Ugo Nwagbaraocha has owned Diamond Discs International, a Milwaukee construction equipment manufacturer, since 2007. He was working there for a decade before that. He’s the president of the National Association of Minority Contractors’ Wisconsin branch. But this spring, he couldn’t get a loan. Not from one of the big banks.
Nwagbaraocha wanted help from the Paycheck Protection Program, which Congress hastily put together to bail out small businesses earlier this year. But the private banks that distributed the PPP loans consistently prioritized wealthier accounts over many successful but smaller businesses.
“I think, with my big bank, the bigger clients – the higher net worth clients – had a more one-on-one relationship with bankers,” says Darren Fisher, an Air Force vet and founder of the consulting firm SPEARity, who also couldn’t get a call back from his bank about PPP.
The economic fallout from even the first wave of COVID-19 has been staggering. From February through April, an estimated 22% of all American businesses closed at least temporarily, according to estimates from the private, nonpartisan National Bureau of Economic Research. The going has been tough for almost all Americans except the very rich. But for Black people, particularly Black business owners, it’s been a bloodletting. The group estimated that 41% of Black-owned businesses closed at least temporarily during the pandemic.
To get PPP assistance, businesses had to go through a qualified lending institution to apply for it. Then, the lending institutions (usually a bank) had to submit the application to the federal Small Business Administration for approval. Nwagbaraocha’s big problem was step 2: His bank, which he declined to name, never submitted his application during the first round of funding launched in April – $349 billion in first-come, first-served loans.
Nwagbaraocha says PPP was “inherently designed to not focus on diverse-owned businesses,” since there were no guidelines or requirements calling on banks to prioritize small businesses – even though President Donald Trump and pretty much everyone else involved said those were the businesses PPP was intended to save.
It wasn’t until the second, $310 billion round of PPP funding, for which applications opened about a month after the first round, that money ($60 billion) was set aside to be specifically distributed by community-based financial institutions for loans to small-business operations.
Although dishing out loans first-come, first-served sounds fair, it wasn’t. A small business without an attorney on call or a strong relationship with a bank isn’t going to be able to act as quickly as larger, more established competitors. “Small businesses need guidance: How do you go from A to B to C to D?” says Wendy Baumann, president of Wisconsin Women’s Business Initiative Corp., a community development financial institution that focuses on women and people of color.
Only about 12% of Black- and Latinx-owned businesses had their PPP applications approved, according to a survey from equal-rights organizations; a separate Census survey found small businesses’ overall approval rate at 38%.
“Weaker cash positions, weaker bank relationships and pre-existing funding gaps left Black firms with little cushion entering the crisis,” says a July study from the Federal Reserve Bank of New York on the effect of COVID-19 in Black communities. “Even the healthiest Black firms were financially disadvantaged at the onset of COVID-19.”
Four-year-old Kevin Cohee was with his activist parents at a Black Panthers meeting in early ’60s Missouri when he heard something he’d never forget: “We got people in the streets,” one of the Panthers said. “We need some brothers who control some institutions.”
That boy grew up to be one. Cohee earned degrees in finance and accounting while playing football at UW-Madison before earning a law degree from Harvard. In the mid-’90s, after a career as a Wall Street investment banker, Cohee purchased four banks and merged them into OneUnited Bank. It is now the largest Black-owned bank in America.
OneUnited’s philosophy focuses on two things: Being on the cutting edge of tech for the modern worker, and finally giving Black people the access to capital they have always needed. Cohee notes the first PPP loan application OneUnited approved was to an Uber driver – one of “the little guys,” he says.
Cohee says that Black people have long been left without access to capital in this country. “It goes back to slavery. Slavery ended. Black Americans were set free. However, they weren’t given any money. They weren’t given any property. They weren’t given the right to vote.” Policies making it more difficult to vote and barring education to people of color followed. Then, Jim Crow and redlining policies that kept Black people from getting essential services like banking and insurance.
These historical denials of access to capital and security have “caused that wealth building to not occur” in many Black communities, says Beth Haskovec, the program officer at local microlender Brew City Match. It remains difficult for the little guys to grow.
Same for banks. “There’s so much competition from big banks. It’s tough for us to compete,” says George Gary, the president of Milwaukee-based Columbia Savings & Loan, the only Black-owned bank based in Wisconsin. Columbia specializes in mortgages, although Gary says he’s trying to diversify to bring more longevity to the 96-year-old financial institution with assets around $22.7 million. To put that number in perspective, the four biggest banks in the U.S. each hold more than a trillion dollars in assets. All that capital, Gary says, “allows them to do things we can’t do.”
And as the big banks have begun hiring more African American bankers and lenders – a contrast to the hiring practices when Gary started in the business nearly 50 years ago – it’s made it even tougher for Columbia to stand out.
When Nwagbaraocha’s bank failed him, he reached out to WWBIC, which got his PPP application approved in a week.
Baumann says many of WWBIC’s 5,000 business clients needed help quickly because of the nature of their business; 21% of WWBIC loans are to food businesses, 26% are in the health sector and 12% in retail.
While big banks often won’t invest time walking small-business owners through every step, at WWBIC “we don’t mind holding the hands of the businesses,” says Kamaljit Jackson, vice president of programs and operations.
That hand-holding makes the difference. WWBIC boasts a 97% payback rate despite specializing in supposedly “high-risk” microloans that banks don’t want to touch.
When his big bank ignored his calls in the early days of the pandemic, Fisher got a PPP loan through Wausau-based Peoples State Bank. He was referred to Peoples by a friend he met at a Bucks game – their season tickets are side-by-side – and got advice from an attorney who happens to be his neighbor.
Many small-business owners, particularly Black ones, don’t have that kind of network. Fisher says he was “lucky” to have those two friendships. “Ninety percent of the problem,” he says, “is access to information on how to do it.”
Another path to capital for Black business owners is new lenders like Brew City Match. It was established last year thanks to a $3 million grant from JPMorgan Chase, looking to atone for its past disregard for inner-city neighborhoods.
Brew City Match provides loans and grants to startups in three development corridors around Milwaukee’s historically underserved central city, intending to seal cracks that financial institutions have allowed to grow through ignorance.
“It’s a gap we’re trying to fill,” says Haskovec. “The goal of the program is to create systemic change.”
Among the businesses Brew City Match has funded are restaurants, caterers, a dance company, boutiques and a tea shop.
“It’s all about organizing economic purchasing power in our community and rechanneling it back into our community,” Cohee says of these kinds of efforts. “Black America needed a bank. Banks are one of the cornerstones of capitalism.”