHASE I SUMMARY 
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APPENDIX C. PLUM SURVEY RESULTS 

Methodology: In early 2017, the Milken Institute prepared a survey 

for participants on the Los Angeles and Baltimore PLUM task forces. 

Participants were asked to rank each of the activities (see Appendix 

B) from one to five, with one being least important and five 

representing most important. As can be seen in the below results, 

not everyone who participated in the Baltimore and/or Los Angeles 

PLUM launch were in attendance for the meetings held earlier this 

year. To ensure everyone's voice was heard, the Mil ken Institute 

also reached out through an online survey to those who could not 

attend the in-person meetings. Respondents to the online survey 

were added to the sample size in the below charts. The purpose for 

the survey was to help the Institute map out the direction for Phase 

II and where the PLUM initiative should best apply its resources 

given limited capacities. The results of this survey led the Institute 

to develop several action groups focused on both local and national 

efforts in Baltimore and Los Angeles (see Phase II: Solutions). 

Los Angeles and Baltimore Survey Results: Combined 

r------------------- ----------------------------, I B4sMlnddcumrnthl~dt~•!t~~== :::: I t FIMAdllllteocyrnentorlnglbrfOidhh!WllfMHnredmarltatll ,,04 I 

I Co-toc.tionofTA ndSBLHd1ra 4.01 t 1 MlrtetlngPLUM 3.88 t fht:IJirtivi1JBIIJJIIl»rc61'Jitlon•lldbestpncticiJsbyL~newfthll~rymamttmdllstlal'ft't 1.:98 1 

J~dcrodt~ f 

l.lA~I De-Yilfop strateglcadvlslngaadfKCQCH filM' MDI& ttrtabt!:shedgrcwthftms •n.d uc:tor1: I 

'------------- --------- -~.!'!_d!c~:.~to";!ri'z== Enhamt~eupplier diVtrn<tly programs 

fmptlWIIb./lttk ,.~~·~ 

Dllv•lopa$Uppllar nwntor progn~m 

hpPOrtpta-oo~SBfC 

Suppon £nt&rprl&9 Zone- type mod811o target 59 tt.v•loprn•rtt 

7(a) Loan adju$tmintt 

Promo!Qc angoJ.net:worl of if'M):Stoa 

ldl:ln!lfy al'ld prol"''tl$! ptllantlal ul'bandlweloptniH'IIprojacUile.g. JnoovatlonViUagq~PortCllvington) 

Support raiJll1aklry affn!'\"110 mandata •maUbusirtess datil coiled! on 

.O.v.lop"81JB..fyps-11pp10ViH!Iffioflood.l,. 

T1lll·baood ls'lc$nt!vea ~nbrtemard of a:w!ttingondM!n polld\ls 

~ brukiH lil{lll)atlon 

RA*lE&tab!l&ha f&Oiooall~ttlfthotst!-l'\',esul'ld&nto:~M!tlm&tket1 

Promo!G lntrnstma equity crowdfundlna 

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Los Angeles and Baltimore Survey Results: Top Activities Broken Out 

Financial literacy mentoring for youth in underserved markets 

Baseline of current levels of lending and existing opportunities 

Note Sample Sllfi 46 

Marketing PLUM 

Improve bank referral approaches 

Improved access to large market opportunities 

Customize TA approach jj 4 

Baltimore 

4.11-

Los Angeles 

Marketing PLUM 4.10 •••••• 

CRArightsi:dng 4.08 •••• 

Improved credit scoring/underwriting // 4,03 

Co~!ocation of TA and SB lenders // 4.03 

Customize TA approach // 4.03 

Note-Samp!IJSIZO 40 

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Los Angeles and Baltimore Survey Results: Lender Working Groups 

Baltimore 

lncentivize standardization .and best practices by Lenders with a secondary market fund as a carrot 

Financial literacy mentoring for youth in underserved markets 

Improve bank referral approaches 

Note Si!mp!e SINF 20 

Support place-based SBIC 

Baseline of current levels of lending and existing opportunities 

Improved credit scoring/underwriting 

Customize TA approach 

lmproved credit scoring/underwriting 4.041 

Baseline of current levels of lending and existing opportunities 4 • 

Co-location ofT A and SB Lenders 4. 

Improve bank referral approaches 3.91 

Los Angeles CRAdghts;z;ng [4.17-

fneentivize standardization and best practices by Lenders with a secondary morketfund as a carrot ~ 3.87 

Nate. $amoles11e 23 

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Los Angeles and Baltimore Survey Results: Economic Development Working Groups 

Baltimore 

CustomizeTA approach 1:::~:4.3322:::::- Support regulatory efforts to mandate small business data collection ~ 4.271 

Baseline of current levels of lending and existing opportunities 4.14-

Nore ,';ample sNe 22 

Co~location ofT A and SB Lenders 4.14-

Develop a supplier mentor program 4.10-

Enhance state guarantee programs jj·4,09 

Enhancesupplierdiversityprograms /14.00 

LA-Ec.oMmic Devalopmant 

Emerging BusinessSector 

Baseline ofcurrentlovelsoflending.ande)(ist~~~~~i~r:;~te~ l!fl!o .. '!",.~., .. _ ..4.83 -

Enhance supplier diversity programs 4.50 

Improved access to large market opportunities 4.50 lncentivize standardization and best practices by lenders with a secondary market fund as a carrot 4.50 

CRA right!iizing 4.50 

Promote angel-network of investors 4.50 Customize TA approach 4.50 

Dove lop "BBB·type" 11pproved list of lendors 4.50 

Identify end promote potential urban dovelopment projocts {o.g. Innovation Village, Port Covington) 4.50 

LA- Economic Development 

Established Business Sector 

Develop a supplier mentor program ~==== 4.6.4 ::::: Customize TA approach 4.64 

Develop strategic advising and resources for more established growth firms and sectors 4.64 

Enhance supplier diversity programs 

Marketing PLUM 

4.55-

PromotQ ang!ll-network of investors 4.36 -

lmprovod access to large market opportunities ~· ·, 4,~7 

Attract and develop mechanisms for mid-and-later stage venture capital for growing M6Es 4._ 18 

Establish a regional incubator that serves underserved markets 4.1a 

Support regulatory efforts to mandate small business data collection f 4.09 

Now Jlw Los Angeles fwnom/C Development ~·(lrkmg Group w,~s split mto rwo grouns Enwrgmg <>nd Mwb/!s.,od bosiMsses Ssmp/(1 stze for 

emer.qmg IJi.iSif)(JSS(fS tl~ ::;~;~mp!e SIZf! lor f!>tiJbf1SN!'d bUS!rl{!SSB$ 11 

54 MllKEN INSTITUTE PARTNERSHIP FOR:! f':ND1NG IN UND£RSff\VED MAf\t:ETS (f'LU"A) PHASE I SUMMARY 
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Los Angeles and Baltimore Survey Results: Policy and Regulatory Working Groups 

Baltimore 

Improve bank referral approaches 

Baseline of current levels of lending and existing opportunities 

Improved access to large market opportunities 

Co-location of TA and SB Lenders 

Financial literacy mentoring for youth in underserved markets 

Tax-based incentives // 4.25 

CRA rightsizing 

7(a) Loan adjustments 

Promote angel-network of investors ~ ::: 

bec!luseofrhel:nwedscmr:Ji'eSJ?etflt/lepo!Jcy 

' 

55 MILICEN INSTlTUTE PAHTNtl'lSH1P FOR LENOING IN l,INDERSERVED MARKETS lPLUMi PHASE I SUMMARY 
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ABOUT THE INTITIATIVE 

The Partnership for Lending in Underserved Markets (PLUM) is a two-year pilot 

program led by the Milken Institute and the U.S. Small Business Administration to 

develop actionable solutions to address long-standing structural problems in Baltimore, 

Maryland and Los Angeles, California that inhibit minority-owned small businesses 

from accessing capital and growing their operations. The pilot initiative will occur 

over three phases: Problem Definition-Define challenges and opportunities that 

minority-owned small businesses face in each metropolitan area; Solutions-Identify 

potential solutions to address the challenges through established action groups focused 

on local or national policies and the creation and development of strategic plans to 

guide execution; Implementation-Execute with local champions and other national 

recommendations and publish local lessons learned and best practices as well as the 

outcomes of other national activities. 

