Updated: Sep 13, 2018
By Gary O. Shelton, CEO, GOS Companies 9-7-2018
The 2008 financial crisis devastated Wall Street, Main Street, and the banking industry. The Federal Reserve and the Bush administration worked to avoid a complete collapse. They barely succeeded. To add liquidity to the financial markets, they spent hundreds of billions of dollars. They barely succeeded.
Of course, when America’s entrepreneurs catch a cold Black-American entrepreneurs get pneumonia. Budding Black entrepreneurs could find no greater ally than a national Black credit union. Following the financial crisis, many business owners were abandoned by their banks, denied funding despite years of being loyal customers, and credit unions stepped in to offer support where banks would not. But this wasn’t a new trend in lending — the economic turmoil in our country shined a spotlight on the major difference between banks and credit unions, making clear to many what credit union members have known for decades.
Unlike the big banks, which are profit-driven businesses, credit unions operate on a community oriented, not-for-profit model that gives each member a voice and a share of profits:
Every member is a shareholder.
All shareholders’ votes carry equal weight regardless of wealth, and board members are elected democratically.
Any profits generated by the credit union are returned to members as dividends. Because profit isn’t the primary motive, credit unions are able to offer more attractive interest rates on average than banks for savings, investments and financing, as well as lower service and maintenance fees.
According to an August 2014 report by the National Association of Federal Credit Unions, credit union member business loans have grown 60 percent since 2008. Banks, on the other hand, held $585 billion in small business loans as of the first quarter 2014 — down 18 percent from 2008.
When small businesses hit hard times, many banks panicked at the possibility of default and stopped lending. Mark Skeete, CEO of The B3C Capital, a tech startup advisory firm on Wall Street saw it first-hand. “Banks are profit-driven, they’re not relationship driven,” stated Skeete.
When startup founders lost their line of credit with a bank, they called Skeete asking if The B3C capital could help. “This startup probably would have gone out of business,” he explained. “ Their bank representatives were basically saying 'were out of the small business market, sorry.' This was extremely disruptive, the banks that they thought they could trust turned their backs on them."
Credit Unions Help Entrepreneurs Dream Bigger
Credit unions are a growing source of financing for small businesses — according to Entrepreneur Magazine, the average loan size granted by credit unions for business purposes is $212,000 — but lending is just one of many ways these financial cooperatives help entrepreneurs turn their dreams into reality.
For example, American fashion designer Tory Burch, launched the Elizabeth Street Capital program in partnership with several credit unions and banks to help women entrepreneurs start their businesses. Self Help Credit Union is one of the 18 institutions helping provide women access to capital through the program, as well as mentorship and networking opportunities.
On June 26, 2018, Bishop Reginald T. Jackson announced the Black Wealth 2020 Initiative at the 2018 Council of Bishops and General Board Meeting in Atlanta, pegging the initiative as an opportunity to “increase Black wealth,” business development and homeownership. July 22, 2018, NAREB set a goal to create five million new Black homeowners in five years. NAREB’s role in galvanizing the energies of a growing community-of-concern was covered at its 71st Annual Convention, “Building Black Wealth through Homeownership,” July 24-29, 2018, at the Hilton Atlanta.
With several national Black organizations launching wealth building initiatives, the Black community has an unprecedented opportunity to organize a national chartered credit union with branches in the twenty-five cities with the largest Black population. African Town USA, a real estate development and education firm, has launched a social platform committed to empowering stakeholders in blighted urban communities around the United States. “This is our grassroot movement or the glue that can galvanize all Africans to support the Black Wealth 2020 Initiative, regardless of their religion or geographic boundaries”. says Dorian Harvey, managing member of AfricanTownUSA L3C, and current president of Detroit Association of Realtors.
In addition to loans and programs designed specifically for Black entrepreneurs, the credit union, by design, could be more nurturing of Black entrepreneurs. Due to its not-for-profit status, the credit union would return revenue back to members in the form of lower fees and competitive interest rates. Also, because the credit union will be owned by its members, leadership will be elected by vote, and there will be a greater emphasis placed on personal banking relationships.
Can a national Black Credit Union Jumpstart Black owned Small Business?
A national Black credit union can be truly invested in the success of Black owned small businesses. If you’ve got the next great idea to take the business world by storm, you might find it’s your national Black credit union that’s waiting to support you on the road to success.