With capital, communities of color can lead our economic revival

COVID-19 has dealt a devastating blow to the U.S. economy and workers, and as recent unemployment data show, the crisis is hitting the Latinx and other minority communities hardest.  

Small business owners and nonprofits are the backbone of these communities — whether it’s a dressmaker in California’s central valley, a grocery store in Tucson, or a community organization in Chicago. Through this crisis, these organizations have shown resilience, ingenuity and commitment, despite operating in communities that have been underinvested in for decades. 

Now, at this moment, they can be the engine that drives our economic and social recovery out of crisis. But this cannot happen without increasing access to capital and developing the infrastructure needed to deploy it. 

The Paycheck Protection Program (PPP) made a significant investment in America’s small business, but the program has not adequately served the needs of minority-led organizations. According to a survey by the Global Strategy Group conducted on behalf of Color of Change and UnidosUS, just 12 percent of black and Latino business owners who applied for PPP loans reported receiving what they asked for.  

That’s why America needs to make an unprecedented commitment to our communities of color as part of the economic restart and recovery efforts. 

Communities of color have been starved for economic opportunities for decades. As Sens. Cory Booker (D-N.J.) and Ben Cardin (D-Md.) note in a paper on equity in the COVID-19 recovery act, the current economic challenges are “only compounded by the fact that underserved businesses were already starting from a place of disadvantage before the pandemic and are located in communities most impacted by the virus in terms of infection and death rates.”  

As Robert F. Smith, the head of Vista Equity Partners, recently said in an interview with NBC, “We need to continue to rally as Americans to come with real, lasting, scalable solutions to enable the communities that are getting hit first, hardest, and probably will take the longest to recover with solutions that will help these communities thrive again.” Smith called for an infusion of cash to help those in urban and rural communities that aren’t served by large banks. 

So the next round of recovery relief must focus on the “rails and highways” of capital — the infrastructure and technology tools needed to get dollars out to minority communities that need it most, and fast. 

Fortunately, an avenue for injecting much-needed dollars into underserved communities has been built over the last 40 years — the more than 1,000 certified Community Development Finance Institutions (CDFIs) and Minority Depository Institutions (MDIs) across the country. In normal times, CDFIs and MDIs provide critical access to loans and other financial services for minority borrowers and underbanked communities. Now, they can and should become the vehicle for providing emergency financial assistance to the low-income communities bearing the brunt of the crisis.  

This can’t just be a Band-Aid. We should look for bold and disruptive ideas that provide a long-term solution to this challenge. Last week we saw an example of what’s possible, with the announcement of $10 billion in PPP funds walled off for CDFIs to invest in minority-led businesses. 

Yet, despite the importance of CDFI and MDIs, it is a battle every year to see that they’re adequately funded. The Booker and Cardin plan for equity in recovery addresses this by providing at least $1 billion in emergency funds to the CDFI Fund, as well as establishing incentives for making PPP loans to micro-businesses of fewer than 10 people. The vast majority of black and Latinx small businesses are these micro-businesses.   

Additionally, the Opportunity Zone (OZ) statute — a provision that was authored by Sen. Tim Scott (R-S.C.) — can be amended to enable investments in CDFIs to ensure that capital flows directly into low-income communities, consistent with the original purpose of OZs. Today, private capital from Opportunity Zone funds cannot be invested in CDFIs and MDIs. Qualified Opportunity Zone Funds should be allowed to invest in CDFIs and MDIs so they can raise private capital to scale and ensure that they days of uneven recovery are behind us.

Third, we should create tax incentives like Qualified Small Business Stock credits to encourage venture capital investors to back companies founded by black, Latinx and women founders. We need to invest in the next wave of diverse founders and the capital infrastructure needed to create a level playing field. They will be the fuel that drives the economic engine of the future.

Without access to capital and the infrastructure needed to deploy it, America’s most distressed communities and essential workers could very well fall into depression, as massive federal relief efforts pass them over. Lawmakers cannot lose sight of the fact that the lives and livelihoods of millions of Americans are at stake. The potential is clear as is the need for capital to unlock it. Let’s get to work — and if we do it right, communities of color will lead our economic revival.

James Gutierrez is the CEO of Aura, a CDFI that provides affordable loans to borrowers in underserved communities. Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national lender and financial advisor to nonprofit organizations.