ABOUT THE U.S. SMALL BUSINESS ADMINISTRATION 

The U.S. Small Business Administration (SBA) was created in 1953 as an independent 

agency of the federal government to aid, counsel, assist, and protect the interests of 

small business concerns; to preserve free competitive enterprise; and to maintain and 

strengthen the overall economy of our nation. SBA recognizes that small businesses 

are critical to our economic recovery and strength, to building America's future, and 

to helping the United States compete in today's global marketplace. Although SBA 

has grown and evolved in the years since it was established in 1953, the bottom line 

mission remains the same. The SBA helps Americans start, build, and grow businesses. 

Through an extensive network of field offices and partnerships with public and private 

organizations, SBA delivers its services to people throughout the United States, Puerto 

Rico, the U.S. Virgin Islands, and Guam. 

ABOUT THE MILKEN INSTITUTE 

The Mil ken Institute is a nonprofit, nonpartisan think tank determined to increase global 

prosperity by advancing collaborative solutions that widen access to capital, create 

56 MltKEN INSTITUTE PARTNERSHlP FOH LCNOING IN UNDERSEf\V(D MARKETS iPLUM) PHASE! SUMMARY 
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jobs, and improve health. The Center for Financial Markets promotes financial market 

understanding and works to expand access to capital, strengthen-and deepenfinancial markets, and develop innovative financial solutions to the most pressing 

global challenges. The California Center produces rigorous, independent researchand maximizes the impact of our findings by convening influential stakeholders 

from the worlds of business, finance, policy, and philanthropy. Together with these 

stakeholders, the Center advances financing strategies and smart policy approaches 

that can build a more prosperous future for California. 

ABOUT THE AUTHORS 

Carolyn Karo is an associate director for policy at the Milken Institute California 

Center. She focuses on issues that affect California's economy, businesses, and jobs. 

Karo's research areas include community development, small businesses, education, 

workforce development, and public pension management and governance. 

Jackson Mueller is an associate director at the Mil ken Institute's Center for Financial 

Markets. He focuses on financial technology (Fin Tech), capital formation policy, and 

financial markets education initiatives. 

The authors wish to thank Aron Betru (managing director, Mil ken Institute Center 

for Financial Markets and PLUM-Baltimore co-chair) and Kevin Klowden (executive 

director, Mil ken Institute California Center, managing economist and PLUM¥Los 

Angeles co-chair) for their leadership and guidance. 

They would also like to thank Matt Horton, Rebecca Simon, and Ziyi Huang for their 

contributions to PLUM Phase I. 

<02017 MHken Institute 

This work is made available under the terms of the Creative Commons AttributionNonCommercia!NoDerivs 3.0 Unported license, available at creativecommons.org/licenses/by-nc-ndf3.0/ 

57 MILKEN INSTITUTE PARTNfRSHIP FOR LfNDING lN UNDERSERVW MARKETS (PLJM\ PHASE I SUMMARY 
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Partnership for 

Lending in 

Underserved 

Mankets Phase II Summary: Lessons Learned for Advancing 1- Minority Small Business Capital Access 

CAROLYN KARO SCHULMAN 
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EXECUTIVE SUMMARY: LESSONS 

LEARNED FOR COLLABORATION 

Through the Milken fnstitute and U.S. Small Business 

Administration (SBA) Partnership for Lending in 

Underserved Markets {PLUM) initiative, we are teaming 

how to improve collaborative efforts in a given market 

and around specific capital access solutions. There 

have been many across~the-board lessons learned 

through our local pilot programs and national work 

to date. Some speak to approaches to partnership 

and coalition-building while others are reflections and 

recommendations for existing capital and technical 

service providers. 

Overcome Data Deficits to Identify 

Opportunity 

Maximum opportunity for economic growth lay in the 

overlap among industries in which Blacks and Hispanics 

are strong (i.e., own businesses and are employed), 

in the industries that are growing regionally, and the 

communities in which Blacks and Hispanics live and 

work. The challenge is identifying and accessing data 

that is sufficiently localized to be instructive. Yet, it is 

possible to piece together the minority small business 

and capital landscapes by leveraging resources and 

information from think tanks, universities, and city and 

county agencies. Supplementing the information with 

community insights and local knowledge and expertise 

will further facilitate identifying gaps and opportunities 

for minority business owners. 

Engage Anchor Institutions and 

Local Stakeholders, and Recognize 

Competition 

A committed local partner, who knows the market and 

its players well, is essential to advancing any capita! 

access solution. Jn addition to compensating for data 

deficits, local partners lend legitimacy to programs and 

initiatives and create trust among stakeholders. Anchor 

institutions provide local leadership and support buy-in 

from service providers and potential clients to new 

capital solutions. This local ownership matters because 

it empowers communities to be a part of long-term, 

sustainable impact. With providers engaged, it is more 

likely clients, borrowers, and small businesses wfll 

embrace new opportunities. 

However, there are challenges when casting the net 

widely. Competition for clients and resources can hinder 

collaboration, and some organizations and institutions 

fear that new solutions will disrupt the status quo. 

Moreover, some local organizations can be hesitant to 

engage with national partners because they lack the onthe--ground knowledge and might impose standards or 

requirements that do not work locally. A comprehensive 

minority capital access strategy should include existing 

players while making room for innovation. The value and 

necessity of engaging local stakeholders far outweighs 

the tensions, but it is helpful to recognize that these 

tensions exist with regard to outreach, expectations for 

participation, and buy in for new ideas. Furthermore, 

embedding a sustainable strategy requires a long lead 

time for both a diagnostic of the issues and potential 

solutions, as well as a runway for executing efforts with 

local ownership driving the way fmward. 

Build Wider and More Targeted 

Networks 

The current networks among debt and equity providers 

are disparate. and shifting the discussion can result 

in an entirely different set of stakeholders. Often, 

capital and service providers have narrow channels 

of relationships or even awareness of the broader 

ecosystem of players. For example, banks and online 

lenders do not typically operate in the same space as 
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crowdfunding organizations and angel investors, and 

lenders only know to refer declinations to a limited 

pool of organizations. Bridging the divide and bringing 

together those who do not traditionally interact will 

support new solutions and directly increase access to 

capital by growing the pool of options. 

At the same time, minority businesses benefit 

from targeted networks that prioritize their needs. 

Deliberate, targeted matchmaking will support 

connections between capital providers to minority 

entrepreneurs and business owners. 

Use Technology as a Tool, 

Not a Solution 

Technology offers tools to support improved data 

collection, networking, and collaboration, as well as 

operational efficiencies, yet there is much mistrust, 

apprehension, and doubt around its application. 

Some providers are hesitant to leverage online 

platforms because they rely on algorithms versus 

human relationships to bridge the disconnect between 

providers and cJients. There is no substitute for a 

personal relationship, but there are Fin Tech companies 

who seek to integrate hfgh~tech and high~touch in their 

models. Any online matchmaking should be routing 

small businesses to the most cost-efficient products 

and services available that are tailored to their needs. 

Predatory lending, or routing to the highest cost 

products and services to gain a better commission, 

are clearly activities to monitor and discourage. Yet, 

to realize the objective of increasing access to capital, 

we must embrace the opportunities technology, and 

technology partners, offer to save time and money 

and reach more people, particularly the unbanked and 

underbanked. 

Develop Culturally-Competent 

Marketing, Outreach, Products, 

and Services 

In the context of capital access, cultural competence refers 

to an institution or organization's ability to understand 

how race, ethnicity, gender, age, national origin, disability, 

language, and other demographics shape a population's 

relationship to financial products and services. The lack 

of understanding and recognition of cultural factors is a 

major barrier to capital access for Black and Hispanic 

entrepreneurs and small business owners. For example, 

lack of generational wealth and experience~based human 

capital (professionaJ and management experience), as well 

as poor or limited credit histories change what business 

readiness means to minority entrepreneurs and for 

which products they may qualify. 

Developing cultural competence is a dynamic and 

complex process requiring ongoing assessment and 

feedback. It is important to building trust between 

providers and clients, and increases the likelihood that 

products and services reach their target audience. 

Identify Champions to Promote 

Public Policy 

In addition to programmatic efforts, there are policy 

solutions to minority barriers to capital access. 

Identifying policy champions, individuals with the 

influence, access, and credibility to promote solutions 

to legislators and other policymakers is paramount. 

