Supporting diverse-owned businesses is more important than ever and it is critical that we and other lenders continue to identify more ways to sustainably create access to capital for the start-up, operation, and growth of these small businesses, especially in our underserved communities.
Today, an estimated forty-one percent of Black-owned businesses have been affected by COVID-19 and as many as thirty-five percent of African American business owners have been unable to access credit to keep their doors open. Basically, this means Black-owned small businesses are closing their doors at twice the rate of the industry average, according to the National Bureau of Economic Research. And that is not acceptable.
As the National Small Business Development Leader at Wells Fargo, my team and I are focused on solving the unique problems that Black business owners face, so we can help shift the landscape to better equity and prosperity.
While there are many factors involved, Black businesses are often smaller in terms of number of employees, payroll and startup capital, and they may not have established banking relationships. This makes them much more susceptible to economic downturns and challenges. What we at Wells Fargo strive to provide is greater access to credit and innovations so these businesses can stay resilient and be prepared to stage a comeback in this pandemic.
One example of this is Wells Fargo’s Open for Business Fund, a roughly $420 million small business recovery effort. This includes grants to Community Development Financial Institutions (CDFIs) and organizations that provide technical training and longer-term resiliency programs to entrepreneurs. These organizations play a vital role in helping business owners, especially diverse and women business owners, to access capital and resources to support their continued recovery.
The first phase of the Open for Business Fund allocated $250 million to Community Development Financial Institutions (CDFI) to extend capital to small businesses, and the CDFIs can typically leverage this philanthropic capital at a rate of 3 to 1. That’s a big impact.
In fact, eighty-four percent of funding is projected to reach racially and ethnically diverse small business owners. We estimate that the Open for Business Fund is already protecting more than 75,000 jobs and we hope to make an even more substantial impact with the funds remaining.