Historically, black entrepreneurs have faced enormous challenges in raising money or getting new financing to stay afloat or expand their operations. According to reported data, Black people are 13% of the American population but receive less than 1% of VC funding.
Although in recent years, the number of black venture firms has increased, it is not enough to cater to entrepreneurs of color. As a result, blacks tend to rely on personal funds and credit cards to run their firms.
Michael Pugh is an American Bank Executive and serves as the CEO and president of Carver Federal Savings Bank, one of the largest black-owned financial institutions in the country.
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Speaking in an interview with Forbes, the CEO of the New York-based bank suggested ways black entrepreneurs can meet their capital needs.
Since 1994, the Treasury Department’s CDFI Fund has been investing in Community Development Financial Institutions. The fund says on its website that it aims “to expand economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers.” In effect, its goal is to promote economic activity and help support small businesses, especially during an economic crisis.
The fund has grown to over $7.4 billion in grants awarded to eligible institutions like Carver Federal. Pugh suggests black business owners tap into local Community Development Financial Institutions for their financial needs or financial support since those financial institutions receive money from the Treasury Department’s CDFI Fund
Pugh stressed that there are different loan arrangements blacks can explore. “Learn more about them; we have a very different scope [regarding loan arrangements],” Pugh told Forbes of community banks. “We have to make sure we extend our arms and get out there and tell people what they need to know to start achieving that generational wealth.”
Pugh’s advice comes on the heels of the Federal Reserve’s decision to increase interest rates to 5.5%, a 22-year high. Analysts have said it has the potential to lock out black business owners from the financial market.
“It’s a matter we’ll all have to pay close attention to,” Pugh said. “Financial institutions have a responsibility to come up with access to capital that doesn’t drive an entrepreneur to use their personal credit card at a much higher interest rate.”
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