Banking on minority-owned businesses

Alice Frazier with Rations Spaceport family

Rations Spaceport received an interest-free loan from Bank of Charles Town through the Banking on Diversity Minority Business Fund, a $1 million program put together by four area community banks. Pictured: Alice P. Frazier, president and CEO of Bank of Charles Town; Rations Spaceport’s Tre Shafer, Dan Jimeno, Sarah Shafer and Dedrik Shafer; and Bank of Charles Town’s Stephanie Magnus, commercial loan assistant.

Four community banks came together to launch a $1 million interest-free loan program to help local business owners who have faced barriers to the traditional banking system.

By Margaret Littman

Minority business owners and entrepreneurs in Virginia, West Virginia and Maryland have a new path to obtaining credit thanks to a new initiative from four community banks.

The Banking on Diversity Minority Business Fund launched in February as a collaborative effort of Bank of Charles Town, Bank of Clarke County, Virginia National Bank and First Bank, which are led by Alice P. Frazier, Brandon Lorey, Scott Harvard and Glenn W. Rust respectively. The $1 million program provides interest-free loans to minority-owned businesses that may not otherwise have access to credit.

The effort is the result of months of planning among leaders of the banks, who over the past year held discussions on how they could help customers during the pandemic. Then, civil unrest after the murder of George Floyd in Minneapolis in May 2020 led to marches in the banks’ communities. Some bank employees participated, bringing these conversations into the workplace.

“My eyes were opened to what we don’t know,” says Harvard, CEO of $1 billion-asset FirstBank in Strasburg, Va. “It created awareness for me when we saw the protests and the statements made across the [state] and the country about systemic racism. It brought home to roost the steeper climb to banking services that some face that many of us took for granted.”

The group of community bank leaders decided that each bank would contribute $250,000 to a joint fund aimed at helping businesses owned by local residents from marginalized communities. “A million dollars means a lot more than $250,000,” says Lorey, president and CEO of $1.1 billion-asset Bank of Clarke County.

Harvard suggested the group use the funds to provide interest-free loans, an approach that would help business owners who felt that taking out a traditional loan was too intimidating or otherwise unattainable.

“There were people who did not feel they could approach a bank,” says Frazier, president and CEO of $660 million-asset Bank of Charles Town in Charles Town, W.Va. “It was intimidating, and they did not see people who looked like them.”


Breaking down barriers for minority-owned businesses

Vi Vo and Khuong Nguyen of Vivo Spa

The Banking on Diversity program from a group of community banks has helped minority-owned business owners, including Vi Vo and Khuong Nguyen of Vivo Spa, with interest-free loans.

As Harvard, Lorey, Frazier and Rust developed the program, they heard from community groups about other barriers to applying for loans. For a typical loan for an early stage business, Harvard says, the community bank would ask for a five-year business plan. But for a food truck coming out of a pandemic, for example, the owner isn’t looking that far out, perhaps only to the next year, he says. So, the leaders made sure the fund had accessible business plan requirements that allowed for entrepreneurs with more streamlined plans. The hope is that the fund will be an entry point to developing five-year plans, giving these businesses access to larger loans in the future.

“It is so rare and refreshing to have banks that are giving businesses of color this opportunity, this first step of establishing creditworthiness.”
—Susan Mitchell, Guardians of Honor

Their efforts have been appreciated. “It is so rare and refreshing to have banks that are giving businesses of color this opportunity, this first step of establishing creditworthiness,” says Susan Mitchell, president and CEO of Guardians of Honor and chair of economic development for the Loudoun County branch of the National Association of the Advancement of Colored People (NAACP). “This is a hand up, not a handout.”

A “game changer” for businesses

The community banks developed one common application for all four markets. Next, they looked at how to get the word out in their communities. Luckily, they had already engaged many customers through their Paycheck Protection Program (PPP) lending efforts.

“We needed to introduce this in a way that was not just digital marketing,” Harvard says. “We need to go into the churches, physically go into the neighborhoods, take away the barriers, real or perceived.”

“It takes more than an announcement. It is being involved, building that trust, working within the communities you want to engage [and] reaching out to the communities first.”
—Alice P. Frazier, Bank of Charles Town

Jennifer Lassiter Smith, director of U.S. Programs for INMED USA, an international humanitarian development organization, agrees with this approach. Smith, who is based in Sterling, Va., says the Latinx people who take INMED’s English and computer classes don’t tend to get information from social media. WhatsApp groups and word of mouth are essential methods for what she calls “the trust factor.”

“If we can get people who don’t normally tend to apply for these loans, it is going to be a game changer,” Smith says.

So far, the team has heard from many interested businesses, including food trucks, nail and beauty salons, and small farms. Together, the community banks have closed four loans and another eight are in the works. Lorey estimates that about $395,000 in loans are in the pipeline.

The team believes they are building a model that other community banks can replicate. To do so, community banks should first reach out to minority-owned businesses and community groups in their area about their needs.

“We learned that it takes more than an announcement,” Frazier says. “It is being involved, building that trust, working within the communities you want to engage [and] reaching out to the communities first.”

Margaret Littman is a writer in Tennessee.