Mid-level minority and women-owned businesses can often access financing through debt but not through equity investments. To remedy that problem,
The Enterprise Center (TEC) has launched the Performance Fund through its Capital Corporation.
According to TEC, a Federal Reserve Bank of New York
study revealed that "low-income populations and communities of color were being forced to engage in high-cost financing options for themselves and their businesses, as a result of limited access to basic financial services." This gap is due to a lack of community banks where they’re most needed and inequality in lending practices.
"Traditional [venture capitalists], they don’t look at deals that require less than $3 million," explains Chris Chaplin, TEC Capital Corporation director of public and private capital. "To a great extent, we recognized that there was a demand -- a need in the marketplace for companies to get at least some access to equity to take it from one level to another."
The funds for TEC’s first two Performance Fund equity investments came thanks to a grant from the U.S. Department of Health and Human Services (HHS). One of them is a $211,000 investment in
Jidan Cleaning LLC, owned by Patricia Claybrook, with offices in Medford, N.J., and Philadelphia.
When vetting companies for these inaugural investments, TEC targeted businesses with revenue of at least $250,000 annually.
"A lot of these companies, they can get debt, but they need equity support to take it up to the next level," says Chaplin. For most women-and minority-owned businesses of this size -- already hampered by a lack of financial and social resources more easily accessed by white male entrepreneurs -- "getting equity is next to impossible."
TEC helped to finance Jidan’s growth in the past with a loan, which the business serviced well. The company has a long relationship with the West Philly organization: They clean its building and those of its partner organizations.
"What we’ve found is they’ve been growing rapidly," with larger and larger contracts, says Chaplin. "We recognized Patricia needed some financial support…but we didn’t want her to be caught in a situation where she was just servicing debt."
Over a three-year period, the $211,000 equity investment will help Jidan grow its full-time staff by 14, its part-time staff by 17, and provide benefits to employees. Chaplin predicts that with this investment, the company will surpass TEC’s staffing estimate.
"The focus of our work with HHS with these investments is not only to create wealth," he adds. "The real focus is to create jobs...sustainable jobs with benefits."
TEC is already looking toward the next cohort of Performance Fund recipients. While TEC may approach HHS with its decision by the end of April, the new cohort won’t be announced until September.
Writer: Alaina Mabaso
Source: Chris Chaplin, The Enterprise Center