Whether locally, statewide, or nationally, relationships 

and partnerships with policy champions can be the 

difference between good Ideas and executed outcomes. 
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CONTENTS 

Background 

The Partnership for Lending in Underserved Markets 

National Efforts 

Pilot Cities 

Lessons Learned for Collaboration 

Overcome Data Deficits to Identify Opportunity 

2 

4 

4 

5 

9 

Engage Anchor Institutions and Local Stakeholders. and Recognize Competition 12 

Build Wider and More Targeted Networks 13 

Use Technology as a Tool. Not a Solution 14 

Develop Culturally-Competent Marketing. Outreach. Products. and Services 16 

Identify Champions to Promote Public Policy 17 

Conclusion 19 
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BACKGROUND 

Minority-owned small businesses play an important role 

in the nation's economic health by driving job creation, 

raising wages, and elevating better standards of living 

in urban and rural communities throughout the United 

States. Business ownership is also a critical pathway for 

Blacks and Hispanics to close the racial wealth gap-an 

increase fn entrepreneurship among people of color can 

create income for both entrepreneurs and the people of 

color who work at the businesses.1 

In 2015, Blacks made up 12.7 percent of the 

population, yet only owned 2.2 percent of classifiable 

small employer firms that made up 1.0 percent of 

sales (average receipts of $818,512), 2.0 percent of 

employees, and 1.4 percent of payroll (average wages of 

$28,241). Hispanics were 17.6 percent of the population, 

yet owned 6.0 percent of classifiable small employer 

firms that accounted for 3.5 percent of sales (average 

receipts of $1 ,020,706), 5.0 percent of employees, and 

3.8 percent of payroll (average wages of $30,534}.2 See 

Figure 1, 

These employee and payroll figures reflect a history 

of disadvantage and its lasting economic effects-the 

number of employed workers and how well those 

workers are paid. 

Starting a new firm or growing an established business 

requires capital, but stack and Hispanic businesses 

are reported to have higher barriers to capital access. 

Generally, all Americans rely mostly on personal and 

family savings to finance their startups and acquisitions 

1 The Milken lnstitute recognizes the difference between 

"Hispanic" and "Latino" designa.t1ons and the ongoing 

debate regarding which is most appropriate. When citing 

others' works, we defer to the designation used by each 

organlzatfon or agency. Otherwise. for consistency, we use 

~Hispanic" versus "Latino," and "Black" versus ''African 

Amencan,~ per U.S. Census Bureau class1ficaticns. 

2015 population data: U.S. Census Bureau. 2015American 

CAmmumty Survey 1"Year Estimates. 2015 busmess data: 

U.S. Census Bureau, 2015 Annual Survey of Entrepreneurs. 

(66.7 percent}.:t However, nationally, the second most 

used capital product is business loans (17.9 percent); 

among Black and Hispanic small firms it is credrt cards 

(17.9 percent and 14.2 percent, respectively). As seen 

in Figure 2, heavy reliance on credit cards reflects the 

difficulty minorities face securing a loan due to poor or 

limited credit history, lower net worth, and lack of assets 

to leverage as collateral, among other factors:~ 

To address minority capital access barriers, the Mllken 

Institute (the Institute) and the U.S. Small Business 

Administration (SBA) convened financial institutions, 

regulatory agencies, community groups, and research 

institutes at a national roundtable at the White House 

in June 2016. The product of that meeting was the 

Partnership for Lending in Underserved Markets 

(PLUM), a Mil ken Institute and SBA initiative to develop 

actionable solutions to long-standing barriers that 

constrain minority entrepreneurs from accessing capital 

to start and grow businesses. The objective is to 

increase not only the amount of capital reaching minorityowned businesses, but also the number of successful 

(growing) minority businesses in Black and Hispanic 

communities employing Black and Hispanic workers. 

U.S, Census Bureau. "2015 Annual Survey of 

Entrepreneurs." Percentages arc based on 3,511,285 

classifiable employer firms who reported thetr source of 

capita! to start or acquire a business~ 

4 Fairlie. Robert W. and Robb. Alida M. "Disparities in 

Capital Access between Minon'ty and Non~Minority-Owned 

Businesses: The Troubling Reality of Capita! Limitations 

Faced by MBEs." U.S. Department of Commerce, Minority 

Business Development Ag-ency, January 2010. 
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FIGURE 1: RACE AND EIHNICIJY ASAPERCOODF PDPUlAlliHIAND BUSINESS (2015) 

• Population II Finns Iii Sales .Employaes Payroll 

FIGURE 1: SOURCES DF CAPITAL TO STARr DR ACQUIRE A BUSINESS (2015) 

Businessloonfromabankorfimmciatinstitution l'$sonalltami~sa,;ngsol-dslliEE~::················ .... PersOM!c:reOitcard!slcarrying balances 

PeJSOOal/lami~assels olher~an ""'~~'~_,Is! 

llm1know 

Noneneedell 

P"""'al/lomKyhmneequilyl"' 

Ousinesse~el!itcardfslt31ryingt:alant1!S 

Buslnessloan/investmentfmmtamity{hiends 

Ottlersollfce[s)ofca~tal 

Govermnent·guararrteel!lluslnessloanfrcmabank orfmantiatinstltutioll 

ttemnotreportelj 

lnvestmentbyventurecaprtalistlsl 

Busklessloanfromfederai.state.orlocai!J(IVef~nt 

Gr.,~ L---~---L---J ____ L_ __ J_ __ -L--~--~ 

Ol 10l 20l 40I 50l 60l 

• Total Claasifiablo Ill Black !Iii Hispanic 

Phase n Summ>!'f: Mlaociog C.pital Atms SoMioM lorMilro!lty smau Bus..._ 
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THE PARTNERSHIP FOR LENDING IN 

UNDERSERVED MARKETS 

National Efforts 

Nationally, the Milken Institute committed to initiate 

research, explore improvements to federal policies 

and institutions that affect minority small business 

capital access, and identify broader opportunities 

to address investor capacity and alternative credit 

underwriting criteria. 

Congressional Engagement 

The Institute participated in a Congressional 

Black Caucus (CBC) Wealth Creation and 

Economic Development Task Force event covering the 

Community Reinvestment Act (CAA), small business 

data collection, and the role of Fin Tech in providing 

capital to underserved communities. We continue 

to engage with the members of the CBC and other 

lawmakers to inform the debate surrounding key 

legislation, including the Small Business 7(a} Lending 

Oversight Reform Act of 2018, regulatory requirements, 

Including Section 1071 of the Dodd-Frank Act, and other 

public policies that affect minority entrepreneurship, 

economic development, and community revitalization. 

Comment letters 

We submitted several comment letters to 

federal agencies. First was in response 

to an SBA request for comment -regarding reducing or 

eliminating unnecessary regulatory burdens and bringing 

greater efficiencies to the agency.s In our mission to also 

improve the capital access pipeline to small businesses, 

we proposed action items such as expanding and 

making permanent the Alternative Size Standards to 

provide for greater certainty and to account for loan size 

5 Klowden, K., & Betru, A. Comment Letter to the SBA: Small 

Business Administration's Request for Information AJmed at 

Reducing Regulatory Burden, Docket No. SBA~2017-QD05. 

November 2017. Retrieved from: https://www.regu!ations, 

gov/document?D,.S!3A~2017 -0005-0254, 

when determining whether a small business qualifies for 

a program, making permanent the Community Advantage 

7{a) Loan Program and refining specific protocols, 

relaxing requirements for minimum SBIC capitalization 

thresholds to encourage smaller investment, and 

increasing the number of nonbank licenses with a specific 

low- and moderate-income focus. 

We also submitted a series of recommendations 

and calls for clarification on the Consumer Financial 

Protection Bureau's (CFPB) efforts to bring transparency 

and information to the small business lending market 

through Section 1 071 of the Wall Street Reform and 

Consumer Protection Act {Dodd~Frank Act)." Efforts to 

address the data gap on small business lending could 

result in reduced product mismatch and more tailored 

technical assistance, enhanced responsiveness from 

local, state, and federal agencies, and reduced reliance 

on "cookie-cutter" underwriting processes. 

Lastly, the Milken Institute responded to the CFPB's 

Request for Information (RFI) regarding the use of 

alternative data and modeling techniques in the credit 

process.' Comments included a recognition that despite 

the inherent risks associated with the use of alternative 

data in the credit underwriting process, alternative 

data and modeling techniques are necessary when 

considering the fact that a growing segment of the U.S. 

population is either underbanked or unbanked and that 

relationship~banking is increasingly being replaced with 

automated credit scoring processes that fail to look 

beyond the FICO score and take into account the local 

economies within which small business operate. 

