When Silicon Valley Bank experienced a run on its funds last month, venture capitalist Arlan Hamilton stepped in to help founders of color who were worried about losing access to payroll funds. Hamilton, a Black woman with extensive business experience, knew that options for these startup founders were limited. Silicon Valley Bank had a reputation for serving underrepresented communities like hers, and its collapse has raised concerns about lending discrimination and the resulting disparities in capital for people of color.
Hamilton, the founder of Backstage Capital, stated that entrepreneurs of color already face significant obstacles, and when a major setback like this occurs, it hits them even harder. Silicon Valley Bank, established in 1983, was one of the largest banks in the United States and provided services to many venture-backed technology and life-sciences companies.
Hamilton and other industry experts praised Silicon Valley Bank for its commitment to supporting minority entrepreneurs through sponsorship of conferences and networking events. They also highlighted the bank’s involvement in initiatives like the State of Black Venture Report and its provision of discounted tech tools and research funding for clients of color.
However, disparities in accessing capital persist for minority business owners due to discriminatory lending practices. Data from the Small Business Credit Survey shows that Black-owned companies are more likely to be denied bank and nonbank loans compared to their White counterparts. Only 16% of Black-led companies acquire the full amount of business financing they seek from banks, compared to 35% of White-owned companies.
As an immigrant founder of multiple tech companies, Asya Bradley emphasized the importance of finding alternative funding sources for entrepreneurs who are often excluded from mainstream banks. Immigrant founders face unique challenges, such as not having Social Security numbers or permanent addresses, making it crucial to explore different avenues for financial support.
Many women, people of color, and immigrants turn to community or regional banks because they are frequently rejected by the top four banks: JPMorgan Chase, Bank of America, Wells Fargo, and Citibank. Discrimination based on gender can also pose barriers, with some women entrepreneurs only being able to open business accounts at top banks when a male relative co-signs for them.
In contrast to the smaller assets held by Black-owned banks, the top banks manage trillions of dollars in assets. To address economic and racial inequality, these banks have made commitments to invest in underserved communities and work with organizations like the Black Economic Alliance. However, the dwindling number of Black-owned banks further highlights the need to bridge the lending gap and empower traditionally excluded communities.
In the face of these disparities, entrepreneurs often turn to venture capitalists for funding. Arlan Hamilton’s own experience led her to establish Backstage Capital, a venture capital fund that invests in underrepresented founders who are women, people of color, and LGBTQ. Backstage Capital has built an extensive portfolio and made numerous diversity investments.
Despite the challenges, entrepreneurs and investors remain hopeful that community banks, regional banks, and fintech companies will step up to fill the void left by Silicon Valley Bank’s collapse and continue supporting underrepresented entrepreneurs.
