Banking While Black: The Role Of CDFIs In The Black Community
By Christopher Pitts
- CDFIs have approved more than $7 billion ($3.2 billion in Round 2) in PPP loans
- More than 40% of Black business owners reported they were not working in April, compared to only 17% of white small business owners
For the Black business community, the struggle has never been so real as the pandemic has hit this demographic extremely hard. Unfortunately, an underlying reason is the inability to access debt in the time of need from mainstream banks. For this reason alone, more and more minority owned businesses are leaning towards Community Development Financial Institutions (CDFIs) for financial assistance during this time of crisis. Typically, CDFIs have a special interest in banking throughout minority communities, reviving struggling neighborhoods, increasing local economic activity with hopes of ultimately seeing the Black and brown entrepreneur thrive.
Why This Matters: The CDFIs importance comes into play as more and more minority businesses are seeking debt relief as a result of COVID-19. An overwhelming percentage of black businesses only received a fraction of what they expected from debt relief during the first round of the Paycheck Protection Program. For the second round of funding, the U.S. Small Business Administration (SBA) set aside $10 billion in PPP funding for CDFIs. The new funding specifically lent by CDFIs is a move to make sure that PPP loans reach low-income communities where CDFIs operate.
CDFIs have a special interest in banking throughout minority communities
Since the pandemic started more than 40% of Black business owners reported they were not working in April, while only 17% of white small business owners said the same. So the need for CDFIs, non-profit corporations is desperately needed. They’ve been around since the 1970s and became federally mandated by the U.S. Department of Treasury under the Clinton Administration in the 1990s. Rooted in the social justice movements, CDFIs can take many forms such as community banks, credit unions, loan funds or venture capital funds.
Situational Awareness: Only about 200 CDFI credit unions, banks, or loan funds had the required SBA certifications to potentially access the PPP funds during the first round. As of May 2020, CDFIs have approved more than $7 billion and $3.2 billion of that occurred in Round 2 of the PPP loans.
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