Indianapolis is preparing its first black-led community development financial institution, which will aim to provide businesses in economically disadvantaged communities with access to capital and other financial products, as well as assistance with access to information and relationship building.
Mayor Joe Hogsett’s administration included $ 1 million in seed funding for a CDFI in a federal dollar spending plan, which city-county council approved last month.
“We are proud to partner with City and County Council and many stakeholders to start the process of creating our first black-led CDFI loan fund,” Hogsett said in a written statement. “This represents a huge opportunity to remove barriers to prosperity for black entrepreneurs, workers and business owners across Indianapolis.”
Equity1821, the loan fund, was officially formed on October 14. It is named after Indianapolis’ first known black business, a barbershop founded by David Mallory in 1821. Equity1821 would only be the 87th black-run CDFI in the country.
“Without a doubt, a fair community is a community in which businesses owned by people of color have equal access to the capital necessary for the growth and prosperity of a business,” said the chairman of the city council of the city and county, Vop Osili, who called the $ 1 million investment “a very important step in the ongoing process to create a more equitable small business community in Indianapolis.”
Protests rocked Indianapolis last year in reaction to the police deaths of George Floyd and Dreasjon Reed. Subsequently, the City of Indianapolis and the local chapter of the Local Initiatives Support Fund commissioned a study on the development of a Black-led CDFI to help reduce disparities in business creation. , employment and home ownership.
Black Onyx Management conducted this study, which LISC is still reviewing. But the Indianapolis-based, black-owned consulting firm has actually been considering developing a CDFI for years.
Black Onyx President and CEO Marshawn Wolley recalled how his cabinet surveyed black residents in the last municipal election in 2019.
“The first element was to develop a plan for black business and black economic development, and the second thing was a financial institution, like a CDFI,” Wolley told IBJ. “These are the two things that have emerged as the top priorities.”
CDFIs are specialist organizations, recognized by the US Treasury Department’s CDFI Fund, that provide financial services to low-income communities with limited access to finance. These can be institutions like banks, credit unions, loan funds and venture capital funds.
Anyone can use a CDFI. But institutions also have equity-oriented target populations that they must serve. Equity1821, for example, will have to do 60% of its transactions with black-owned businesses and other non-white organizations, according to Wolley.
The Federal Reserve Bank of New York found that the number of active black businesses fell 41% from February 2020 to April 2020, at the very start of the pandemic. In a February 2021 H&R Block survey, black-owned small businesses reported larger drops in revenue in the era of the pandemic than other groups. And Black Hoosier business owners are already under-represented relative to their share of the population, according to a 2020 Brookings Institution study.
In an October 2020 Black Onyx survey of 80 black entrepreneurs in the Indianapolis area, a large majority said they needed access to capital (via small-scale grants), information on opportunities and support in photography or videography. A good chunk of those interviewed also said they needed legal help, affordable leasing, workshops and training opportunities, and more.
However, first, Equity1821 must register as a 501 (c) (3) nonprofit, which can take time – the U.S. Internal Revenue Service typically takes months to process such requests. In the meantime, Wolley has said he and the board of directors of the predominantly black loan fund will be working on the institution’s design and their outreach strategies. They will also begin a nationwide search for a CEO and consultant, and engage other potential funders.
Even then, the loan fund is only a first step.
“The loan fund can’t do it all on its own, ”Wolley said. “You’re going to need a system. But companies with access to capital would be the key. “