PNC and Huntington buildings in Downtown Akron. Photos by Abbey Marshall
Rubber City Match — an entrepreneurial development program that, city officials say, is designed to give historically marginalized business owners a boost to help them get lending from banks — has so far had a big problem: Getting lending from banks.
Rubber City Match offers business coaching to new and expanding small businesses, then helps connect them to vacant retail spaces. It is based on a successful program in Detroit in which participants were mentored and created business plans to pitch to a board of lenders in pursuit of funding, as well as pairing them with vacant retail space.
At the end of the first cohort’s programming, the city is providing $100,000 in grants. Qualifying participants can apply for up to $50,000. In a program of 17 people, up to 12 of whom are eligible to apply for the cash award, that could mean stiff competition for funding. The cohort is 75% Black and 60% female.
The $100,000 was an investment in the program and its mission, but Deputy Mayor for the Office of Integrated Development James Hardy said the department cannot afford much more than that.
That’s where they were hoping banks would help: After aiding the business owners, the city’s role is theoretically to connect them with lenders.
“The city will never be able to lend the capital needed to move the needle on this issue,” Hardy says. “It’s really important that we have equitable lending from our finance institutions, because they have more resources to lend than we ever will as a city.”
Akron banks respond to the ask — and some sign on after request for comment
By the end of the program, all the business plans will be vetted and the owners will be thoroughly trained: the makings of a low-risk investment, the city says, citing as evidence the capital it put toward the program itself.
Still, Hardy says, “I was in the room with local representatives of every bank with a presence in Akron,” including both collaborative and one-on-one meetings with representatives from each of the banks in 2019. “All of them declined to participate.”
As a result, instead of all participants getting a chance to present to a lending committee made up of banks, only two will receive those $50,000 grants from the city with support from nonprofit lenders.
That is, until The Devil Strip reached out for comment in September. Three of the five banks contacted — Huntington, PNC and Fifth Third — then scheduled meetings with the city to discuss how to participate in the program.
Huntington reached out to the city to support the program after The Devil Strip requested comment, with spokesperson Emily Smith saying: “We always appreciate the opportunity to learn from our communities and do our part to support them. We’ll continue the conversation directly with the city to learn more about how we can help.”
PNC said they were approached in September 2019 for support, but could not consider it because the 2019 budget was already appropriated. PNC needed time to consider the request and did not reconnect to confirm or deny support due to the pandemic, says PNC regional president for Akron Joe Luckring, but they plan to meet with city officials in early October to discuss participation.
Fifth Third Bank said the representative in those meetings retired earlier this year. After request for comment, bank representatives said they will reach out to the city to establish a new point of contact and review the program.
The city met with the U.S. Bank district manager and team members on two occasions in 2019. The city said U.S. Bank declined to participate. U.S. Bank declined to comment on the program, stating, “U.S. Bank is not in a position to comment about a program that we are not currently involved in, but we remain committed to supporting the Akron community and are always open to opportunities to invest in our shared future,” citing other financial commitments to other local nonprofits such as the East Akron Neighborhood Development Corporation.
A city official said they met with a KeyBank representative in 2019 who declined to participate. KeyBank declined to comment about the program, but told The Devil Strip they have provided more than $110 million in small business loans to businesses in “low-to-moderate income urban and rural communities” in Northeast Ohio. “We invite anyone interested in learning more about grant funding through the KeyBank Foundation, and the formal process through which organizations can apply, to contact us,” says KeyBank spokesperson Matthew Pitts. Hardy did note that KeyBank was instrumental in a new small business revolving loan being launched at Western Reserve Community Fund next month that otherwise would not be able to get off the ground.
Hardy thinks the banks’ reactions reflect a systemic problem, however.
“There is a huge problem in Akron of POC- and women-owned businesses trying to secure traditional lending at the same success rate as their white male counterparts,” Hardy says. “It seems like with the banks, there’s no recognition of the structural racism that has played a huge role in Akron and places like Akron that dictated your credit score or being able to lean into friends and family for equity — all the things we as the majority take for granted.”
What can Akron learn from Detroit? Work with nontraditional lenders, that city’s leaders say
Motor City Match, the model on which Akron based its program, has been wildly successful, fronting $2 million in grants for about 40 businesses a year and connecting award recipients to retail space and lenders.
