Businesses started and owned by entrepreneurs of color tend to be smaller and in less profitable industries, because of the effects of systemic inequality and racism. They have to start small and slowly work their way up. That means that when they do apply for financing, they tend to be looking for smaller amounts of capital—the vast majority apply for less than $100,000, and many seek less than $25,000.

Small business loans of less than $50,000 in the US are termed “microloans.” There are only a few institutions that will make microloans to small businesses at affordable rates and target entrepreneurs of color and women: CDFI microlenders. To do so, CDFI microlenders like the ones that make up the Microfinance Impact Collaborative (hosted by Aspen’s Business Ownership Initiative) have to raise capital to lend, but also to subsidize their operating costs. The number of entrepreneurs of color they can serve depends on how much they can raise in grant funding.

That’s a challenge even in good economic times. In the pandemic, when the businesses they serve are struggling most, the CDFI microlenders have done the right thing: worked with their borrowers to keep them in business, deferred loan payments, and offered even more support. But without loan repayments, the lenders are even more dependent on grants and other philanthropic support.

Introducing the Entrepreneur-Backed Assets Fund. The EBA Fund, with support from the Citi Foundation, the Bill & Melinda Gates Foundation, the Robert Wood Johnson Foundation, Microsoft, and Woodforest National Bank, will allow Community Development Finance Institutions that are already active lenders to entrepreneurs of color to provide more capital and support to those communities, right when the need is greatest.

Read the full article about a new fund tackling the racial wealth gap by Joyce Klein and Tim Ogden at the Aspen Institute.