6 Mlffilier, L & Betru, A. Commt;lnt Letter to thfl CFPB for 

Information Regarding the Small Business Lending Market, 

Docket No. CFPB·2017 ~0011. September 2017, Retrieved 

from: http:/!wW\ .... milkeninstiMe.org/pubhcatlons/v~ew/88:2. 

7 Betru, A., & Mueller, J, Comment Letter to tho CFPB: 

Alternative Data and Modeling Techniques ln the Credit 

Process, Docket No. CFP8~2017-0005. March 2017. 

Retneved from: http://www.mllkenmstitute.org/publications/ 

view/861. 
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Research and Initiatives 

In response to the 40"' anniversary of the 

Community Reinvestment Act (CRA) and 

our continued engagement with the CBC, the Institute 

has initiated a series of meetings with stakeholders 

to determine what CRA policy should look like for the 

21~ century, given the proliferation of online, non-bank 

financing platforms, and the continued consolidation of 

the traditional banking sector. 

We have also engaged a third-party to assess the role 

(and impact} of alternative data for small business credit 

underwriting purposes to produce potentially more 

accurate (and holistic) credit profiles. This work will 

inform the deveJopment of policy options for lawmakers 

and regulators to consider in efforts to redirect capital to 

otherwise credit-worthy small businesses. 

Finally, the Institute is researching the potential impact 

of increasing Minority Depository Institution {MDI) 

equity capital and how it could translate to increased 

access to capital for minority-owned small businesses. 

Historically, MDis have been a critical source of financial 

capital for low- to moderate-income {LMI) communities. 

However, today MDis are significantly smaller in scale, 

limiting their abilfty to serve their communities. tn order 

for MDis to scale up their efforts, they require capital 

themseJves, tier 1 equity capital in particular. We also will 

explore the effects on job growth and wealth creation in 

underserved markets. 

Milken Institute Events 

At the 2017 Milken Institute Global 

Conference and the 2017 Milken Institute 

California Summit, we held sessions where local 

stakeholders and government officials discussed ways 

to address the ongoing challenges in moving capital to 

underserved small business communities. 

Looking ahead, the Milken Institute will continue to 

engage stakeholders, conduct research, and inform 

public policies that affect minority entrepreneurs, 

economic development, and community revitalization. 

Pilot Cities 

In 2016, the Milken Institute and the SBA also initiated 

two-year local pilots in Baltimore, Maryland and Los 

Angeles, California to better understand how local 

dynamics affect capital access in a given market and test 

solutions. The Baltimore protests, in the wake of the 2015 

death of Freddie Gray while in police custody, brought 

attention on a national level to the consequences of 

long-standing racial tension and community divestment. 

Los Angeles is a microcosm of racial and ethnic diversity 

with an instructive mix of overlapping jurisdictions and 

governance structures. We formed Steering Committees 

of community leaders and broader task forces of partners 

in both cities, and divided the pilot into three phases: 

Phase I 

Phase I launched in the faJI of 2016 and concluded in early 

2017. Government officials, data providers, economic 

development workers, traditional and alternative capital 

providers, and others participated in kick-off events and 
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joined working groups to identify spedfic issues related to 

lending, public policy, and economic development. They 

provided on-the-ground evidence, presented qualitative 

and quantitative survey data, shared local studies, and 

engaged with additional stakeholders. 

The task forces reconvened in January and February of 

2017 to summarize the discussions thus far, share what 

had been learned, and ask the groups to choose a path 

forward. The Milken Institute presented landscaping 

data on the Los Angeles and Baltimore small business 

and lending environments, a summary of root causes for 

the capital access gap, and potential solutions. 

At the end of Phase I, we produced a Phase I summary 

report that included information and data on the minority 

small business and lending environments, the genesis 

of the PLUM initiative, and key findings from Phase 

I working groups around capital access challenges 

related to lending, policy, and economic development.8 

Phase II 

39 

7 

ACTION GROUP MEETINGS 

MATCHMAKING, NETWORKING, AND CONFERENCE EVENTS 

300+ PARTICIPANTS 

Based on task force feedback, survey resufts, additional 

discussions with PLUM participants and stakeholders, 

as well as consideration of what other partners and 

groups were doing, the steering committees decided to 

move forward on the following: 

Local Research: Gather data-driven insights on 

minority~owned small businesses, the lending 

environments, and the industry sectors and geographic 

clusters to provide the evidence base to enhance 

access to capital for new and growing Black- and 

Hispanic-owned small businesses. 

Loc-al Policy: Engage with local and county officials to 

establish champions to drive the PLUM effort forward. 

8 Karo, C., & MueU~r. J. Partnership for Lendwtg in 

Underserved Markets Phase l Summary: Developing 

Action-Oriented Solutions to the Financing Challenges 

Facing Minority~ Owned Small Businesses. Milken 

Institute. September 2017. Retrieved from: http://www. 

rni!keninstitute.org/pubHcatlonslview/879. 
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Solutions to Root Causes of Minority Capital Access Gap 

EXPAND AND CUSTOMIZE TECHNICAL 

ASSISTANCE 

OVERCOME STRUCTURAL LIMITATIONS OF 

MINORITY SMALL BUSINESS LENDING 

IMPROVE TRANSPARENCY AND EFFICACY OF 

SMALL BUSINESS LENDER ENGAGEMENT 

INCREASE EQUITY /PATIENT CAPITAL IN 

UNDERSERVED MARKETS 

COORDINATE URBAN DEVELOPMENT 

EXPAND SMALL BUSINESS MARKET 

OPPORTUNITIES 

IMPROVE EVIDENCE·BASE FOR ACTION 
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Technical Assistance {TA) and Lender Referral Best • A series of local policy briefs for municipal, county, 

Practices: Support efforts to identity best practices and statewide audiences about economic incentives 

and standardize TA and lender referral efforts focused to promote opportunities for Black and Hispanic 

on individual TA providers, lenders, and new and businesses, addressing challenges in city and county 

established small businesses. contracting; coordination of federal resources to more 

effectively channel capital to local communities, and 

Local steering committees then met to tailor local Fin Tech opportunities to automate several areas of 

approaches for next steps. In Baltimore, steering the capital access ecosystem including government 

committee members facilitated local policy, local TA, to business transfer, accounting, and marketing and 

and local research discussions. In Los Angeles, steering delivery of technical assistance 

committee members formed action groups to address 

priority topics. These groups met monthly for the In some cases, execution on these solutions began last 

remainder of 2017 to pinpoint specific opportunities year. And with the ultimate goal of increasing access 

for impact-a challenging process that required to capital in mind. we have been and will continue to 

consideration of a host of factors including resources, facilitate direct matchmaking between capital providers 

political viability, relevance, and likelihood for success. and minority small businesses. The PLUM pilots will 

In February 2018, the Los Angeles action group chairs 

presented to the broader task force activities to date, 

lessons learned, solutions identified, and details around 

Phase Ill execution, which include short-term solutions 

and promotion of long-term opportunities. The Milken 

Institute will host a similar event in Baltimore to reiterate 

opportuntties and present a path forward. Current action 

items include: 

• A best practices report about culturally-competent 

technical assistance, which is critical to building the 

capacity of entrepreneurs and small business owners 

to access capital and start and grow businesses 

• Matchmaking and networking events to expand local 

lender referral networks and facilitate inbound and 

outbound deal flow 

conclude at the end of 2018, at which point we will 

document outcomes and lessons learned around 

execution and implementation. 
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LESSONS LEARNED FOR COLLABORATION 

In addition to supporting local outcomes, the PLUM 

pilots are helping us to improve collaborative efforts 

in a given market and around specific capita! access 

solutions. There have been many acros~Hhe-board 

lessons learned throughout Phase II, as well as through 

our national work. Some speak to approaches to 

partnership and coalition-building, while others are 

reflections and recommendations for existing capital and 

technical service providers. 

Overcome Data Deficits to Identify 

Opportunity 

Maximum opportunity for economic growth lies in the 

overlap among industries in which Blacks and Hispanics 

are strong {Le., own businesses and are employed), 

in the industries that are growing regionally, and the 

communities in which Blacks and Hispanics live and 

work. The chaUenge is identifying and accessing the 

data to piece this information together. 

