CNN
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When clients at Silicon Valley Bank hurried to take out billions of dollars last month, venture capitalist Arlan Hamilton intervened to assist some founders of color who were anxious about losing access to payroll resources.
As a Black female with almost 10 years in the business realm, Hamilton understood that the choices available to those startup founders were scarce.
SVB was known for catering to individuals from marginalized communities like hers. Its collapse has rekindled worries among industry specialists regarding lending bias in the banking sector and the ensuing inequities in funding for people of color.
Hamilton, the 43-year-old founder and managing partner of Backstage Capital, remarked that for entrepreneurs of color, “we’re already situated in the smaller house. We already have the shaky door and the thinner walls. Thus, when a tornado strikes, we’re going to feel the impact more severely.”
Founded in 1983, the moderate-sized California tech lender was the 16th largest bank in America at the close of 2022 before its failure on March 10. SVB offered banking services to almost half of all venture-backed tech and life sciences enterprises across the United States.
Hamilton, along with industry experts and other investors, conveyed to CNN that the bank was dedicated to nurturing a network of minority entrepreneurs and supplied them with both social and financial support.
SVB frequently sponsored gatherings and networking events for minority entrepreneurs, Hamilton noted, and it was recognized for supporting the yearly State of Black Venture Report led by BLK VC, a nonprofit that connects and empowers Black investors.
“When other banks were denying, SVB would say yes,” stated Joynicole Martinez, a 25-year entrepreneurship veteran and chief advancement and innovation officer for Rising Tide Capital, a nonprofit formed in 2004 to link entrepreneurs with investors and mentors.
Martinez also holds membership in the Forbes Coaches Council, an exclusive organization for business and career coaches. She mentioned that SVB was an essential resource for entrepreneurs of color and provided their clients with reduced tech tools and research funding.
Numerous women and individuals of color report being denied
Minority business owners have historically encountered hurdles in acquiring capital due to biased lending practices, experts state. Data from the Small Business Credit Survey, a collaboration of all 12 Federal Reserve banks, reveals disparities in denial rates for bank and nonbank loans.
In 2021, only around 16% of businesses led by Black individuals obtained the full amount of financing they sought from banks, compared to 35% of White-led businesses, as the survey indicates.
“We recognize that there’s historic, systematic, and overt racism that persists within lending and banking. We must address this and not shy away from it,” Martinez conveyed to CNN.
Asya Bradley is an immigrant entrepreneur behind several tech firms, including Kinley, a financial services startup focused on assisting Black Americans in building generational wealth. After SVB’s failure, Bradley mentioned joining a WhatsApp group of over 1,000 immigrant entrepreneurs. Members of that group quickly organized to provide mutual support, she noted.
Immigrant entrepreneurs frequently lack Social Security numbers or permanent addresses in the U.S., Bradley explained, making it crucial to devise alternative methods to secure funding in a system that overlooks them.
“The community was exceptionally supportive as many shared their diverse paths to success in securing accounts at various institutions. They also exchanged information about regional banks that stepped up and stated, ‘If you held accounts at SVB, we can assist you,’” said Bradley.
Many women, individuals of color, and immigrants prefer community or regional banks such as SVB, according to Bradley, owing to their frequent rejection from the “top four banks”—JPMorgan Chase, Bank of America, Wells Fargo, and Citibank.
In her situation, Bradley remarked that her gender may have been a barrier when she could only establish a business account at one of the “top four banks” with her brother as a co-signer.
“The top four banks do not want our business. They consistently reject us. They fail to provide the service we rightfully deserve. That’s why we’ve turned to community banks and regional institutions like SVB,” Bradley remarked.
None of the top four banks responded to CNN’s request for comment. The Financial Services Forum, representing the eight largest financial institutions in the U.S., claims the banks have dedicated millions since 2020 to tackle economic and racial disparities.
Recently, JPMorgan Chase CEO Jamie Dimon advised CNN’s Poppy Harlow that his bank maintains 30% of its branches in lower-income communities as part of a $30 billion commitment to Black and Brown populations nationwide.
Wells Fargo specifically pointed to its 2022 Diversity, Equity, and Inclusion report, which outlines the bank’s latest initiatives to engage with underserved populations.
The bank collaborated last year with the Black Economic Alliance to launch the Black Entrepreneur Fund—a $50 million seed, startup, and early-stage capital initiative for businesses founded or led by Black and African American entrepreneurs. Since May 2021, Wells Fargo has also invested in 13 Minority Depository Institutions, fulfilling its $50 million commitment to support Black-owned banks.
Black-owned banks strive to bridge the lending gap and enhance economic empowerment in these historically marginalized communities, yet their numbers have been decreasing over the years, and they possess significantly fewer assets than the largest banks.
OneUnited Bank, the largest Black-owned institution in the U.S., oversees just over $650 million in assets. In contrast, JPMorgan Chase manages $3.7 trillion in assets.
The fall of SVB might inspire future transformations, says entrepreneur
Due to these inequities, entrepreneurs are also pursuing funding from venture capitalists. In the early 2010s, Hamilton aimed to establish her own tech firm—but while seeking investors, she realized that almost all venture capital funds were dominated by White men. This experience prompted her to create Backstage Capital, a venture capital initiative that invests in emerging firms headed by underrepresented founders.
“I thought, ‘Rather than raising funds for just one company, let me attempt to raise for a fund that will invest in underrepresented — or as we now say, underestimated — founders who are women, individuals of color, and LGBTQ individuals in particular,’ because I identify as all three,” Hamilton shared with CNN.
Since that time, Backstage Capital has built a portfolio comprising nearly 150 various companies and has conducted over 120 diversity-related investments, according to data from Crunchbase.
Nevertheless, Bradley, also an ‘angel investor’ in minority-owned enterprises, expressed that she remains “very optimistic” that community banks, regional institutions, and fintech companies “will rally and assert, ‘We will not allow the valuable work of SVB to be in vain.’”
