Jill Castilla is president and CEO of Citizens Bank of Edmond, a small institution located just outside of Oklahoma City. By banking standards, Edmond Community is modest. With total assets of just over $300 million, it ranks almost exactly in the middle of the US banking ecosystem.¹ But to the people who live in and around Edmond, it is the bank, established in 1901 as one of Oklahoma's first community banks. When a developer in Oklahoma City ran into a brick wall trying to obtain funding for a particularly important project, it was Edmonds Community, backed by its employee shareholders and an intensely loyal community, that received the call.

Jill had just driven under the giant railroad trestle on Broadway Extension outside Oklahoma City when that developer, Jonathan Dodson, reached her on the phone. “I have a deal,” he started. Jill knew that the young developer had previous successes in the city, including the rehab of an old theater, so she listened with interest as he described the benefits of his latest project. He pitched to her an idea for developing a former service station that would be leased by a health clinic, which would in turn spur retail development in a second building. Eventually, he described, the project would include a fitness center, restaurants, shops, and more. Then he uttered the words that had sunk his pitch with 25 other banks.

“It's on the East Side.”

The East Side of Oklahoma City hadn't seen a private real estate development investment in 35 years. The retail landscape, if you could even call it that, consisted of scattered pawnshops, a Kentucky Fried Chicken, and a CVS. A locally owned radio station, occupying a modest building, was the area's only bright spot. There were no sidewalks and few bus routes. Elderly people could be seen traversing a busy highway in motorized wheelchairs to get to and from the grocery store.

The East Side of Oklahoma is a mostly Black, poor neighborhood that is also home to the state capitol and a large medical complex. Those buildings are castles in a sea of poverty complicated by a long history of hard‐edged race relations. When Jonathan, who is White, called Jill, he was just the latest in a long line of developers who had tried and failed to make something happen for the residents of the East Side. Lenders were wary of the area, and redlining – the racist practice of banks refusing to loan money in certain areas – had long stood in the way of progress. The community, having lived through generations of being passed over, was hostile. But Jill sensed something in the conversation with Jonathan. There was an opportunity a long time in the making that was just waiting to emerge.

It Takes Money

Starting pretty much any kind of business requires capital. Even entrepreneurs scrappy enough to get their businesses off the ground without startup capital require it to scale. But New Builders face unreasonable obstacles in obtaining the capital they needed to bring their business ideas to life and to scale their operations. The Minority Business Development Agency (a division of the US Department of Commerce) described access to capital as “the most important factor limiting the establishment, expansion, and growth of minority‐owned businesses.”² Grassroots entrepreneurs are, by their nature, scrappy, and we've described countless examples of creativity and ingenuity in how they approached finding the capital needed to build their businesses – help from local bankers, access to funds from friends or family members, business competitions, community loan funds, or simply growing at a pace that could be supported by the revenue they were generating. As the story of the EastPoint Development shows, it takes more than ingenuity to overcome systemic, embedded racism.

Access to capital is a critical area to address if we are to help maintain entrepreneurial dynamism in our economy. This will be especially important in the years after the Covid‐19 economic crisis. With fewer than 1 percent of businesses accessing venture capital and only about 20 percent of businesses obtaining bank financing, there is a large gap to close. Part of this gap can be filled by addressing shortfalls in our banking system. But to truly address it will require new financing models and new ways of thinking.

Not every New Builder will obtain capital through these new sources. There will always be a need for entrepreneurs to be scrappy and innovative in their approaches to funding their businesses. History is filled with entrepreneurs who were told over and over that their dream was unobtainable. That their product wouldn't sell. That they were chasing a dream that would never be realized. And our history is filled with entrepreneurs who pursued their business ideas despite being told over and over that the market would never buy what they were selling. Many succeeded despite what others thought at the time. The capital markets do not have a monopoly on recognizing good ideas and funding them. Markets are often efficient but certainly flawed. Some New Builders will continue to find ways to turn their ideas into businesses without the help of our financial system. However, too many are being left behind.

The Death of the American Bank

In 1994, there were 14,400 commercial banks in the United States. Today, there are around 5,000. Even more stark is the concentration that has emerged over the last 20 years. Before the 2008 financial crisis about 50 percent of capital controlled by banks was in the hands of about a dozen large financial institutions. Now that number is 80 percent. The four largest retail banks in the United States – JPMorgan Chase, Bank of America, Wells Fargo, and Citi – control nearly half of all US banking deposits. This is a threefold increase from 1980, according to the Federal Reserve Bank of Minneapolis.³ SBA loans to truly small businesses – loans of less than $150,000 – have declined by two‐thirds since 2005. The SBA has responded largely by attempting to redefine its definition of “small business” rather than by addressing the underlying gap in access to capital. This has contributed to a systemic lack of access to banking services that is reaching almost crisis status in minority and disadvantaged communities. Minority‐owned businesses are less likely to receive loans than their nonminority owned peers. They also receive lower loan amounts, pay higher interest rates, and are more likely to be denied loans.