Minority Small Business Landscape 

There is no one source to tell us where minority 

businesses are located. The U.S. Census collects this 

information at the metropolitan statistical area (MSA) and 

county level including industry, number of employees, 

average sales, and average wages. Municipal~level data, 

however, are scarce or difficult to acquire. For example, 

the City of Los Angeles DBEIMBEMBE Directory 

lists the company name, address, phone number, and 

NAICS Ondustry) code for City~ certified Disadvantaged 

Business Enterprises, Minority Business Enterprises, 

and Women Business Enterprises. It does not break 

out businesses by the race, ethniclty, or gender of the 

business owner, nor is there sales, employee, or wage 

data. The data is not in a downloadable format, and 

ultimately it is not representative of the minority small 

business population at large because certification 

primarily hefps businesses compete for contracting and 

procurement opportunities; businesses outside this 

scope likely will not register. 

Efforts to address the data gap come in a variety of 

shapes and forms, and despite how important these 

efforts are, we still lack a consistent, standardized set 

of nationwide data on small businesses. There are 

databases to purchase, such as Dun & Bradstreet, 

Heavers, and Resource USA, but they are costly. and it 

is often difficult to verify methodology and accuracy. 

Information about regional clusters and growth 

industries can be more accessible via city, county, 

and state economic development agencies and quasiagencies, but may not be to the level of detail to capture 

community nuances. Los Angeles County includes 88 

cities and 11 unincorporated areas which do not align 

neatly with ethnic communities. Per the Los Angeles 

County Economic Development Corporation (LAEDC), 

Latinos in the county are more likefy to be employed in 

manufacturing and construction firms than the average 

LA County worker, 9 and construction and selected 

9 los Angelos Cot)nty Oovelopmont Corparatlon. "An 

EconomJC Prohle of the LatJoo Community 111 los Angeles 

County" February 2017. Retr~ved from http~;l"l/laedc 

orgi2D 17 /02/21/economJc-prohle·latino-cornmunity·J..county/. 
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manufacturing are growth industries in the county. ~u 

Major development projects including overhauling Los 

Angeles International Airport (LAX), building the new 

NFL stadium in Inglewood, and preparing the city for 

the 2028 Olympics point to procurement and logistics 

opportunities for Latino owners of construction firms. 

However, the airport is in the City of Los Angeles, 

Inglewood is its own city, and the Olympics will tap 

infrastructure and transportation agencies and firms 

across the county. Without more specific data around 

10 Los Angeles County Economic Development Corporation, 

"People, Industry and Jobs: 2016·2021.'' June 20i7. 

Retrleved trom: https:/!laedc.org/2017106/30/p!j-2017/ 

where Latinos live, work, and own businesses, it is 

difficult not only to tailor policy and programming, 

such as where and to whom to market and recruit for 

projects, but also to coordinate agencies and resources 

to help firms identify and navigate opportunities, 
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Capital Landscape 

Another information challenge is mapping the capital 

landscape. What lenders, investors, and technical 

assistance providers are in the market, including 

local and statewide, national, or online providers? Are 

there adequate providers in place to serve Black and 

Hispanic entrepreneurs and business owners? Are they 

accessible to businesses who need them? To examine 

credit product offerings and gauge their capacity to 

meet ethnic market needs, we need to understand who 

is in the market. 

Several initiatives are underway to provide an accurate 

mapping of the capital landscape in the local economies 

of Los Angeles and Baltimore. 

In Los Angeles, the task force initiated a manual process 

of mapping the capital and service landscape. The 

technical assistance groups surveyed TA providers, 

including incubators and accelerators and other public, 

private, and nonprofit programs. To support networking 

opportunities, the Lender Referral group plans to survey 

regulated financial institutions' programs and products. 

One local partner, Business Resource Group (BAG), 
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Anchor Institutions also provide localleader.;hip and 

support buy-in from service providers and potential 

clients to new capital solutions. Local ownership matters 

because it empowers communities to be a part of 

!ong~term and sustainable impact. With local capital 

and technical assistance provider.; engaged, clients, 

borrowars, and small businesses are more likely to 

embrace new opportunities. 

Challenges arise, however, when we cast the net 

widely. Competition for clients and resources can 

hinder collaboration. For example, lenders recognize 

that by working together they could pool their lending 

data (e.g .• approvals, declinations, referrals} and gain a 

better understanding of the small business and capital 

landscapes. However, sharing data may not make good 

business sense by revealing proprietary infonnation 

around business models, relationships, and outcomes. 

The conflict of interest points to where policy could help 

by establishing an objective third party (government 

agency or nonprofit organization) to collect and 

aggregate data and share high level conclusions. 

Also inhibiting collaboration is a fear among some 

organizations and institutions that new solutions will 

disrupt the status quo. Most mission-driven lenders and 

TA providers already compete for the same resources 

(e.g., bank CRA dollars, government and foundation 

grants), and are cognizant that solutions outside the 

existing framework may limit or reduce their capacity. 

Moreover, some local organizations are hesitant to 

engage with national partners because they lack the on~ 

the~ground knowledge and might impose standards or 

requirements that do not work locally. 

A comprehensive minority capital access strategy should 

include existing players while making room for innovation. 

The value and necessity of engaging local stakeholders 

far outweighs the tensions, but it is helpful to recognize 

that these tensions exist with regard to outreach, 

expectations for participatfon, and buy-in for new ideas. 

Furthennore, embedding a sustainable strategy requires 

a long lead time for both a diagnostic of the issues and 

potential solutions, as well as a runway for executing 

efforts with local ownarship driving the way fon.vard. 

Build Wider and More Targeted 

Networks 

The current networks among debt and equity providers 

are disparate, and shifting the discussion can resuh in an 

entirety different set of stakeholders, Often, capital and 

SSfVice providers have narrow channels of relationships 

or even awareness of the broader ecosystem of 

players. For example, banks and online lenders do not 

typically operate in the same space as crowdfunding 

organizations and angel investors, and lenders only know 

to refer declinations to a limited pool of organizations. 

Bridging the divide and bringing together those who do 

not traditionalty interact will support new solutions and 

directly increase access to capital by growing the pool 

of options. One of the strongest outcomes of the PLUM 

pilots is the number of relationships facilitated through 

events and working groups. 

At the same time, minority businesses benefit from 

targeted networks that prioritize their needs. Targeted 

matchmaking will support connections between capital 

providers to minority entrepreneurs and business 

owners. For example, the Milken Institute and SBA held 

Small Business Investment Company (SBIC} events in 

Baltimore and Los Angeles around minority businesses 

looking to scale up and included asset managers. 

service professionals (lawyers, accountants), and 

minority small businesses. The SBIC program provides 

an important avenue for qualified small businesses to 

raise debt or equity capital to grow their operations. 

Licensed and regulated by the SBA, SBIC's are privately 

owned and managed investment funds that, together 

with the SBA, committed $6 billion in financing to 1 .200 
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14 

small businesses in FY20 16, Altogether, SB!Cs manage 

upwards of $28 billion in assets. That investment, 

however, is geographically concentrated in a few U.S. 

states, with five states (California, New York, Texas, 

Massachusetts, Illinois, and Florida) receiving more 

than half of aU SBIC investment in 2014. Additionally, 

less than a quarter of SBIC investments were made to 

low- and middle-income areas in 2014. There is huge 

potential, if done right, to mobilize capital from SB!Cs to 

small business in underserved markets. 

The Baltimore and Los Angeles events connected 

capital providers to small businesses and educated a 

broader audience about capital solutions. These events 

broadened the network of providers and businesses. 

and targeted minority businesses and their speclfic 

capital needs. 

as a 

Technology offers tools to address many of the concepts 

we have been discussing-including data collection. 

networks, and collaboration, as well as operational 

efficiencies-yet there is much mistrust, apprehension, 

and doubt around its app!ic~tion. 

CDF!s and other TA providers report that once a bank 

declines a potential borrower, that person is less 

likely to reapply for mare financing or TA programs. 

Online platforms can reduce paperwork by carrying 

borrower information from one provider to the next, 

making the process less onerous for the borrower. New 

technology also may help disrupt the current service 
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UK Bank Referral Scheme 

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delivery system by increasing transparency and building 

accountability through improved data collection and a 

virtual paper trail. Organizations such as the Community 

Reinvestment Fund (CRF) and the Association for 

Enterprise Opportunity (AEO) are leveraging techdriven solutions to derive greater efficiencies in the 

loan origination process (SPARK), and connecting small 

business providers with capital-starved businesses 

who are declined by traditional lenders and unaware of 

alternative options (Project Cue). 11 

11 Spark, "Product Features.'' Aprll23, 20i8. Aetneved from 

http.//www.lendwithspark.comlfeatures-!oan-ongmationtoo!/, AEO, "Project CUE. Connecting Undersetved 

Entrepreneurs.~ February 2016. Retrieved from: https:J/ 

aeoworks.org/itemlproject-<:ue-connects-underserved· 

entrpreneurs-with·funding. 

