Four years ago, Adrian Henderson and Nigel Jones were operating a pop-up restaurant every Friday night at Guerilla Café in Berkeley’s Gourmet Ghetto. Their goal was to open a restaurant serving Caribbean food and this was a way to test the market. What started as a one-night-a-week operation soon escalated to two. “We became a fan favorite in the Bay Area and outgrew the spot,” Henderson said. “The spot only sat about 28 people, and it didn’t have a full kitchen, so we had to rent another kitchen to cook out of.”
The duo began to look for locations in Oakland where they could set up their own restaurant, but securing funding was their biggest challenge. “My business partner and I don’t come from rich families, so we had to beg and borrow,” Henderson said. “We put together our life savings and our families also helped out, but we were still about $100,000 short.” Because their business was so new, it was hard to get a loan from a bank. “Banks wanted to see collateral, profit and loss statements, and two years of income before they were able to give us money,” Henderson said. “But we were basically starting out on our own, so we didn’t have a lot of data to back up our restaurant.”
Henderson and Jones’s experience reflects one of the challenges that many entrepreneurs encounter at the initial stages of setting up their businesses— getting a bank loan. And this is where Community Development Financial Institutions (CDFIs) come in.
CDFIs are organizations that focus primarily on supporting small businesses, especially start-ups, by providing loans for business owners who don’t qualify for bank financing because they’re just getting started. CDFIs also offer entrepreneurs financial services such as business advising, consulting on matters like developing effective business models or how to keep costs low, and networking opportunities for entrepreneurs to learn from each other.
Henderson and Jones learned about an Oakland-based CDFI called the Oakland Business Development Corporation Small Business Finance (OBDC) from a friend. For three months, these entrepreneurs worked with Scott Lewis, OBDC’s senior vice president, to bring their business to reality. “We fleshed out our business plan and discussed how much money we actually needed to get it started,” Henderson said. OBDC gave Henderson and Jones the $100,000 loan they needed. And what began as a pop-up in Berkeley is now Kingston 11 Cuisine, a restaurant in downtown Oakland serving Jamaican food. The business employs 30 people.
On Monday, Wells Fargo launched a partnership with OBDC in an effort to support small businesses in the Bay Area. Through the Wells Fargo Works for Small Business: Diverse Community Capital program the bank will be partnering with CDFIs, including OBDC and later other local groups, to lend out $75 million to small businesses nationwide over the next three years. The focus is on lending to members of minority groups including women, African Americans, Hispanics, military veterans and people who identify as lesbian, gay, bisexual, transgender or queer (LGBTQ).
“We want CDFIs to have more resources to be able to reach minority-owned businesses, in particular African American businesses, lend to them and also provide them guidance and technical assistance,” said Tim Rios, senior vice president and community development manager at Wells Fargo.
At this initial stage of the program, Wells Fargo is working with three CDFIs—in Florida, Mississippi and Oakland’s OBDC, which has been around since 1979, providing loans and other financial services such as business training to entrepreneurs in Oakland and San Francisco. In Oakland, the organization mainly serves low- to moderate-income entrepreneurs and businesses that are owned by military veterans. “We’re equal opportunity and our portfolio is very diverse, but our focus and outreach tends to be in neighborhoods that don’t have access to resources,” said Katie Taylor, a manager at OBDC.
Some of the businesses that OBDC works with in Oakland include kitchen décor retailer UmamiMart, fashion store Voz Apparel, Freelove Music School and Draak Davis DMD Dental Corporation. Currently, OBDC is serving 173 entrepreneurs in Oakland. Of those, 12 percent are Asian, 17 percent are black/African American and 10 percent are Hispanic. Of the 120 businesses that OBDC is working with in Oakland, 51 percent are owned by women and 83 percent of them operate in low-to-moderate income neighborhoods.
OBDC received a total of $1.45 million from Wells Fargo, with $750,000 to be allocated to their loan fund for small businesses and the remaining $700,000 as a grant to support other services that they offer to entrepreneurs.
OBDC will be rolling out 10 loans in the first year, 15 in the second, and 20 in the third year using the $750,000 equity equivalent investment from Wells Fargo. Entrepreneurs must repay the loan within 10 years. The remaining $700,000 will be used to increase the group’s outreach efforts, particularly to African American entrepreneurs. “We are launching new outreach efforts to deepen the work we are already doing and we’re going to hire someone to focus solely on that,” Taylor said. That will entail offering networking opportunities for entrepreneurs to learn from each other and increased one-on-one business consulting with OBDC representatives.
OBDC will also use the funds to kick-start their Entrepreneur in Residence Program, through which entrepreneurs will use the organization’s office space at the initial stages of launching their businesses. “We’re going to host folks who are starting up new enterprises here in our offices and give them access to space, supplies and our business expertise,” Taylor said. “It’s also a way to keep their overhead nice and low and focus on getting their new thing off the ground.”
The program is tailored towards young African Americans with the end goal of connecting them with older business owners. “There’s existing entrepreneurs who are going to retire in the next few years, so the question is: How can we connect them with folks who are interested in buying their business and essentially having a succession plan?” Taylor said. “How do we keep these businesses that are staples of the community, in the community so we don’t lose the resources and jobs that they create?”
According to Rios, Wells Fargo’s focus is on supporting minority business owners because they face “more difficulties in accessing small business loans and the assistance that they need to start or grow their businesses.” In 2014, Wells Fargo commissioned Gallup, a research company based in Washington D.C., to perform a study looking into the financial challenges that business owners encounter in their journey to becoming successful entrepreneurs. The study looked at businesses owned by Asians, African Americans, Hispanics, women, veterans and people who identify as LGBTQ.
The study revealed that entrepreneurs from these groups have a hard time accessing credit for their businesses. “Diverse owners are more likely to have ever been declined for business credit than small-business owners in general,” the study’s authors state. The study also concluded that while a majority of Asian, African-American and Hispanic business owners report that “being a minority-owned business has no effect on their company, African-American business owners are more likely than their Asian or Hispanic counterparts to say that their minority status makes it harder to run their business.”
Rios said OBCD was chosen because of its track record of working with a diverse pool of entrepreneurs. Additionally, he said, “They have shown they have the capacity to manage investments in a sound and prudent way.”
Rios hopes that this program will also work to help business owners still dealing with the negative effects of the recession get back to their feet. “A lot of business owners had a lot of suffering through the recession. There’s business owners who might still have blemishes on their credit reports, their sales may have gone down, they may not have the same capacity to borrow that they had before the recession. So CDFIs like OBDC can make capital available to them when they need it the most,” he said.
Taylor said she expects that increasing levels of gentrification in the East Bay will cause an even greater need for support among small businesses. “We hear stories of rents going up and people feeling like they have to increase their revenue to match the increase in their rent,” she said. “It’s something that we’re anticipating might happen along International Boulevard after we have a consistent public transit option there,” she said, referring to Oakland City Council’s plans to increase bus routing along International Boulevard. “So we’re going to be helping people figure out how to get to a point where your rent costs don’t get you out of business.”
Wells Fargo is working to establish measures of success with the participating CDFIs. “Success for this program means at the end of the three years not only having dozens and dozens of CDFIs working with small businesses, but also hundreds if not thousands of minority-owned small businesses that will have access to capital and technical assistance that they otherwise wouldn’t have had,” Rios said.
For Taylor, it’s important to support small enterprises because strong economies live and thrive when there’s a balance of both big corporations and local businesses. “Small businesses, especially start-ups, tend to be the engines supporting local economies,” she said. “They are job creators so very practically, if we want people to work here, we need small businesses to be operating to provide those jobs.”