How do you start a business when you have nothing to use as collateral? In most cases, the answer is simple: you can’t — a bank won’t lend you money. But a Mississippi-based nonprofit called Higher Purpose Co. is trying to change that for black business owners in the Mississippi Delta.
In a state that still addresses the legacy of slavery and Jim Crow-era economic inequality, the organization helps more than 500 black-owned businesses — 87% of which are run by black women — by acting as an advocate and “matchmaker of capital” to promote ownership and economic justice, said founder and CEO Tim Lampkin. Among its offerings are financial support mechanisms intended to alleviate systemic barriers in financial institutions that have historically impeded the development of black businesses in Mississippi.
“We’re able to help entrepreneurs access zero-interest loans that require no collateral, that require no minimum credit score,” Lampkin said in an interview with Marketplace’s David Brancaccio. “Because we know, especially when working with black-owned businesses, collateral and credit score [requirements] are two main issues that prevent black-owned businesses from seeking the capital they need.
The following is an edited transcript of their conversation.
David Brancacio: You may have attended these events — I once attended a [Small Business Administration] training on how to be an entrepreneur, and the guy on stage looks at all of us and yells, “Where are you going to get your start-up money? And don’t tell your parents! I mean, start-up money is tough. And what, in your experience, is more difficult for certain groups of people?
Tim Lampkin: Absolutely. When we look at the work that we do, particularly here in Mississippi with black-owned businesses, we know that when it comes to access to capital, there are many different barriers. And so we’ve worked very hard over the last six years to break down some of those barriers. Over the past two and a half years, we have been able to deploy over $1 million in capital to Black-owned businesses in Mississippi. And so we’re really excited about that, and we’re really trying to change the narrative about how access to capital is approached here in Mississippi, but [also] Across the country.
A “buffet of capital options” for businesses
Brancacio: How do you get the money to do this? This is, in part, about matchmaking, isn’t it?
Street lamp : We therefore see ourselves as a key matchmaker. We have what I describe [as] a buffet of capital options, where we can truly meet the entrepreneur where they are. So we have grants, we have zero interest loans through our partner Kiva, as well as low interest loans through community development financial institutions, and then lower on the ladder of the capital stack is venture capital. So we are able to bring a truly unique approach to this process. And by working with those entrepreneurs, we’re able to raise grant money that we can reallocate to businesses, and then leverage the capital that the various financial institutions have to really match that with the entrepreneur.
Brancacio: You mentioned Kiva partners. It is a separate organization, a non-profit organization in itself.
Street lamp : We are therefore the only Kiva hub in the state of Mississippi. So we are able to help entrepreneurs access zero interest loans that require no collateral, that require no minimum credit score, because we know, especially when working with black-owned businesses, as collateral and credit score [requirements] are two main issues that prevent black-owned businesses from seeking the capital they need. And so working with Kiva has been great in really helping our entrepreneurs access this kind of affordable capital.
Overcoming Systemic Barriers
Brancacio: Underlying all of this is that a traditional source of capital—borrowing from a bank—there can be structural problems in that system, right? And in your opinion, banks still use criteria that unfairly discriminate against potential buyers, who are people of color?
Street lamp : We have seen over the last 2½ years, especially since the pandemic hit, several financial institutions have been more creative in terms of lending criteria. And then it started to really come back into the traditional kind of criteria, didn’t it? So I think the pandemic has shown us that there’s a lot of flexibility in terms of repayment structures, interest rates and things like that. And even if we think about closing costs, it makes capital more affordable. However, going back to that collateral piece has really been a roadblock for many black-owned businesses. So we have created our own loan collateral pool which we use as a way to stand in place of collateral. So if a person does not have collateral, we are able to essentially reduce the risk for the borrower as well as the lending institution by guaranteeing that loan for 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 are seeing progress in many financial institutions and how they are working with entrepreneurs to create new products. But there’s still a lot of work to be done in that space as we continue to really use access to capital as a way to open up business ownership to so many people, especially here in Mississippi when it comes to owners of black businesses.
Brancacio: This funding network is therefore one thing. Do people also bring their expertise, their advice? Is this also part of the network?
Street lamp : Absolutely. Our model therefore includes education, advice and financing. So with the education component, we currently have quarterly meetings with our 500 members across the state, and then we also have monthly meetings with those entrepreneurs, and we bring in speakers, trainers, and facilitators. And then we continue to give individual advice to these entrepreneurs, depending on where they are in their business, and then we wrap that with the financial piece, right? The capital access room. So it’s a unique model in itself, and we’re creating this three-pronged approach where we can meet the entrepreneur no matter where they are in the stage of their business, because it’s very important. Because without having been advised, you have capital and perhaps do not know what to do with it or cannot spend it wisely. And so it’s really critical that we match that capital with guidance and that we continue to provide that ongoing training and support to those entrepreneurs. And you know, making sure we’re with them every step of the way.
Brancacio: I have a question on the “brain drain”, Mr. Lampkin. You’re from Mississippi, I understand. And you probably had options, but you chose to serve your home country and not move to where the big bucks are.
Street lamp : Absolutely. So I believe in purpose. And I truly understand that this is the work that I have been called to do at this particular time and in this particular place. I think what’s happened a lot is that especially when we look at millennials, when we look at the different opportunities in big cities and things like that, it can definitely be more lucrative in terms of is about money and finance and all that materialistic stuff. And at the same time, does it really make you fulfilled as a person? And so I have the opportunity to do an incredible job. I also get paid to do this job [as] see the direct impact in my community. And it’s really also about leaving a legacy. And so I encourage anyone listening to this that’s about to grapple with how they can get involved or stay involved in their hometown or their community, there are ways to do that, there are ways to find a problem and then be part of the solution. And that’s what I did by creating Higher Purpose Co.
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