When Sweet Teez Bakery owner Teresa Maynard met with Whole Foods in May 2018, she was hoping the supermarket chain would order as many as 2,000 of her three-inch pies.
When company executives instead requested 48,000, she was floored. Up to that point, the largest order the Dorchester native had completed was 500 mini pies.
“I say yes to everything and I’ll figure it out afterwards,” said Maynard, whose business was less than two years old when the deal was made official in September.
Whole Foods expected to have the pies in its New England stores in time for Thanksgiving shoppers. To pull that off, Maynard figured she’d need $80,000, far more than she could get, especially on short notice.
It was a golden opportunity for Maynard to expand her burgeoning business and cement its credibility, but she knew that if anything went awry, her operation would likely tank.
“You want to go after bigger things, and the only way for you to really become a contender is to be able to execute some of these larger orders,” she said.
It’s a dilemma many business owners of color face, both because the opportunity for big contracts and the ability to obtain the capital required to finance them is in short supply. According to a 2021 Bank of America survey, 56 percent of Black entrepreneurs said lack of access to capital limits their growth.
“The reality for some is that scaling their businesses is a risky proposition because while the contract might be there now because of supplier diversity rules, what doesn’t necessarily come with that contract is timely payment,” said Nicole Obi, president and CEO of the Black Economic Council of Massachusetts.
Often, she said, fulfilling big contracts means operating in the red for months; making it difficult to pay employees, cover operating costs, and take on lesser orders in the meantime.
When personal financing is out of the equation, the next step frequently is seeking a bank loan. But Malia Lazu, a lecturer at the Massachusetts Institute of Technology School of Management, said there are factors that keep many Black entrepreneurs from fitting the profile of an ideal loan candidate.
Institutional barriers, she said, come from banks focusing on high credit scores and collateral assets — which Black entrepreneurs are less likely to have — when deciding who gets a loan. Lazu, a former executive at Berkshire Bank, added that since many banks lack diverse staff among key decision makers, they can have implicit biases about what kinds of businesses represent worthwhile investments. Also, Lazu said, since Black entrepreneurs are less likely to come from a background of significant generational wealth, they usually lack sophisticated financial literacy and confidence, which can stop them from applying for a loan.
Shana Bryant needed about $150,000 in working capital to hire street vendors, create marketing material and pay temporary employees to fulfill the $500,000 contract her business, Shana Bryant Consulting, landed to plan Open Streets Boston in June 2021. Open Streets Boston is a city-sponsored series of events highlighting local businesses in neighborhoods, held on streets that are temporarily closed to traffic. Bryant knew the job would be hard, but considering the city’s history of underinvestment in businesses of color, it was a challenge she accepted to show her peers that it could be done.
“This is my lot in life at this point, that if Shana can do this, we can — as Black people, as Black-owned businesses — do this,” said Bryant. “I really do want to encourage other small businesses to start small, but get certified and bid. Learn the process, learn the people that are in places that can help you build your network, because we deserve these opportunities.”
Knowing her young business likely wouldn’t qualify for hundreds of thousands of dollars in loans, Bryant turned to local mission-driven lenders LEAF and MCCI to help finance the cost.
Mission-driven lenders are institutions that provide lending and credit opportunities to businesses from marginalized communities. Boston Impact Initiative, or BII, is one such lender. Betty Francisco, CEO of BII, said her organization offers entrepreneurs friendlier terms — lower interest rates, longer timelines to pay back loans, more generous capital offers — than traditional banks because they account for the structural forces that make it harder for marginalized entrepreneurs to receive and pay back investments.
“We start with the premise that entrepreneurs of color are not any riskier than any other entrepreneur. That is a myth, and it reflects the bias that we have in our capital system,” said Francisco. She added that BII subscribes to a “trust-based” investment philosophy that involves getting to know entrepreneurs as people first, working to understand their journey, and goals.
BII gave Maynard of Sweet Teez a $55,000 loan to partially finance expenses associated with her Whole Foods deal, but that didn’t relieve the stress of her actually having to do the work.
“All I kept thinking was, ‘I borrowed this $80,000, and I do not have enough money to pay these people back. This order has to go out,’” said Maynard. “We were working 10-hour shifts because the turnaround time was very short. And when I say stress, I mean I’m literally leaving before my kids wake up, coming home by the time they were already asleep. I’m working like seven days a week.”
Neither Maynard nor Bryant would have been able to complete their contracts without the backing of mission-driven lenders. But Lazu, who is on BII’s investment committee, said the funds they can muster pale in comparison with traditional banks.
“It’s [about] us getting access to traditional forms of capital,” she said. “That’s really where I think the gap still needs to be filled.”
“There’s no silver bullet solution to what needs to happen” to eliminate the working capital gap, Obi said. “Because we’re dealing with a systemic issue, the answer has to be on many levels.” For instance, she said, governments and business leaders must invest in initiatives like student loan forgiveness and financial education for marginalized communities.
In addition, Obi said, entities awarding contracts to disadvantaged businesses must be flexible with their payment stipulations. That could mean paying a portion of the vendor’s compensation upfront, paying closer to the order delivery date, or breaking up and shrinking the size of contracts to distribute the work among multiple businesses of color.
“Making an award without removing some of the barriers that we know are effective creates a very challenging situation for Black business owners,” said Obi. “It has to be a comprehensive, thoughtful, intentional solution and being equitable requires you to be thinking more broadly about what that means in your practices.”