BY KARLON JOHNSON, GUEST WRITER TO THE TIMES
In this month’s issue of Building Black Wealth, I want to bring to your attention one of the most important topics to any Black business owner, no matter where they are in their business venture: Access to Capital. What is Capital? Accessing means to funding for your business(es): working capital (operational expenses and needs), buying property or space, business acquisitions, etc. In simple terms, it’s getting access to cash to help your business grow. This can be a good thing or a bad thing. In this column, I’ll talk about one form of capital a lot of new entrepreneurs seek: business loans. To preface, personal and business finances really go hand in hand with each other. This means you must have near-perfect money management at home (personal finances) to have near-perfect money management in business (business finances). Keep in mind that personal and business expenses should not be mixed with one another, and should always be separated.
For any Black business owner, getting access to loan capital is one of the many barriers we face on top of little knowledge in financial literacy. A lot of the traditional financial institutions still practice Red Lining and still believe we as a people can’t manage our finances well. While there is some truth to substandard wealth management in most of our communities, what is also true is that there is little knowledge about financial literacy within our own households, which can be a generational curse. If we can start where we are now, make a few changes in our spending habits, then our wealth management can be where it should for each of us individually, leading to access to capital from other financial institutions for our businesses. With that said, two things can happen when we acquire capital for business: growth or decline. I want to focus more on the decline approach to make aware of certain things that can happen to our people.
I want to share a short story about a Black entrepreneur and a “Lender” I met a few weeks ago at a networking event. The entrepreneur had been in business for almost two years working within the transportation industry. He had a good year in 2021, yet in 2022 he began to experience a downturn. Due to the current state of the economy, gas prices increasing among a few other things, since the first half of 2022 he started to see net losses. He explained when he saw the losses every month despite making X amount of revenue, he sought assistance with capital. He was met with various merchants who gave his business cash advances to stay afloat and continue operations, totaling an amount of $25K. They told him the weekly pay would be about $700. No other financial institution would help him… I’ll end his part of the story with this: he didn’t get the help from traditional financial institutions because they turned him down yet received help from merchant cash advances out of desperation; he still experiences losses with monthly payouts for the cash advances of at least $2,800 among other operational expenses; I heard his cry for help in his voice to get out of the situation because his business needs help. He wasn’t aware of any additional resources available to help him with capital, and is now stuck with business loans with extremely high interest rates with a weekly payback period…
I met a “Lender” at the same networking event moments later after the Black entrepreneur. He stated what his company does is acts as a broker or middleman for other “financial institutions” that makes access to capital as seamless as possible, even for startups! That may sound like a dream for a lot of people, yet when I tell you what I learned from that conversation, you’ll thank me and many others for sharing our wisdom in finances with you, and why you need to stay away from those people. He explained that his company doesn’t believe in loan sharks, his sweet spot in business is for those who are seeking $50K-$100K in funding even if the business doesn’t have revenue or profits, will iterate how high the interest rates are for the loans, and will wire the money right into your business account with weekly payments. Why I have red flags for this man? He doesn’t provide training, guidance, or wisdom to business owners, yet offers a slap on the wrist to folks who begin to default on their business loans. Not only that, when your credit is pulled, it’s used for multiple lenders in their network until one or a few say they want to extend an offer to you.
To sum up my experiences, there’s a lot to unpack and share with all of you regarding business that I hope will lead to the financial freedom we all need to have. I work with Black business owners in all stages of their life cycle within the state of Florida, and one thing they all have in common is: wanting access to capital and a need for financial literacy! Financial literacy when going into business involves financial statements (Profit & Loss, Balance Sheet, Statement of Cash Flow), business credit, budgeting, complimented with personal financial management. Never seek funding out of desperation, always have your own cash reserves for your business and yourself, and make sure to use wisdom for every financial decision.