Training supports entrepreneurship in underserved communities

Today we bring you excerpts of my conversation about race and entrepreneurship with Robert Fairlie, one of the leading experts on the subject. Fairlie answered my questions about his new book as well as questions submitted by readers. He has graciously agreed to answer some follow-ups from readers, as you guys continue to submit good questions in the comments. So fire away and we’ll post some follow-up answers next week. (Also take a look at some of the numbers on race and entrepreneurship from the book.)

By chance the Senate held a hearing on start-up hurdles in underserved communities Thursday. I glanced through the testimony and wanted to highlight something from Margaret Henningsen, founder and VP of Legacy Bank in Milwaukee. Here’s the PDF of her testimony. She and two other women founded Legacy in 1999 because they “recognized the need for greater access, and pent up demand for commercial capital for minority and women owned businesses in our target market.” In addition to expanding access to capital, Henningsen discusses another critical way her bank helps entrepreneurs:

Data demonstrates the fact that many minorities, who become or want to become small business owners, are often first generation entrepreneurs. These enterprising owners do not have the benefit of family members handing down a business or providing them with the necessary training and coaching that is so crucial for business success. At Legacy, we have found that when financial training and business coaching are provided businesses will succeed. The process of working with owners to strengthen their business is part of our banking model. Many major financial institutions provide the same type of assistance to their “less risky” customers.

The gap in “human capital” — like the experience, knowledge, and skills you get working in a family business — contributes to the difference in outcomes between minority- and white-owned businesses. (It’s the same gap that the Met School’s entrepreneurship program is filling for high school students in Providence.) By addressing that disparity and providing access to startup capital (another critical factor) Legacy is helping entrepreneurs in Milwaukee succeed.

In the 12 months ending in June 2008, Legacy made 392 business loans worth nearly $35 million. More than half were for startup or growth capital, Henningsen says. Legacy says the bank’s small business borrowers have created or sustained 2,500 jobs. The bank continues to profit even as the financial sector is in freefall from the mortgage fallout.

A couple of points here:

  • Legacy’s investment in training entrepreneurs helps the bank’s bottom line as well. (More successful businesses = more bank customers.)
  • Legacy Bank is profiting off deals that many other banks find too risky or too small to be worth making.
  • The number of banks willing to make these loans and offer this kind of training has almost certainly declined in the past 15 years because of bank consolidation and the increased reliance on automated credit scoring (instead of relationship lending).

The bank is starting a foundation for training Milwaukee entrepreneurs, and Henningsen calls on Congress to support similar efforts. Legacy looks like a small scale model for supporting successful entrepreneurship in underserved communities. So here’s my question: How does that model scale?

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