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Survey Results: Supporting Detroit Minority Businesses Through Access to Capital

The Federal Reserve Bank of Chicago has been conducting a survey of small and micro minority businesses in Detroit to highlight their experiences with access to capital and financing both before and during the pandemic. The ultimate goal of the survey is to identify and better understand the needs and gaps in financial resources for Detroit businesses at different stages of development. In a webinar, a panel of experts gathered to share preliminary findings and examine how these small and micro businesses fared during the pandemic and their near-term outlook.

View a recording of the conversation and read highlights below.

Survey Results

Maude Toussaint, senior economist and economic advisor for the Federal Reserve Bank of Chicago provided an overview of the survey results so far and what they mean. Per Toussaint, there is abundant entrepreneurial dynamism and interest in efforts to own a business among Black entrepreneurs in Detroit. It’s also important to note that these Black-owned and minority businesses are a key source of employment and wealth accumulation, that when funded and supported properly, can contribute to closing the city’s wealth gap.

The survey yielded five key insights:

  1. Demographics and characteristics of businesses: Detroit has a dynamic and diverse Black business landscape inclusive of educated male and female business owners. This business community represents a variety of industries and urban entrepreneurial services in education and nonprofit enterprises. Businesses in this area are also primarily micro, including home-based and low revenue businesses.
  2. Business financial conditions: Close to half of respondents consider their business’s financial health to be struggling, reporting operating at break-even or loss.
  3. Funding during the pandemic: More than 65% of businesses applied for COVID-19-related emergency funding, mainly through the Paycheck Protection Program (PPP) and SBA Economic Injury Disaster Loans. Many survey respondents also applied to some extent for grants from state and local governments. Applications were made mostly to local banks, followed by national banks where the business owners had a previous relationship prior to PPP applications. Some also reported sending applications to FINTECH, credit unions, and CDFIs. Those who didn’t apply for funding reported not doing so because they were discouraged and did not expect to qualify or that the process what too confusing.
  4. Overall funding access and utilization: Very few businesses reported having used past external financing from banks in the past three years prior to COVID-19-related funding. Further, respondents reported relying on retained earnings, business and personal credit cards, merchant cash advances, and trade credit to meet various business needs.
  5. Capital and resource needs and challenges for businesses: Grants from the government were identified by respondents as a strong need that hasn’t been met. They also shared that financial criteria related to terms of loans, collateral, and interest rates are not advantageous. Lack of institutional and government relationships and other institutional barriers and discriminatory practices were also noted as extreme challenges. Lastly, lack of knowledge of sources of capital is challenging.

Moving forward, the goal of this survey and results is to provide analysis that accounts for the homogeneity of the business landscape and apply the methodology to identify gaps and priority needs and resources. Ideally, this will help generate targeted responses to address different business needs.

Experts Weigh In

Following the presentation of survey results, a group of financial and business experts discussed the findings and what action can be taken to improve the situation for Detroit’s Black and minority businesses. Panelist Ken Harris, president and chief executive officer of the National Business League, emphatically stated that now is the time to hold financial institutions accountable for the promises they’ve made to Black, brown, and indigenous businesses. He noted stark disparities and mismatches in resources based on the city’s demographics. “We have to meet Black businesses where they are,” Harris said during a Q&A following the session. Detroit is a predominantly Black city, and unfortunately, Black business owners are being left out of funding opportunities and growth support that could help build wealth and uplift communities. Harris called for a scorecard or summit of businesses and financial organizations to gather in 2022 to tackle these issues with “will and intent.”

Paul Jones, business support network director for Invest Detroit, outlined how the pandemic exacerbated existing disparities. Jones shared that capital isn’t the only need for these businesses. “Money is a facilitator of growth, of sustainability,” he said. Businesses need programs to help prepare them to seize opportunities – whether for applying for capital or the opportunities for growth that arise once capital is secured. Jones also noted a disconnect between businesses and financial institutions where businesses needed capital and the institutions having it to give, they’re having difficulty connecting with the right businesses or offering the right type of capital for their needs.

During the audience Q&A, Jones outlined some specific resources for businesses like federally funded Small Business Development Centers (SBDC) and SCORE. He also noted that there are national and local groups with more targeted audiences that can take into account an organization’s specific cultural sensitivities and nuances.

From the banking perspective, Maggie Ference, senior vice president of business banking credit, SBA, and ops director at Huntington National Bank, acknowledged that banks have a “massive” Black business opportunity. The way processes exist today, it is hard to get past conversations on credit scores, liquidity, trust, etc. with businesses. Ference noted that businesses need support in developing business plans with institutions willing to put in time and expenses to ensure these businesses are set up for success. She also shared that bank financing is often the most affordable option, but most businesses don’t tend to start there for their financing needs. Moving forward, according to Ference, it is lending institutions’ responsibility to provide financial education and invest in community partners to bridge the gap to businesses. It is also key to create networks of professionals to provide legal, accounting, and HR counsel and thoughtful guidance.

When asked about how equipped traditional banks are to create products businesses are looking for, Ference said they are quickly investing in improvements to offerings that are more targeted to support small businesses. She cautioned against FINTECH as it is unregulated and sometimes predatory, and advised taking time to interview any financial institution before getting involved with them to make sure they have the business’s best interests in mind.

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