How do you start a business when you have nothing to use as collateral? In most cases, the answer is simple: you can’t, a bank won’t lend you the money. But a Mississippi-based nonprofit called the Higher Purpose Co. is trying to change that for black business owners in the Mississippi Delta.
In a state still grappling with the legacy of slavery and economic inequities from the Jim Crow era, the organization helps more than 500 Black-owned businesses, 87% of which are run by Black women, by acting as an advocate. and “capital matchmaker” to promote ownership and economic justice, founder and chief executive Tim Lampkin said. Among its offerings are financial support mechanisms intended to mitigate systemic barriers at financial institutions that have historically hindered black business development in Mississippi.
“We can help entrepreneurs get access to interest-free loans that don’t require any collateral, that don’t require any minimum credit score,” Lampkin said in an interview with Marketplace’s David Brancaccio. “Because we know, particularly when we work with black-owned businesses, the collateral and the credit score [requirements] are two main problems that prevent black-owned businesses from seeking the capital they need.”
The following is an edited transcript of their conversation.
David Brancaccio: You may have attended these things: I once attended a [Small Business Administration] training on how to be an entrepreneur, and the guy on stage looks at all of us and yells, “Where are you going to get the money to start? And don’t tell your parents! I mean, seed money is hard. And what, according to your experience, is more difficult for some groups of people?
Tim Lampkins: Absolutely. When we look at the work that we’re doing, particularly here in Mississippi with black-owned businesses, we know that when it comes to access to capital, there are many different barriers. And so we’ve been working very hard over the last six years to break down some of those barriers. Over the past two and a half years, we have been able to deploy more than $1 million of capital into Black-owned businesses in Mississippi. And we’re very excited about that, and we’re really trying to change the narrative on how access to capital is addressed here in Mississippi, but [also] through the country.
A “buffet of capital options” for companies
Brancaccio: How do you get the money to do this? It’s partly about matchmaking, right?
Lampkin: So we consider ourselves a capital matchmaker. we have what i describe [as] a buffet of capital options, where we can really meet the entrepreneur where he is. So we have grants, we have interest-free loans through our partner Kiva, as well as low-interest loans through community development financial institutions, and then further down the ladder of the capital stack, there’s venture capital. . And so we can really bring a unique approach to this process. And by working with those entrepreneurs, we’re able to raise grant funds that we can give back to the businesses, and then on top of leveraging the capital that different financial institutions have to really match that to the entrepreneur.
Brancaccio: You mentioned Kiva partners. That is a separate organization, a non-profit organization in its own right.
Lampkin: We are the only Kiva center in the state of Mississippi. So we can help business owners get access to no-interest loans that don’t require any collateral, that don’t require any minimum credit score, because we know, particularly when we’re working with Black-owned businesses, the collateral and credit score [requirements] are two main problems that prevent black-owned businesses from seeking the capital they need. And so working with Kiva has been tremendous in really helping our entrepreneurs gain access to that kind of affordable capital.
Overcoming systemic barriers
Brancaccio: Behind all this is that a traditional source of capital, borrowing from a bank, there may be structural problems in that system, right? And, in his opinion, banks continue to use criteria that unfairly discriminate against potential buyers, who are people of color.
Lampkin: We have seen in the last two and a half years, particularly since the pandemic hit, various financial institutions have been more creative in terms of their lending criteria. And then that started to become the kind of traditional criteria again, right? So I think the pandemic showed us that there’s a lot of flexibility in terms of payment structures, interest rates and things like that. And even when we think about closing costs, that makes capital more affordable. However, getting back to that collateral piece has really been a barrier for many black-owned businesses. So we’ve actually created our own pool of loan collateral that we use as a way of being in place of the collateral. So if a person doesn’t have collateral, we can basically reduce the risks for the borrower and the lender by guaranteeing that loan by up to 50%. So if something happens to that loan, you know, it’s still a win-win situation for the financial institution. And so we’re seeing some progress in a lot of financial institutions and how they’re working with entrepreneurs to create new products. But there’s still a lot of work to be done in this space as we continue to really use access to capital as a way to open up business ownership for many, particularly here in Mississippi as it relates to Black business owners.
Brancaccio: So this funding network is one thing. Do people also provide experience, guidance? Is that also part of the network?
Lampkin: Absolutely. That is why our model includes education, advice and financing. So with the education piece, we have quarterly meetings with our 500 members right now across the state, and then we also do monthly meetings with those entrepreneurs and bring in speakers and trainers and facilitators. And then we continue to consult one-on-one with those entrepreneurs, depending on where they are in their business and then we wrap that up with the financial piece, right? The piece of access to the capital. So it’s a unique model in itself, and we’re creating this three-pronged approach where we can meet the entrepreneur no matter what stage of their business they’re at because that’s so critical. Because without the advice, you have capital and you may not know what to do with it or be able to spend it wisely. So it’s really critical that we combine that capital with mentoring and continue to provide that ongoing education and support to those entrepreneurs. And you know, making sure we’re with them every step of the way.
Brancaccio: I have a question about the “brain drain”, Mr. Lampkin. You’re from Mississippi, I understand. And he probably had options, but he chose to serve his home state and not move to where the big money is.
Lampkin: Absolutely. So I believe in purpose. And I truly understand that this is the work that I have been called to do at this particular time and in this particular place. I think what has often happened is, particularly when we look at millennials, when we look at the different opportunities in bigger cities and things like that, it can definitely be more lucrative when it comes to money and finances and all of that stuff. materialists. And at the same time, is it really making you feel fulfilled as a person? And so I get the opportunity to do amazing work. I get paid to do that job too [as] see the direct impact on my community. And it’s really about leaving a legacy as well. So I encourage anyone listening to this who is about to struggle with how they can get involved or stay involved with their hometown or their community, there are ways you can do that, there are ways you can find a problem and then be part of the solution. And that’s what I did with the creation of Higher Purpose Co.
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