Studies from the Brookings Institute and the Federal Reserve Bank of Boston in recent years detailed and solidified Boston’s status as the city with the widest wealth gap in the United States, prompting soul searching among business and civic leaders.
For Eastern Bank Chairman and CEO Bob Rivers, the wealth gap revelation was a call to arms of sorts.
“The business community owns that,” he said during this week’s kickoff event for the bank’s Business Equity Initiative. “It’s time for the business community to step up.”
Through the new initiative, Eastern Bank is stepping up with a $10 million growth fund aimed at providing loans to build the capacity of businesses owned by people of color.
“We decided we would focus on blacks and Latinos coming out the gate because that’s where the gap is the greatest,” said Glynn Lloyd, executive director of the Business Equity Initiative.
The 2015 Federal Reserve “Color of Wealth” report found that while white households have a median wealth of $247,500, blacks and Dominicans’ median wealth is close to zero. Because small businesses are widely seen as the engines of the United States economy, Lloyd says, investing in them can help increase incomes in the communities where they’re located. Currently, minority-owned businesses receive less than 2 percent of all venture capital in the United States.
Eastern Bank’s investment in the businesses will come with technical assistance from strategic advisers the bank will employ. The advisers will assess small businesses, create strategic master plans and help the businesses execute the plans.
“It’s a technique that works well in the private equity world,” Lloyd said. “The difference is that private equity firms have a controlling interest.”
Lloyd said the advisers have a background in private equity and will work with the initiative at discounted rates. Eastern Bank will pick up 80 percent of the cost for the advisers, with the small businesses paying 20 percent. As the participating businesses execute their strategic growth plans, the advisers, who will work on average eight hours a week with them, will bring in specialists to help with areas such as website development, marketing, analytics and legal work.
“We think this is a method that’s proven,” Lloyd said. “The fact that we’ll have strategic advisers embedded with the companies will help mitigate some of the risk in our growth fund.”
Early stage investing
In order to qualify for the Business Equity Initiative, businesses must have minimum annual sales volume of $800,000, be located in Eastern Massachusetts or southern New Hampshire and have a demonstrated capacity for growth.
Examples of growth include a construction company building its bonding capacity to take on larger projects or a tech firm scaling up to supply a large health care network.
For small businesses to grow, Lloyd says, they typically need to satisfy five criteria: the right people in place; a good strategy; the ability to execute that strategy; access to markets; and access to capital. The Business Equity Initiative will help participants satisfy those criteria and help business owners build up the social capital they need.
“Many business owners can pick up the phone, make a call and get a lifeline,” he said, “[but] minority businesses don’t have that same strength of networks. We want to help them build those networks.”
The program’s first cohort will include 15 businesses. Next year, Lloyd says, that number will grow to 30.
Lloyd stresses that the initiative is a philanthropic endeavor, not simply a means of driving more business to the bank. “It doesn’t matter whether you bank with Eastern,” he said.
Ultimately, the measure of the success of the Business Equity Initiative will be how well the businesses grow.
“We want to see the companies double in size,” Lloyd said. “It will generate job creation. It’s all the things that happen when you have healthy businesses in our community. This really models how anyone who is investing philanthropic dollars into economic development can have a greater impact in this city.”
Ultimately, Rivers says, helping the business community serve people of color will help improve the long-term economic wellbeing of the city.
“We believe that supporting minority business is not only the right thing to do, it’s the smart thing to do,” he said.
