Michelle Millett and her mother used personal savings to start the Diamonds and Dutch Pet Bath & Spa in North Richmond when they opened their business in 2019.
Millett decided to put her own money into the business to invest in her family’s future. She didn’t apply for any loans because she believed banks were looking for more seasoned businesses to loan money to.
“I don’t like rejection,” she said.
But not having the financing and learning how to run the do-it-yourself dog bath business on West Brookland Park Boulevard have been more demanding than what she and her mom, Arlene Young, had envisioned.
“It was more expensive than what we had anticipated,” she said. “The first few months, [money was] basically coming out of our pocket. We didn’t get financed from a loan or anything like that. ... It was pretty challenging in the beginning.”
Millett and her mother aren’t alone in the challenges of getting financing and overcoming other issues they face as Black small-business owners in the Richmond area.
Small-business opportunities have not been shared equally in the Richmond region, especially in getting financing, research from a new study shows.
The Greater Richmond Small Business Ecosystem Assessment study emphasized the need for better access to capital as well as a need for increased awareness of how to create and run a successful small business.
The study found $5 billion in unmet demand in capital for small businesses annually in the Richmond area, with disproportionately low rates of lending in Black and Latino neighborhoods where people have more difficulty getting approved for loans.
The problem has been magnified through the COVID-19 pandemic, the study found, noting that there was “inequitable access” to the first rounds of the federal Paycheck Protection Program funding.
Small minority-owned businesses need better avenues to small loans and traditional loans, the report said. But most rely on getting loans from national and regional banks, and the study found that there is a limited amount of lending in places with high concentrations of Black and Latino residents in the region.
Additionally, access to investors and capital venture funding is limited for minority small-business owners.
Financing isn’t the only barrier that Black and Latino entrepreneurs and small-business owners have, according to the study.
“Across the region, people of color own disproportionately fewer small businesses than their white counterparts,” said Spencer Lau, an associate at Chicago-based small-business advisory firm Next Street that helped conduct the research with Common Future for the report. “When they do own businesses, they tend to be smaller in terms of both revenue and employment.”
The population of the greater Richmond area is 29% Black and 7% Latino, but when it comes to small-business ownership, just 5% are Black-owned and 2% are Latino-owned, according to the study, which was conducted between November and February.
The study found that Black- and Latino-owned businesses in the region employ fewer workers and generate less revenue than white-owned businesses.
Getting access to capital is necessary to create a successful, growing business, said Brian Robertson, CEO of Marion Marketing Global, a Black-owned marketing and public relations firm based in Hanover County.
“When my clients get access to more capital, then they can spend more,” Robertson said. “Without that capital, they have to spend their own personal money on infrastructure, on hiring, on growth. I have seen a lot of great businesses struggle between year one and year three when they’re growing, and their revenues may be increasing, [but] they can’t keep up because of lack of access to capital.”
Robertson, who hopes to get access to more capital to be able to add a fourth member to his team, said he understands that it is difficult for Black entrepreneurs to get the necessary financing.
The co-owners of Fitness DAWGS, a growing Black- and women-owned business focused on educating children about healthy living through books, videos and other interactive learning tools, invested their own money into their business. But now, they are looking for more financing, specifically from sponsors, to take their business to the next level.
“When you’re talking about pinching pennies, it’s amazing how much we’ve done with the little [we have],” said Dr. Addie Briggs, who co-owns the business with Kim Evans. “We are grateful and blessed that we had our own money to get things started. We are still looking for sponsors.”
Evans said access to sponsors who are interested in improving children’s health would help their business do more work with such organizations as the Boys & Girls Clubs of America, but the pandemic has derailed their efforts on finding investors.
“We are having some challenges securing funding,” Evans said.
An estimated $5 billion gap occurs annually between the amount of small-business capital supply and the demand, according to the report.
A big part of the problem, the study said, is the scarcity of midsized loans (between $100,000 and $250,000) from all types of financing sources as well as of small loans (under $100,000) made by the U.S. Small Business Administration and by community development financial institution lenders.
Those sources of financing are essential to the growth of the region’s small businesses, the report said.
But the Richmond region has low lending levels from the SBA and community development financial institutions compared to other localities with similar numbers of small businesses, such as San Antonio or Atlanta. That low level limits accessibility for businesses owned by people of color, the report said.
