Unconventional lenders have emerged as a force to counter economic inequality within Wisconsin’s small business scene.
For many minority entrepreneurs who face barriers in obtaining support from conventional banks, CDFIs — or community development financial institutions — have been a source of opportunity, according to the U.S. Department of the Treasury’s CDFI Fund.
CDFIs are private sector financial organizations with a focus on empowering underrepresented individuals. Through a range of financial services, loans, and training opportunities, CDFIs aim to uplift underserved communities. They provide unconventional loans to individuals with limited or poor credit histories, adapting flexible lending guidelines that cater to the specific needs of the borrower.
As of March 2022, 20 certified CDFIs were operating in the state of Wisconsin, according to the Wisconsin Bankers Association. A few examples include the Brewery Credit Union in Milwaukee, First American Capital Corporation in Hales Corners, the Wisconsin Women’s Business Initiative Corporation in Milwaukee, the Hmong Wisconsin Chamber of Commerce in Milwaukee, and Impact Seven, Inc in Almena.
“You go into a regular bank and your first time trying to get a loan, I mean, people don’t even look at you. You know, in certain situations… you won’t get past the lobby,” Black small business owner Benjamin Clark, 52, shared. With the backing of CDFIs he and many others have experienced a journey that extends far beyond financial assistance.
“It made me reach further and ask more questions,” Clark added, emphasizing the impact of these institutions on his business, GSI General Inc., a full service fire and water restoration company located in Milwaukee.
In 2022, Wisconsin was home to 462,292 small businesses, accounting for 99.4 percent of all businesses in the state, according to the U.S. Small Business Administration. These businesses collectively employed 1.3 million people, making up 48.8 percent of Wisconsin’s total workforce.
However, despite their critical role, some small businesses in Wisconsin continue to face challenges.
In many communities across the state, economic hardship has created barriers for small business owners, particularly those from minority backgrounds.
WalletHub — a personal finance website based in Washington, D.C. — conducted a state-by-state assessment on disparities between Black and white residents. It used measures such as median household income, unemployment rates, and labor force participation to reveal wealth and employment gaps. The website ranked Wisconsin’s economy 49th in racial equality among all 50 states, trailing only behind Illinois and the District of Columbia. However, community development financial institutions have emerged as an opportunity to close this gap.
Benjamin Clark attributes the success of his business in part to WWBIC. With the support of microloans and business assistance, Clark grew GSI General Inc.. He started his business in 2002, and in 2010, with the help of WWBIC, he expanded his enterprise, ultimately employing larger crews and working on multiple job sites across the state.
Clark shared that before receiving assistance from WWBIC, company growth was not feasible. He said that the company was working on tight budgets and as a result could not take on many projects. But after receiving their loan, GSI General Inc. was able to extend its reach and take on other opportunities, he said.
He encourages other aspiring small business owners to take advantage of CDFIs in the state.
“They’ll put you at a path where you can succeed because a lot of times what we need is just a little cash infusion or just somebody to believe in us just enough… they’ll give you that firm hand on the back and make you want to go forward.”
Citlali Mendieta-Ramos, owner of Antigua Latin Inspired Kitchen, had a similar experience: “I could not have opened my restaurant without WWBIC. WWBIC’s assistance with marketing and developing my business plan gave me the tools to grow this business.” Mendieta-Ramos opened her restaurant in West Allis in 2006, and has since expanded to wholesale and catering.
According to a study released by the Wisconsin Housing and Economic Development Authority in 2021, collectively, CDFIs in Wisconsin disburse nearly $500 million in loans annually to support small businesses, low-income families, and community development projects. Over 10,000 small business owners and 20,000 consumers in the state benefit from this financial assistance each year.
But despite their contributions, Wisconsin’s CDFIs grapple with limited budgets primarily funded by earned revenue. Nationally, CDFIs receive funding from financial institutions and philanthropic organizations.
According to the 2021 WHEDA report on the state’s CDFI landscape, unlike their national counterparts, Wisconsin’s philanthropic investments in CDFIs have been slow to develop. The report further reveals that CDFIs with portfolios less than $5 million and those managing microloans face incredible workloads with limited staff.
Advocates argue that funding is both the most significant opportunity and challenge for Wisconsin’s CDFIs.
The CDFI Coalition is actively engaged in securing funding and advocating for CDFIs’ general interests through direct advocacy on Capitol Hill and facilitating communication between CDFIs and members of Congress to highlight concerns.
Maysee Herr, CEO of the Hmong Wisconsin Chamber of Commerce, highlighted the importance of harnessing support of other key financial institutions, saying, “we’re not here to compete with traditional banks, we’re actually here to work alongside traditional banks.”
In a recent WisBusiness.com podcast interview, Herr went on to emphasize the importance of fostering inclusive economic growth: “If we truly believe in diversity in businesses and being a place where everyone is welcomed, we need to have businesses of all different backgrounds that provide services for people of all different backgrounds and experiences and needs.”
See the WHEDA report here:
https://wiphilanthropy.org/wp-content/uploads/2021/09/Wisconsin-CDFI-Research-Study-Report2021-4.pdf
Listen to the podcast with Herr:
Listen to another recent podcast with WWBIC President and Chief Visionary Officer Wendy Baumann: https://www.wisbusiness.com/2023/wisbusiness-the-podcast-with-wendy-baumann-wwbic/
— Simrun Singh
WisBusiness.com