• yoo<~~~~tingbatlkfor . . a. <>tiglble lan<ling !a<:Ulty (saaoliQ!Iliiity eri!erla) . 

• Hyourliu•ihessls u~,yi>t;wiU ~1iealty be ofsioda mfer\il!lo lhedaaigonilna p!alfOims, who maybe able~ !lelp you 6nd 

tiila•lln!!.nOO you an. .loci<lnll 10,.: If you~to the 

ref<!mll. your details will be pa-on ltytllean<lo! 

lhel10xt WO!ki"!! day, 

eine-.<>nlllaaaplill!OI'Il1llmayb<lablotooft<lr. :fW lunding, ".suitable match 1$ found. 

In the U.S., several online marketplaces have surfaced 

over the past several years to connect small businesses 

with the right financing provider. Firms such as Fundera, 

Lendio, Intuit, and others connect borrowers with 

a range of both traditional and attemative financial 

providers and products. Separate from industry-driven 

solutions, at the federallevei, the SBA unveiled Lender 

Match, an online referral tool connecting small business 

borrowers with participating SBA lenders.12 Lender 

Match is the successor to the SBA's former matchmaking 

program, LINC, introduced in 2015. 

12 Small Business Administration. Lender Match helps you f1nd 

!enders. Retrieved from- https;/twww.sba.govllendermatch. 
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Despite the real potential of technology to deliver capital 

to those most in need, local stakeholders in Los Angeles 

and Baltimore were hesitant to engage with these types 

of platforms because they rely on algorithms versus 

human relationships to bridge the disconnect between 

provider and borrower. There is no substitute for a 

personal relationship, but some online lenders do strive 

for high-tech and high-touch relationships. Lendio, for 

example, partners borrowers with personal funding 

managers to support small business throughout the 

financing process. The funding manager will discuss 

loan options, help to calculate how much financing is 

needed, walk the customer through collecting all the 

necessary documents and forms, and ultimately stay 

in touch throughout the life of the business to help with 

loan renewals, term adjustments, and goal-set1ing for 

different kinds of financing as business needs change. 13 

Moreover, any online matchmaking should be routing 

small businesses to the most cost-efficient products 

and services available that are tailored to their needs. 

Predatory lending or routing to the highest cost products 

and services to gain a better commission are clearty 

activities to monitor and discourage. Yet, to realize 

the objective of increasing access to capital, we must 

embrace the opportunities technology, and technology 

partners, offer to seve time and money and reach more 

people, particularly the unbanked and underbanked. 

13 Lend10. "Small 8us1ness Loans.~ March 16, 2018. Retneved 

from. hrtps.i/www.lendio.com/smatJ.business~toansl. 

Develop Culturally-Competent 

Marketing, Outreach, Products, 

and Services 

In the context of capital access, cultural competence refers 

to an institution or organization's ability to understand 

how race, ethnicity, gender, age, national origin, religion, 

language, disability, and other demographics shape 

a population's relationship to financial products and 

services. The lack of understanding and recognition of 

cultural factors is a major banier to capital access for Black 

and Hispanic entrepreneurs and small business owners. 

For example, lack of generational wealth and experiencebased human capital (professional and management 

experience), as well as poor or limited credit histories 

change what business readiness means to minority 

entrepreneurs and for which products they may qualify. 

Among Black business owners, the trust gap and a 

double negative bias loom large. The trust gap refers 

to the wariness of Blacks to engage banks, other 

capital providers, and potential would~be mentors and 

consultants based on a history of discrimination, bias, 

and continued disappointment. 14 The double negative 

bias is the added pressure an entrepreneur of color, who 

also is female, bears to prove herself and the value of 

her work and ideas. 15 

For Hispanics, country of origin. immigration status, and 

language can act as barriers in obtaining capital. For 

Opportunities for Success. 

from· https:flaeoworks.orgfrtem!Report-Black-BusJness~ 

Ownership-US. 

15 Ewing Marion Kaut1man FoundatJOn. "Including Prople of 

Color in the Promise of Entrepreneurship." Entrepreneurship 

Policy Digest December 2016. Retrieved from· https:!/ 

www.k.auffman.orglwhat-we·do/resoorceslentrepreneursh!ppohcy~dlgestl!ncluding-people-of-co1or-in-the·promise-otentrepreneurship. 
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instance, the Individual Taxpayer Identification Number and Hispanic entrepreneurs and business owners, and 

(ITIN) is a tax-processing number issued by the Internal will release a follow-up report in the coming months. 

Revenue Service to help individuals who do not have, 

and are not eligible to obtain, a Social Security number 

(e.g. non-U.S. citizens) comply with U.S. tax laws. While 

some banks offer products and services to people 

who have !TINs, others do not.16 Separately, marketing 

materials and technical assistance may only be provided 

in the English language, presenting problems to 

immigrants whose first language is not English. 

Developing cuttural competence is a dynamic and 

complex process requiring ongoing assessment and 

feedback. It is important to building trust between 

providers and clients, and increases the likelihood that 

products and services reach their target audience. 

In 2017, PLUM task forces spent considerable time 

discussing how to tailor marketing, outreach, products, 

and services to best serve these populations. The 

Institute is in the process of documenting best practices 

for cuttura!ly-competent technical assistance for Black 

16 Kokodoko, M. "Hispanic entrepreneurship grows. but 

barriers persist.~ Community Dividend. April 2011. Retrievod 

March 7, 2018 from. htlps:!lwww.minneapolisfed.org/ 

pUbiJcations/community-dividend/hispanK>entrepreneurshlpgrows·but~barriers·persist 

Identify Champions to Promote 

Public Policy 

In addition to programmatic efforts, there are policy 

solutions to minority barriers to capital access. 

Identifying policy champions, individuals with the 

influence, access, and credibility to promote solutions 

to legislators and other policymakers is paramount. 

Whether locally, statewide, or nationally, relationships 

and partnerships with policy champions can be the 

difference between good ideas and executed outcomes. 

In 2016, the Baltimore task force prepared a series 

of recommendations for then incoming Battimore 

Mayor Catherine Pugh. In 2017 she included several 

recommendations in the Mayor's Transition Report and 

requested fo!low~up next steps. 

The task force then identified action items for the city, 

including to appoint and empower a Small Business 

Ombudsperson to advocate, navigate and troubleshoot 

for small businesses; establish a one-stop shop in the city 
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18 

economic development department to coordinate and 

streamline business licensing and permitting requirements; 

empower and resource the Baltimore Resource Center to 

execute its mandate of providing customized technical 

assistance to support sma!! businesses in minority 

communities; and, finally, leverage the City's HUD funding 

as equity injection for matching SBA loan guarantees for 

strategic community development investments. 

In Los Angeles, lawmakers and city and county agencies 

have attended PLUM events and meetings, and are 

taking information back to their organizations to inform 

policies and programs. The aforementioned policy briefs 

are in process and task force members wm then engage 

pol!cymakers, including the Los Angeles Mayor's Office 

of Economic Development as we!! as California State 

Assemb!ymembers, to promote recommendations. 
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CONCLUSION 

Partnership for Lending in Underserved Markets 

stakeholders have had many healthy debates as to 

what approach best supports driving job creation, 

raising wages, and elevating better standards of living 

in minority communities in the first place. There are 

the sole proprietors (consultants, online craft sellers, 

gardeners) who generate income for themselves, but are 

less likely to make an economic impact in communities 

since they do not create jobs and therefore do not 

achieve the multiplier effects of associated additional 

economic activity. Some argued that the focus should 

be on the smallest of businesses where the most people 

work-the dry cleaners, health care provider facilities, 

and beauty salons. Others see the future in technology 

and want to explore how to create minority "unicorn" 

companies. Still others say focus on the top 2 percent, 5 

percent, 10 percent... "a rising tide lifts aU boats." 