“Further investment is needed for CDFIs [community development financial institutions] and nonprofit loan funds to serve as vehicles that narrow the tremendous gap in supply and demand for small- and mid-sized loans,” the report said. “Given the limited availability of community microlending, POC-owned businesses must rely on bank capital for growth. However, bank lending is often inaccessible to POC-owned businesses due to inflexible underwriting criteria that prioritizes credit histories and personal collateral.”
As a result, the report said, these dynamics limit the ability of Blacks and Latinos to start a business.
There also were disproportionately low rates of commercial bank lending and limited community development financial institution lending in neighborhoods with high concentrations of Black and Latino residents, particularly in East Richmond and South Richmond, according to the study.
“There is a need to grow the pool of responsible lending to meet the significant unmet demands in these areas,” the report said. “Additionally, there is a need to further connect existing capital providers in the region with community-based organizations in these neighborhoods to create greater awareness of financing options provided by local financial institutions and increase connectivity across the hyper-localized ecosystems.”
Small businesses also faced a financial crisis during the pandemic. And while the federal government created the Paycheck Protection Program, the report found many of those loans remained inaccessible to minority-owned businesses as the programs favored businesses that had more capital.
“Emergency funding was difficult for businesses owned by POC to access as PPP lenders prioritized existing and larger borrowers,” the report said. “Moreover, local stakeholders indicated that many entrepreneurs of color struggled to access emergency funding due to inexperience in financial management and procuring required financial documents.”
The unexpected shutdown left many floundering. Before COVID-19, “the average small business only possessed 15 days-worth of cash reserve buffers,” the report said.
Millett from Diamonds and Dutch Pet Bath & Spa said she tried getting a PPP loan last year, but she never got access to the correct paperwork she needed to fill out as a limited liability company.
Instead, she received paperwork for a sole proprietorship business, which her shop is not.
“I’m a legitimate business. I have all my tax forms. I have everything you need,” she said. “I can’t fill [the sole proprietor] paperwork out, it’s kind of against the law.”
Like many businesses across the region, her shop closed temporarily for three months last year.
But her drive to continue operating the business, as well as the help she got from her contract groomers and landlord, are helping her achieve her goal.
“I have put way too much into this, as far as quitting my job and pulling my savings,” Millett said. “I just refuse to let it close down.”
Grace Washington, president and CEO of Richmond-based J&G Workforce Development Services LLC, believes that providing more opportunities to access financing and better access to education is crucial to help small businesses make it.
In her experience training low-income residents to work at construction sites and connecting them with small- and minority-owned construction companies, Washington said funding is the problem that continues to leave businesses stuck and unable to grow.
Washington said many people and businesses have tried to help minority communities get over the hurdle of financing.
“Always before in our minority and low-income communities, what [people and businesses] wanted to do is provide financial literacy, as if we just learned how to manage our money we would be OK,” she said.
While financial literacy is important for individuals to understand, Washington said more needs to be done to help businesses gain access to all types of financing.
The report encourages more access to resources that will help people start and run a successful small business.
More formal coalitions advocating for small businesses, more coordination between small businesses, and access to business support organizations would ensure more successful outcomes for minority-owned businesses, the report said.
“There are a number of organizations that are focused on supporting small businesses across the region, but firsthand interviews and conversations with the advisory council really revealed that there is a need for additional collaboration,” said Lau with Next Street.
Another study is underway with hopes to learn more about just Black-owned businesses in Richmond in order to better support them.
The Black Business Opportunity & Investment Study, which is being backed by several local organizations and companies, should be released this fall.
This study will go into detail about what Black business owners experience from a research and data perspective, said Todd B. Waldo, the founder and principal consultant of Hugh Helen LLC, a Richmond-based consulting firm, who is one of the people helping to run the study. The others leading the project are Melody Short, co-founder of the Richmond Night Market and co-founder of the Jackson Ward Collective; and Shannon Bass, the founder and principal designer of Ryano Graphics, a communications firm.
Waldo said he hopes the voices of Black business owners will be better heard and understood through a survey as well as discussions.
“I think we get to tell a story about this great legacy of Black entrepreneurship in this city,” Waldo said.
The Jackson Ward neighborhood was once called the Black Wall Street and the Harlem of the South because it used to be the epicenter of a bustling Black business and entertainment community in Richmond, he noted.
“We have this great legacy of Black entrepreneurship and Black resilience and Black innovation and self-sufficiency,” Waldo said. “So let’s continue that story, and data helps you do that.”