Meet the PAGE Hurdle Fund, which targets the racial wealth gap for entrepreneurs

In the United States and the Philadelphia area, minority businesses — especially those owned by African Americans or Native Americans — often lack the flexible capital that comes from generational and family wealth. The typical black American household, for example, has one-tenth the wealth of the typical white family.

Therefore, for minority start-ups or in the early stages of business growth, lack of access to capital from family and friends can permanently set back an entrepreneur’s ability to succeed. Such obstacles create ripple effects throughout our region: Philadelphia’s black community represents 43% of the city’s population, but owns only 2.5% of businesses with employees; Local black and brown businesses account for less than 12% of local institutional spending.

Through the Greater Philadelphia Economic League work through the PAGE (Philadelphia Anchors for Growth & Equity) initiative – which connects local Black and Brown-owned businesses to opportunities in institutional supply chains – we have become acutely aware of how access to capital hinders businesses and broader regional equity. By listening to our community, we have become more concerned with connecting and creating solutions that can help bridge the capital and wealth gap.

Market for alternatives to personal or family heritage

Many entrepreneurs of color are faced with the lack of a market-driven substitute for personal or family wealth. People who have been historically and systematically excluded from the opportunity to generate wealth have no alternative source of assets or investment capital with which to compete fairly, if at all. Instead, many entrepreneurs must take on heavy unsecured or predatory debt to, at a minimum, sustain their businesses, grow them further, and take advantage of capital-intensive opportunities.

As a result, minority businesses either fail to reach their full potential or cease to exist at all, even though they work as hard as their peers. They often earn income just to pay off high interest debt, never achieving profitability. Regional markets suffer from reduced competition because important ideas, goods and services never make it to market.

While this problem is not difficult to identify, there is no easy fix for the generations of divestment and devaluation that caused the wealth gap or the systemic barriers to capital that persist today for businesses owned to minorities. CDFIs and other financial institutions offer loans that can help with start-up capital needs, but these loans can be expensive and cannot always compete with the flexibility of family capital. Impact investing, while an important part of the access to capital ecosystem, generally requires that a company has already overcome many early hurdles where family capital would be valuable. Additionally, such an investment often leads business owners to dilute their stake in the business, which can tax first-generation entrepreneurs whose intent is to create stability and wealth for generations. future.

Despite the challenges, communities and business support organizations are developing innovative ways to support entrepreneurs who emulate the capital of friends and family:

  • The Kensington Corridor Trust buys commercial property in the Kensington neighborhood of North Philadelphia and then leases it to contractors, bringing valuable assets to the community at an affordable price. These low costs give entrepreneurs space to learn, grow and invest in marketing while the business is young.
  • Boston Ujima Project uses a democratic model to invest in companies and provide them with technical support. This builds community buy-in and helps the business succeed in a relatively stable environment with many supporters.
  • Founders First CDC provides companies with capital grants while offering them a scholarship for an accelerator program. The company also offers capital solutions that meet the needs and growth strategies of its customers, such as revenue-based financing.

PAGE Hurdle Fund prototyping

Thanks to a Large Scale Economic Development Administration subsidy, the League of the economy, ImpactPHL and Investors Circle teamed up to create Capital PAGEa branch of the PAGE program that aims to connect black and brown businesses with aligned capital as they grow to accept new, larger institutional contracts.

PAGE Capital’s initial observations and learnings were that many companies were well positioned to grow, but ran into a barrier that prevented them from doing new or increased business with large institutions like PAGE’s partners – Drexel University, Penn Medicine, Jefferson University and more. In scenarios where flexible capital might be a solution, our hope was to create a low-barrier offering that could help companies bridge the gap between opportunity and revenue generation.

In 2022, we launched the PAGE Obstacle Fund with $125,000 in funds provided by local Investor Circle members as a prototype solution. A Hurdle Fund grant replaces family assets by providing businesses with up to $25,000 to pay for things like insurance, equipment or certification. The Hurdle Fund’s Independent Grants Committee has approved two awards to date and the aim is to deploy the full fund by the end of the year. If a company would like to learn more and apply, they can apply directly below or contact Melina Harris ([email protected]) to receive more information:

Apply to the Hurdle Fund

The Hurdle Fund’s first beneficiary was a small, black-owned restaurant, passed down from a father to a daughter-granddaughter team. They were in the process of refocusing the business by growing their restaurant clientele when disaster struck: their pie machine broke down and no one in their network had the $9,000 to buy a new one. Without this machine, they would be unable to fulfill their contracts with their customers, including the major colleges in Philadelphia.

For white families with an average household wealth of around $190,000, this problem could have been solved with savings, retirement funds or a home equity loan. For a black household with an average wealth of $25,000, the ability to cover that cost is likely overwhelmingly onerous, if not outright impossible. In addition, a black-owned business is less likely to obtain a bank loan on favorable terms due to a lack of established assets and entrenched institutional and personal bias found in methodologies. traditional underwriting and even in new automated technologies.

The Hurdle Fund quickly approved a grant and the machine was purchased, allowing the business to continue serving its restaurant customers. This kind of flexible capital is a constant need for minority businesses, and there are still very few sources of flexible grant capital in the Philadelphia area.

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Designing fair and equitable solutions that address access to capital for minority-owned businesses will never be an easy task. But if we want to build a competitive, sustainable and diverse market, we need to provide business support that goes beyond the basic instruments of debt and equity. This support can take many forms. Young entrepreneurs, in particular, could benefit from affordable housing, for example, while they start their business. A seed grant – like those provided by the PAGE Hurdle Fund – can help a small business make an effective strategic investment. Support can take the form of low-cost space, equipment or expertise.

However designed, a blended approach is necessary if we are truly to create equitable opportunities for minority businesses to start, grow, and thrive in Philadelphia and beyond.

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