Inequitable access to capital persists for minority owners on Main Street, hindering their growth potential.

Post-pandemic, main street businesses are facing supply chain headwinds, labor constraints, and historic inflation, prompting some to consider borrowing to invest, grow, or stay afloat.

According to Goldman Sachs’ 10,000 Small Business Voices “Small Businesses on the Brink” survey, 86% of small business owners find broader economic trends negatively impacting their businesses. Nearly 30% of owners plan to take out a line of credit or loan for their business this year, while 31% feel very confident in their ability to access capital. However, Black-owned small businesses expect to borrow at a higher rate of 48%, with less confidence about their ability to gain access to capital, at 19%. The survey, which received responses from over 1,400 small business owners, including 225 Black-owned businesses, was released in late January.

Letha Pugh, owner of Bake Me Happy, a wholesale and retail gluten-free bakery and coffee shop in Columbus, Ohio, experienced funding inequities before the pandemic. When she initially sought capital for the business in 2013, she was lowballed.

Pugh stated that having a bank account does not equate to a relationship with a bank. The bank offered an SBA 7(a) loan for a specific piece of equipment, and the loan was intended for that equipment alone. There was no discussion about working capital or other related matters, which Pugh believes is the source of the disconnect.

Pugh and her wife Wendy utilized their savings to launch their small business, and over the past few years, the focus has been on establishing a support network. Pugh has relied on local resources in the city, including attending webinars, participating in the Goldman Sachs 10,000 Small Business Voices program, and taking courses from the National Minority Supplier Development Council and the National Restaurant Association. As the business grew, banks approached the bakery, and a relationship with State Bank in Dublin, Ohio, helped the bakery to obtain Paycheck Protection Program loans early on, when other small businesses were excluded.

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Establishing a banking relationship early on, even with a small line of credit or access to credit, can make a significant difference in being able to reach out to a bank representative who knows and understands you.

The pandemic brought to light disparities in lending, with businesses owned by minorities receiving funding from programs such as the PPP at lower rates than their white counterparts. According to the Federal Reserve's Small Business Credit Survey 2021 Report on Firms Owned by People of Color, even among firms with good credit scores, Black-owned businesses were only half as likely as white-owned businesses to receive all of the financing they sought, with 24% versus 48% of borrowers receiving the full amount they requested.

During the pandemic, community banks proved to be a vital source of support for small businesses. Winnie Sun, managing director of Sun Group Wealth Partners, emphasized the importance of prioritizing service quality over the size of the bank when establishing banking relationships. To find the right banker for your business, start with a personal or business banker and schedule multiple meetings to ensure a good fit.

Sun emphasized that the relationship with a bank is a mutual exchange, where both parties benefit. The bank aims to do business with you, but it's up to you to decide whether you want to engage in transactions with them. This choice is crucial, Sun highlighted.

Despite the challenges posed by the pandemic, Pugh has managed to expand the bakery, resulting in a 40% increase in sales over 2019. However, supply costs have also increased by 25%. Pugh recently acquired a new building with the help of an SBA 504 loan after losing their previous lease and facing a doubled rent. The new location is expected to open in June or July.

"We made a decision not to lose money again on building and renovating a space for a business owner or building owner, and paying their property taxes. Instead, let's utilize the benefits of owning the building," she stated.

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