The money crunch: black-owned businesses get creative
When Verna Arnold began planning retirement in 2017, she wanted to ensure her North Side cafe would remaina minority-owned business.
So she approached Claudy Pierre, a local chef who, like Miss Arnold, is black.
He was a longtime patron of Arnold’s Coffee & Tea on East Ohio Street, and loved its vibe as a neighborhood gathering place where people socialize, work on their laptops andhold meetings.
Atthe time, he was trying to grow his catering business, Eminent Hospitality Solutions, following the closure of his short-lived Downtown venture, Culture Restaurant and Lounge.
Mr. Pierre had built a good reputation in local culinary circles after a decade working at high-profile restaurants including Steelhead Grill, Eleven Contemporary Kitchen and Nola, but he doubted he could secure financing for Arnold’s because he had trouble keeping up with lease and repair paymentsat Culture.
“I needed a down payment of 25 percentand didn’t have the money,” said Mr. Pierre, 34.
Miss Arnold circled back in 2018 with a different option: she would help finance the purchase, which totalednearly $250,000, Mr. Pierre said.
Her backing was critical and is a big reason he kept the founder’s name on the space, which he leases from the nonprofit Northside Leadership Conference. For many black entrepreneurs, “It takes family, friends and community to fill the financinggap,” Mr. Pierre said.
New black-owned firms start with almost three times less capital than new businesses owned by whites and that gap doesn’t close over time, according to the Ewing Marion Kauffman Foundation in KansasCity, Mo.
The same study said black entrepreneurs put up more than half of capital to launch their businesses while white owners put up less than one-third.
Finding lenders
At a forum held in June at the University of Pittsburgh that focused on challenges faced by small and diverse businesses, experts who counsel minority entrepreneurs said those firms have limited sourcesto tap for funding.
In Pittsburgh, a “small circle” of lenders that assist minority businesses includes Citizens, Dollar and First National banks; and Bridgeway Capital, a nonprofit community development financial institution, said Judy McNeil, director of the Diversity Business Resource Center at the Riverside Centerfor Innovation, North Side.
“Working capital is a very big issue [for minorities] … a lot of banks are hesitant,” she said.
“African-American entrepreneurs get their money from friends and family,” said John Wallace, a forum panelist who is a professor of sociology at Pitt and also teaches at the university’s Katz Graduate Schoolof Business.
The forum was sponsored by AmeriHealth Caritas, a Philadelphia-based provider of Medicaid and other managed-care plans that conducts outreach including mentoring toassist diverse entrepreneurs.
Several panel members addressed a 2018 study that showed minority entrepreneurs also face
wide disparities in landing contract work from the state ofPennsylvania.
The 2018 study, conducted by BBC Research & Consulting of Denver for the state’s Department of General Services, analyzed the percentage of contract and subcontract dollars minority- and female-owned firms received on 50,000 contracts Pennsylvania awarded in the fiscal years 2011-2016.
While the study found those businesses could be expected to receive 22 percent of available contracts, they were awarded only 4.5 percent.
That is the lowest contract participation by minority firmsamong all 50 states, said Kerry Kirkland, deputy secretary for diversity, inclusion and small-business opportunities in the Departmentof General Services.
Besides black-owned businesses, the study included firms owned by Asian-Americans, Hispanic-Americans, Native Americans and nonHispanicwhite females.
There were “no big surprises” in the findings, he said. “Discrimination existed in the commonwealth’s marketplace.”
Barriers to state contracts
Two black state legislators who spoke at the June forum, Reps. Ed Gainey, D-LincolnLemington, and Jake Wheatley, D-Hill District, said they’ve been pushing initiatives to help minorities win more contracts, including events in Harrisburg where entrepreneurs can meet officials from state departments, more data reporting on the contract process and possibly a seed fund to help fund minoritybusinesses.
“It’s hard to break down barriers when people in the system are still resistant,” Mr.Wheatley said.
For minority entrepreneurs, finding time to become certified to bid on government contracts can be challenging, Mr. Pierre said. Whilehe hasn’t pursued state certification for his catering firm, he is enrolled in a class to become certified by UPMC’s Supplier Diversity Program.
After he completed courses at Riverside Center for Innovation’s Diversity Business Resource Center in business plan writing and networking, the center picked up the fee of about $50 forhim to obtain UPMC’s certification.
He is also awaiting final approval to be a certified minority contractor for the city of Pittsburgh. “It takes time away from your business to do the thing you need to get certified,” Mr. Pierre said.
Alternative funding
Some black-owned businesses have found alternativeways to raise money.
Courtney Williamson, 31, waspursuing her doctoral degree at Carnegie Mellon University’sTepper School of Business when she developed a back brace to help Parkinson’s disease patients.
Her mother has the disease and Ms. Williamson, her caregiver, was looking for a product to help posture and balance.
CMU’s Project Olympus business incubator connected her with biomedical engineering students at the school who helped build a prototypebrace.
She earned a spot in InnovationWorks’ AlphaLab Gear hardware accelerator program where the product was tested and developed. Innovation Works, a state-supported economic development agency,invested $50,000 in her firm, AbiliLife, in exchange fora 9% stake in the company.
A follow-up investment by Innovation Works’ seed fund — Ms. Williamson declined to disclose the amount — helped to fund the product launch. It is manufactured by a firm in Columbus, Ohio, andsold in 40 states.
Now based in Nova Place on the North Side, AbiliLife also received a grant totaling about $226,000 from the National Science Foundation for research and development on wearable technology that will track motor systems on individualswho wear the brace.
Terri Glueck, director, communications and community development for Innovation Works, said 50% of its investments in the last five years been in startups founded by a woman or a person of color.
While Ms. Williamson is grateful for the outside funding, she hopes to deliver future growth through product revenues. “I think that’s the best source,” she said, “because they aren’t funds you are responsible for owing back or leveraging a piece of yourcompany.”
The crowdfunding option
Vernard Alexander, 47, self-funded his firm, the Minority Networking Exchange. when it launched in 2006. The firm offers consulting and social media strategies to businesses.
He was able to use savings because he works full time as a program manager for the Reemployment Transition Center, Downtown. Mr. Alexander didn’t seek a bank loan because he didn’t need a brick-and-mortar location whenhe started the firm.
Last year, he started leasing a 1,200-square-foot, former photo studio in Homewood where he offers coworking and event space. His revenues totaled about $40,000 last year and he hopes to generate nearly double that this year with the additionof the event space.
Five years ago, he raised $5,000 through a zero-percent interest loan from Kiva, an onlinecrowdfunding site.
Since obtaining his own Kiva loan, he has become a trustee for the platform who studies and researches loans for other small businesses. He’s endorsed about 40 loans for others that have helped generate almost $150,000 for their firms, Mr. Alexander said.
Though he focuses on marketing strategies with his clients, Mr. Alexander said their top challenge is securing capitalto launch or expand.
“Most of those I consult withhave financing issues.”