Launched in 2015, the program sought to solve two problems common in the Rust Belt: too much vacant retail space in the city and a lack of capital access for small business owners. In addition to cash grants, businesses can apply for assistance with business planning, space and design.
“The premise of our program is that there are very talented entrepreneurs in Detroit that lack access to capital,” says Drew Lucco, small business development manager at the Detroit Economic Growth Corporation, which runs Motor City Match.
“We know that one of the reasons is because it is generally harder for minority entrepreneurs to get loans,” he says. (Detroit’s population is 79% Black; Akron’s population is 30% Black.) “It’s generally harder for any first-time entrepreneurs to get a loan from traditional banks, really. We came into the program with that as one of the premises. The idea was, if we can offer some capital, that would allow people to complete projects without a loan or make it easier to get loans.”
Lucco said he did not find it surprising that Akron had difficulties with securing banks’ participation. They haven’t had much luck with traditional lenders either.
“Very few of our projects get funding from traditional banks,” Lucco says, though he did note that they’ve worked with a few over the years for other programming. “We are very blessed in Detroit to have a community of nontraditional lenders… They think of themselves as character-based lenders rather than credit-based lenders. Their goal is to lend to projects that contribute to community development.”
Akron has been successful in onboarding nontraditional lenders with similar visions.
“We’re a nonprofit for a reason,” says Chris Faircloth, the lending manager of Economic & Community Development Institute (ECDI) Akron, a nonprofit that provides training, technical assistance and loan capital to entrepreneurs who do not qualify for traditional bank loans.
“We spend more time with clients than would be financially feasible on a lending process to turn a profit on it with interest,” he says. “[With banks,] there’s just no time to really sit down and evaluate if your credit is low, are you irresponsible with credit or did you have a bad life circumstance? It’s a numbers game. To lend to small businesses at a profitable level, you can’t really spend an inordinate amount of time doing those things.”
A majority of ECDI’s clients are referred by larger regional banks, such as the ones mentioned in this story that partner with nonprofit lenders. The ECDI then makes a closer, character-based determination.
Lucco emphasizes the importance of that approach when it comes to small business funding in Motor City Match, particularly for minority business owners. First-time business owners have less credit and less experience, and it’s difficult for startups to get loans without a significant amount of collateral.
“It’s a Catch-22,” Faircloth says. “You can’t get a loan because you don’t have cash, and you need a loan because you don’t have cash.”
Detroit’s Motor City Match supports about 10 businesses per quarter, doling out $500,000 in grants ranging between $5,000 to $100,000 to each of its winners. In some cases, the grant will not cover all the costs associated with a startup, especially because the retail space had been vacant for years and might need significant rehab. That’s when the lenders come in at the end of the program to provide a loan. Lenders view the $50,000 grant as equity, so it changes the underwriting, allowing entrepreneurs to secure a loan more easily.
What does this mean for the Rubber City Match program?
But Akron’s story is different from Detroit’s. The city cannot yet afford to front $2 million each year.
In a program where 75% of the businesses of the first cohort are Black-owned and 60% are female-owned, Hardy says the lack of participation from banks leads to questions about systematic oppression that has kept certain groups out of economic development.
“I have heard the term ‘unbankable’ more times in those meetings than I’ve ever heard in the last five years,” Hardy says. “It makes you wonder that really means. No one could seem to give me a definition.”
All of the major banks in Akron The Devil Strip contacted for comment — Huntington, PNC, KeyBank, U.S. Bank and Fifth Third — received the highest rating awarded by the Community Reinvestment Act, which monitors how well banking institutions meet the credit needs of the areas they serve.
That doesn’t eliminate Hardy’s questions, however. “Through my conversations with constituents, it’s just not happening. There’s just a fundamental disconnect between what banks are saying happens and what people are saying happens.”
While some banks are not participating as traditional lenders, many in the list above, including PNC, Fifth-Third and U.S. Bank, have provided funding and grants for nontraditional lenders participating in the program, including the ECDI and Western Reserve Community Fund.
Hardy says there’s an open invitation from the city to the banks to participate in the Rubber City Match program or any future initiative to include entrepreneurs of color.
“We’re not giving up,” Hardy says. “The invitation [to the banks] is always there. We think we’re going to have very bankable businesses in our program, but there are very bankable businesses right now that are not successful in the traditional lending market.”
Originally appeared in The Devil Strip via Report for America on Oct. 12, 2020.