When confronted with the magnitude of capital access 

challenges and the scope of the ecosystem, narrowing 

the focus can be difficult Yet there is no one right 

answer. Organizations will be most effective when 

leveraging their assets and strengths, and it will be 

the contributions of all types of organizations-think 

tanks, regulators, community groups, capital providers, 

and universities-that ultimately overcome the capital 

access barriers that constrain minority entrepreneurs 

from starting and growing businesses. As the PLUM 

initiative advances, the Mllken Institute will apply the 

lessons learned to date and continue collaborative 

efforts to promote public policies that support Black and 

Hispanic economic growth, initiate research to grow the 

evidence-base to enhance capital access support and 

identify opportunities, and convene stakeholders who do 

not typically interact to generate and implement creative 

community development financing strategies. 
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ACKNOWLEDGMENTS 

The author would like to thank the Milken Institute PLUM 

team for their leadership and support throughout this initiative: 

Kevin Klowden, Executive Director, Center for RegionsJ 

Economics and California Center 

Aron Betru, Managing Director, Center for Financial Markets 

Christopher Lee, Director, Center for Financial Markets 

Jackson Mueller, Associate Director, Center for 

Financial Markets 

Matthew Aleshire, Associate Director, Government Affairs 

Sam Hanigan, Programming and Outreach Coordinator, 

Center for Regional Economics 

Arpita Sharma, Researcher, Center for Regional Economics 

Vanessa Taylor, Associate, Center for Financial Markets 

We also would like to thank the PLUM Baftlmore and Los 

Angeles Steering Committees and broader task forces for 

their time, dedication, and commitment to the PLUM pilots. 

This work would not be possible without their knowledge, 

insight. and effort, 

Baltimore Steering Committee Co-Chairs 

Aron Betru, Managing Director, Center for Financial 

Markets, Milken Institute 

Eugene Cornelius, Jr., Deputy Associate Administrator. Field 

Operations, SBA 

Joe Haskins, Jr., Chairman, President & CEO, The Harbor 

Bank of Maryland 

Baltimore Steering Committee 

Jorge Eduardo Castillo, Chairman, Board of Directors, 

Maryland Hispanic Chamber of Commerce 

Gordon Cooley, Commissioner, Division of FinanciaJ Regulation, 

Maryland Department of Labor, Licensing and Regulation 

Jaytus Doswell, President & CEO, The Juxtopia Group 

Howard Henderson, President & CEO, Greater Baltimore 

Urban League 

Sean McCabe, Administrative Vice President, Business and 

Professional Banking, M&T Bank 

Diana McKoy, President & CEO, Associated Black Charities 

Paul Taylor, Executive Director, Baltimore City Smail 

Business Resource Center 

Stanley Tucl<er, President & CEO, Meridian Management 

Group 

Arnold Williams, Managing Director, Abrams, Foster, Nole & 

Williams, P. A. 

Alicia Wilson, Vice President for Community Affairs and 

Legal Advisor, sagamore Development 

Los Angeles Steering Committee Co-Chairs 

Kevin KJowden, Executive Director, Milken Institute Center 

for Regional Economics and California Center 

Victor Parker, Los Angeles District Director, Small Business 

Administration 

Mark Robertson, President & CEO, PCR Corp 

Los Angeles Steering Committee 

losefa Alofaituli, Regional Director, Opportunity Fund 

Michael Banner, CEO, Los Angeles LDC 

Sandy Cajas, President and CEO, Regional Hispanic 

Chamber 

Lem Daniels, Vice President, Morgan Stanley 

Sharon Evans, CEO, Business Resource Group 

Carlton Jenkins, Partner, Yucaipa Companies 

Richard Pallay, Director of Business Resource & 

Contract Compliance, LA City Economic and Workforce 

Development Department 

Sabra Purifoy, Acting Deputy Director of Economic 

Development, Los Angeles County Department of Business 

and Consumer Affairs 

Quentin Strode, Partner, OmniWorks 

Harvey Strode. President & CEO, UCBB Capital & Transition 

Solutions, LLC 

Tunua Thrash-Ntuk, Executive Director, Local Initiatives 

Support Coahtion 

Kecia Washington, Director of Innovation and Strategic 

Partnerships, Los Angeles Department of Water and Power 
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ABOUT THE AUTHOR 

Carolyn Karo Schulman is the director of strategic 

iniiiatives at the Milken Institute Center tor Regional Economics. 

An experienced manager and strategist, Schulman develops 

and OYel"sees programming related to small business growth, 

capftal access, and economic development. Previously, she 

held positions in public affairs and strateglc communications 

at Finsbury and Ichor Strategies. Earlier, she served as director 

of policy for the office of the New York City comptroHer. 

addressing economic development pension reform, and 

education. Schulman started her career in community 

development at Citi, where she served on the Community 

Reinvestment Act team, wo!1(ing with Citi's retail., credit card, 

and investment banks to satisfy their regulatory obligations, 

She holds a B.A. from Brandeis University and a master's 

degree in public policy from The George Washington University. 
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@ 

12,000 

NMSDC MBE Community 

EMPLOYMENT IMPACt 

.& J..LJ. 

3.1 MILLION 

Multi-cultural women-owned firms 

employ an estimated 1.6 million workers 

In addition to an estimated $268 billion 

in revenue. 

NMSDC certified MBEs disbursed over 

$53 billion In salary, wages and benefits. 

$379 MILLION! 

Daily labor in~ome 
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;

20 

OVER 

$1BILLION 

CLASS 2: 4,288 

Annual sales 

between 

$1-$10 Million 

CI.ASS1:4,17S 

Annual'salf .. :s less 

than $1 Ml~lon 
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9/1212018 ~\uti.ve Summary~ Controcting Barriers and PactotS Affecting Mnority Huslrte!ls Enterprises A Review of Existing Disparity S!udie$ 1,\1\nonty~~usL 

discjimination:fu!! evidence may only present~~ of discrimination. Yet, legal proceedings have vari~ on the level of verification needed to support the importance and relevance of anecdotal evidence. In order to; 

ad~ss these concerns, the most robust disparity studies will draw on multiple techniques to obtain anecdotal;. 

accqunts from individuals that have had actual; verifiable experiences in working with a procurement agency.!Tt 

is th):ough a wide number of reliable sources thnt disparity studies can include instances of discrimination which 

are 'epresentative of the experiences of multiple minority business owners. • 

The~disparity studies reviewed for this study provided specific, verifiable instances of diserimination which Jere 

recqrded, cataloged, and analyzed using content analysis. The most robust studies identified barriers, discuss<l<j 

the .• arm that the improper conduct inllicted. on the businesses in question, and examined the .extent to which 1

; 

discliminatory exclusion and impaired eontracting opportunities are systemic rather than isolated or sporadic.· 

Figqre ES-2 summarizes the most frequently cited barriers in the disparity studies. 

FlG)JRE ES-2 

MOST FREQUENTLY CITED CONTRACTING BARRIERS 

F~CINGMBES 

Di•!\:rimiJnatiioninfluenced multiple contracting barriers, both from the marketplace, as well as driven by 

or non~MBE prime in the context of subcontracting. The barriers idenf:ified varied from 

treatment and instances of exclusion based on racism, to marketplace barriers erected by 

discrilninati<>ri in both the private and public market (e.g., access to capital). Disparity studies with 

anecdotal evidence supporting the presence of discriminatory barriers provide justilication for tbCjUSe 

programs in thosejurisdictions.lu addition, there are multiple non-discriminatory harriers~• 

project sizes, timely payment, and bid requirements that present challenges to potential bidderst · 

the race or ethnicity of the owners. However, the anecdotal evidence indicates that cert ' 

di,l4riminatory barriers can influence the perception of exclusionary practices with respect to some n 

dis¢riminatory barriers. 

https:1/y.'WW.mbda.gov/new$1news-and..announcementsl2017101/executive~Nmmary-contractlng~barriers-and-faclors..afft-'Cting 5!9 
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This report is the third in a series of reports based on tile 2016 Small Business Credit Survey (SBCS), a national collaboration of the 

Community Development Offices of the 12 Federal Ret.erve Bt~nks, As a key fmancial regulator and economic policymaker, the Federal Reserve 

System plays an important role in ensuring fair access to credit and promoting economic growth for the weiHreing of aH Americans. Small 

businesses are an important component of economic success and strong communities; they are responsible for 48% of private sector 

employees nationwide,4 are important drivers of local and r~ional economic qrowth,5 and are an import&nt source ofhousei\Qid wealth.6 A 

healthy small business environment depends on an array of factors. not !east of which is the ability to access funds for starting up, scaling up, 

or maintaining operations. 1-!owever, as a growing number of studies document, access to funds-whether debt, equity, or personal resourcescan vary across race and ethnicity even whell business owners are similar in other respects such ns business performance and credit risk. r 

