How do you start a business when you have nothing to use as collateral? In most cases, the answer is simple: You can’t — the bank won’t lend you money. But one Mississippi-based nonprofit called Higher Purpose Co. trying to change that for Black business owners in the Mississippi Delta.
In a state that still reckons with the legacy of slavery and the economic inequality of the Jim Crow era, the organization helps more than 500 Black-owned businesses – 87% of which are run by Black women – by acting as advocates and “capital matchmakers” to promote. ownership and economic justice, said founder and CEO Tim Lampkin. Among his offerings is a financial support mechanism meant to mitigate systemic barriers in financial institutions that historically stymied the development of Black businesses in Mississippi.
“We can help entrepreneurs get access to interest-free loans that don’t require collateral, that don’t require a minimum credit score,” Lampkin said in an interview with Marketplace’s David Brancaccio. “Because we know, especially when we work with Black-owned businesses, collateral and credit scores [requirements] are the two main issues that stop Black-owned businesses from finding the capital they need.
Below is an edited transcript of their conversation.
David Brancaccio: You may have attended this thing – I once attended a [Small Business Administration] training on how to be an entrepreneur, and the guy on the stage looks at all of us and yells, “Where are you gonna get your startup money? And don’t talk old!” I mean, startup money is hard. And what, in your experience, is harder for some groups of people?
Tim Lampkin: Indeed. When we look at the work that we do, especially in Mississippi and Black-owned businesses, we know that when it comes to access to capital, there are many different barriers. So we’ve been working hard for the last six years to break down some of those barriers. In the last 2½ years, we have been able to deploy over $1 million in capital to Black-owned businesses in Mississippi. So we’re really excited about that, and really trying to change the narrative about how access to capital is viewed here in Mississippi, but [also] all over the country.
“Buffet of capital options” for businesses
Brancaccio: How do you get money to do this? It’s about, in part, matchmaking, right?
lamps: So we consider ourselves a capital matchmaker. We have something to explain [as] a capital selection buffet, where we can really meet entrepreneurs where they are. So we have grants, we have zero-interest loans through our Kiva partners, as well as low-interest loans through community development financial institutions, and then down the scale of accumulating capital is venture capital. So we can really bring a unique approach to this process. And working with those entrepreneurs, we can collect grant funds that we can give back to businesses, and then also take advantage of the capital that different financial institutions have to match with entrepreneurs.
Brancaccio: You mentioned Kiva partners. It is its own separate, non-profit organization.
lamps: So we are the only Kiva hub in the state of Mississippi. So we can help entrepreneurs get access to interest-free loans that don’t require collateral, that don’t require a minimum credit score, because we know, especially when we work with Black-owned businesses, collateral and credit scores [requirements] are the two main problems that stop Black-owned businesses from finding the capital they need. And working with Kiva has been incredible in helping our entrepreneurs get access to the kind of capital they can afford.
Overcoming systemic barriers
Brancaccio: Basically all these are traditional sources of capital – borrowing from banks – maybe there’s a structural problem in that system, right? And in your view, the bank still uses criteria that unfairly discriminate against would-be buyers, who are people of color?
lamps: We have seen in the last 2½ years, especially since the pandemic, some financial institutions are more creative in terms of their lending criteria. Then the first to really return to the type of traditional criteria, right? So I think the pandemic has shown us that there is a lot of flexibility in terms of payment structures, interest rates and things like that. And when we consider the closing costs, it makes capital much cheaper. However, getting back to that collateral cut is really a stumbling block for many Black-owned businesses. So we actually raised the loan collateral pool that we used as a way to stand in place of the collateral. So if a person does not have a guarantee, we can basically reduce the risk for the borrower as well as the lending institution by guaranteeing the loan up to 50%. So if something happens to that loan, you know, it’s still a win-win situation for the financial institution. So we see some developments in many financial institutions and how they work with entrepreneurs to create new products. But there is still much work to be done in this space as we continue to use access to capital as a way to open up business ownership to many, especially in Mississippi as it relates to Black business owners.
Brancaccio: So this funding network is one thing. Do people also lend expertise, guidance? Are they also part of the network?
lamps: Indeed. So our model includes education, advising and funding. So with the education piece, we have a quarterly meeting with our 500 members all over the country, then we also do a monthly meeting with those entrepreneurs and we bring in speakers and trainers and facilitators. And then we continue to do that one-on-one advice with those entrepreneurs, depending on where they are in their business and then we wrap it up with a financial piece, right? A piece of capital access. So that’s a unique model in itself, and we created this three-pronged approach where we can meet entrepreneurs wherever they are in their business stage because that’s so critical. Because without advice, you have capital and may not know what to do with it or may not be able to spend it wisely. So it’s really important that we pair that capital with advice and continue to provide ongoing education and support with entrepreneurs. And you know, making sure we’re with them every step of the way.
Brancaccio: I have a “brain drain” question, Mr. Lampkin. You are from Mississippi, I understand. And you may have had a choice, but you chose to serve your home state and not move to where the big money is.
lamps: Indeed. So I believe in the goal. And I really understand that this is the job I was entrusted with at this particular time and in this particular place. I think what often happens is, especially when we look at millennials, when we see different opportunities in big cities and things like that, it can definitely be more profitable because it has to do with money and finance and all the materialistic things. And at the same time, does it really make you fulfilled as a person? So I got the chance to do an amazing job. I get paid to do that work, too [as] see the direct impact in my community. And it’s also about leaving a legacy. So I encourage anyone listening to this who is on the fence struggling with how they can get involved or stay involved with their hometown or community, there are ways you can do that, there are ways you can find the problem and then be part of the solution. And that’s what I did by building Higher Purpose Co.
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