The SBCS provides new data on minority~owned small business performance, financing needs, decisions, and outcomes. This report shares 

the descriptive comparison of the SBCS results by different firm ownership types (with emphasis placed on results that are statistically 

signiflcant).1 A subsequent paper wfll investigate the independent marginal effects of race and ethnicity on credit experience. That paper will 

include analysis that controls for firm age, size, and other available variables. The 2016 SBCS, which was f1ekled in Q3 and 04 2016, yielded 

7,g16 responses from employer firms with race/ethnicity information in 50 states and the District of Columbia. We primarily report results by 

four race/ethnicity categories: white, black or African American, Hispanic, and Asian or Pacific Islander.~ However, when the respondent sample 

size by race for a particular survey question is too small, we report results in terms of minority~ versus nonminority-owned firms (i.e., we 

compare the experience of minority~owned businesses to businesses with more 'than 50\ ownership by white individual(s)J1n. For select key 

statistics, we also report results for the 4,365 nonemployer respondents wM provided race/ethnicity information, The SBCS Report on 

Minority~Owned Firms, therefore, offers unique insight into important, often underserved, segments of the small business population. 

• More white~owned firms are profitable 

than minority~owned firms. The gap is 

most pronounced between white· (57%) 

and black-owned (42%) firms. 

• Black-owned fum application rates for 

new funding are 10 percentage points 

higher than white-owned frrms. but their 

approval rates are 19 percentage points 

lower. 

• Forty percent of nonapplicant black~ 

owned ftrms did not apply for fmancing 

because they were discouraged (i.e., they 

did not think they would be approved), 

compared with 14% of white-owned 

firms and 21 '\of Hispanic~ and Asian~ 

ownedftrms. 

., Looking at just fmns that were approved 

for at least some financing, when 

comparing minority~ and nonminority~ 

owned firms with good personal and/or 

busines-s credit scores, 11 40% of minority· 

owned firms received full amount sought 

compared to 68% of nonminority~owned 

firms. 

• Large bonks are the most common type 

of lender applied to overall, reyanNe.ss of 

race. Black~ and Hispal'lic~owned firms are 

less likely to apply for fmancing at small 

banks and more likely to apply at 

2016 SMALL BUSINESS CREDIT SURVEY I REPORT ON MINORITY·OWNEO FIRMS 

community development fmancial 

institutions {COFis) and online lenders, 

relative to white-owned firms . 

RlSULTS lNCLUDF 

Bl11ck-, Asian~, and Hispanic--owned firms 

tend to be younger and smaller in terms of 

revenue size and are ermtentnlted across 

different industries 

., Approximately 28'% of black~ed firms, 

28% of Asian~owned firms, and 25%. of 

Hispanic-owned fums are D-2 years old, 

compared with 19% of white~owMd firms.. 

iii 
192 

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LAP51NQ082 with DISTILLER


Insert offset folio 147 here 32693.147

,. B!ac:k·ownerl firms afe most con~ntrated 

in the hea!thcore and education industry 

(24%), AS-ian-owned firms are most 

concentrated in the professional services 

andrealestateindt~stry(28%). Hispanic· 

owned firms are most concentrated in 

1he oonmanufacturing goods producti-on 

and associated services industry, which 

includes building trades and construction 

{27\). White-owned f1rms are more evenly 

distributed across several industries 

but most commonly operate in the 

professional services and real ~tate 

industry (19%) and the nonmanufacturing 

goods production and associated services 

industry(18%). 

.. Forty-two percent of black-owned f1rms, 

21\. of Asian-owned f1rms, and 24% of 

Hispanic~owned flfms are smaller than 

SlOOk in revenue size, C<.lmpared with 17\ 

ofwhite·ownedfnms. 

The profitability perfonnance index12 of 

minority~owned f1nns remains well below 

that experienced by nonminority•owned 

rums 

• In 2016,42% of btack·owned firms, 

51%of Asian-owned firms, and 51% of 

Hispanic-owned fmns reported operating 

at a proftt, compared with 57% of white~ 

owned firms. 

• Black-owned firms report signiftcantly 

higher expectations for revenue growth 

{86%) and employment growth (65'%) 

than white~owned fmns (70\ and 43%, 

respectively). 

The C!ed~ gop io most P«moun<e<l for block· 

owned firms, which are most likely to rely on 

personal funds 

• Black-owned fums report more credit 

avnilability challenges (58% vs. 32%) 

and difficulty obtaining funds for 

expansion (62\ vs. 31 ~}than white~ 

owned f1rms-even among firms with 

revenues more than $1M (49~ vs. 24% 

and 53\ vs. 23%, respectively}. A similar 

gap extsts between Hispanic· and Asiilnowned f1rms compared with white~owned 

firms, but it is less pronounced. 

" The use of personal funds is the most 

CQmmon taction taken as a result of 

fmanclal challenges, with 86% of blackowned firms, 77% of Asian-owni!d firms, 

76% of white-owned firms, and 74% of 

Hispanic-owned ftrms using this sQurce 

of financing. This is true- even though 

black business owners tend to have 

lower personal wealth levels than white 

business owners.u 

.. C\ltting staff is also a commo-n action 

taken as a result of financial challenges. 

Asian-owned f1rms cited this action most 

at48%. 

A greater share of black~ and Hispanicowned firms irn::reased debt in the past 12 

months, but these firms still have lower debt 

levels than white- and Asian-owned firms 

" Thirty~si:oc percent of black·owned ftrms 

and 33% of Hispanic~owned firms have 

existing debt less than Sl OOk, compared 

with 21% of white·owned firms and 14% 

of Asian-owned f1rms. 

• The share of minortty-owned firms with 

outstanding debt increased from 51%- in 

2015 to 70% in 2016; in comparison, 

the share of nonminority·owned firms 

increased from 63\in 2015 to 7l'lQ in 

2016. 

" A greater share of black- {25%), Hispanic-

(26%), and Asian-owned (25%) f1rms als(} 

expecttoincreasetheirdebtlevelsinthe 

next 12 months, compared with white~ 

owned firms (16%). 

• However, minority-owned f1rms take on 

greater risk to obtaindebt,withblack-, 

Hispanic-, and Asian-owned firms using 

future sales as collateral more often than 

white-owned firms, For example, 18% 

of Hispanic-owned firms more than 5 

years old use future sales as collateral, 

compared with only 6% of similarly 

aged white·owned f1rms. 

2016 SMAll BUSINESS CREDIT SURVEY I REPORT ON M!NORITY-QWNED FIRMS 

Black-owned firms apply for credit at a 

higher rate and tend to submit more 

applications-but seek lower amounts of 

fmancing-than white-owned firms 

., Fifty·three percent of black-owned firms 

and 43% of white-owned firms applied 

for financing in 2016. Forty·thtee percent 

of black-owned firms submitted three or 

more applications, compared with 31% o-f 

whlte·owned f1rms. 

• Regardless of race. the top reason for 

applying for financing is to expand 

business or pursue a new opportunity. 

• Thirty-two percent of black business 

owners and 39% of Hisjlanic business 

owners sought more than $lOOk in 

fmancing, compared with 46% of white 

business owners and 49% of Asian 

business owners. 

., Of black-owned fums that did not apply for 

financing in the past 12 months, only 22% 

cited sufficient financing as the primary 

reason corn pared to 52% of white·, 37% of 

Asian-, and 32% of Hispanic-owned fmns. 

Of the nonapplicant f1rms, 35% of blackand 30% of Hispanic-owned ftrms do not 

use external financing on a regtJiar basis, 

compared to 21% of Asian- and 21% of 

white-owned fsrms. 

Black· and Hispanic·owned firms tend to 

apply for higher-cost product! and are more 

likely to apply to online tenders compared 

with white-owned ftrms 

• Black- {17%) and Hispanic~owned (19%) 

firms are at least twice as lik-ely to seek 

financing via merchant cash advances 

and factoring(i.e.,thesaleofaccuunts 

receivable) compared with white-owned 

fmns(7%}. 

" Black-, Hispanic, and Asian-owned firms 

applied to large banks for financing more 

than they applied to any other source of 

financing.