Consolidation in the banking sector has been ongoing, especially since the mid‐1990s when Congress changed the regulations around interstate bank ownership. The Riegle‐Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines that had been in place since the 1920s. This resulted in a merger wave among banks as they looked to expand to new markets and, in particular, to consolidate and grow their deposit base.

Tracking the trajectories of the country's four largest banks is illustrative of this trend, as they all grew significantly through mergers while often trimming payroll. In the late 1980s and early 1990s, North Carolina National Bank acquired over 200 smaller banks and eventually changed its name to NationsBank. In 1998, NationsBank bought Bank of America and the combined entity took on the Bank of America name. In 2004, it added FleetBoston in a $47 billion transaction. In the years between 2005 and 2007, it also purchased the credit card juggernaut MBNA (for $35 billion), as well as US Trust and LaSalle Bank (transactions of $3.3 billion and $21 billion, respectively). During the Great Recession of 2008–2009, Bank of America acquired the country's largest home loan originator, Countrywide Financial, for $4.1 billion and eventually the investment bank Merrill Lynch in a $50 billion transaction.⁴ Bank of America counted almost $2.5 trillion in assets as of its 2019 annual report and produced net income that same year of nearly $30 billion, with 4,200 branches.⁵

JPMorgan Chase is even larger, with $2.6 trillion in reported assets and 5,100 branch locations. JPMorgan similarly grew through a series of acquisitions, including Chemical bank's purchase of Chase Bank (which retained the Chase name) and eventually Chase's purchase of JP Morgan Bank in 2000, and BankOne four years later. During the 2008–2009 financial crisis, JPMorgan Chase again increased its size and footprint, acquiring Bear Stearns and Washington Mutual (transactions of $1.4 billion and $1.9 billion for these troubled assets that had been victim to their lax practices leading up to the Great Recession of 2008–2009).⁶

Wells Fargo (which jumped into the top four with its merger in 1997 with Norwest Bank) and Citi, through a series of smaller acquisitions, followed similar trajectories. The drop‐off in size, as measured by assets, after the top four is precipitous. Wells Fargo and Citi each control about $1.7 trillion in assets. The country's fifth largest bank, US Bank, controls less than a third of that total.⁷

Financial Giants

Together, our country's top four banks exert a massive amount of control and influence over the US banking markets. It's also worth noting that all four of these large banks have been fined over the past years for illegal banking practices. Big banks have meaningful power in our current economy, power they don't always use wisely.

The importance and outsized role of these banks was underscored and likely exacerbated by the 2008–2009 financial crisis. In reaction to the crisis, the Federal Reserve of the United States provided an unprecedented amount of liquidity into the market. This disproportionately benefited larger banks that had more ready access to Fed capital. While the large banks were deemed “too big to fail,” smaller banks saw a marked increase in failure rates as they, along with the rest of the country, suffered the consequences of the economic downturn. Ironically, many of those banks had not themselves participated in the lax lending practices that larger banks, and, in particular, the larger loan processors such as Countrywide Financial (which was purchased by Bank of America) and Washington Mutual (which was taken over by the federal government and eventually sold to JPMorgan Chase), practiced. Banks were forced to turn to the Federal Reserve for short‐term liquidity in ways they never had previously. So much so in fact that the Fed instituted a new form of lending called the Term Auction Facility (TAF), under which banks competed in an auction for Fed funds. This move was unprecedented, but the Fed quickly found that it needed to increase both the size and frequency of its auctions to facilitate the level of liquidity required by underlying banks. By the end of 2008, the Cleveland Fed reported that its loans to depository institutions had increased by more than 1700 percent over the previous year.

This liquidity was accompanied by a move to increase regulation of the banking sector. This was an overreaction to the crisis with little understanding or regard to the secondary and tertiary effects the new regulation would have on the entire banking system, not to mention the downstream recipients of banking services. The result effectively turned banks – especially the nation's largest banks – into defacto utilities, unable or unwilling to take the risks necessary to provide loans to key parts of our economy. It also created a labyrinth of new rules and regulations that banks needed to comply with. Entire departments sprung up inside of banks to deal with the regulatory overhead.

The unprecedented capital inflow from the Fed wasn't enough to stave off large‐scale bank closures caused by the underlying economic contraction in 2008 and 2009, in particular the housing crisis. According to the Federal Reserve Bank of Cleveland, more than 500 banks failed between 2008 and 2015 (by comparison, since 2015 up until the Covid‐19 crisis, fewer than 10 bank failures were reported annually).⁸ Not surprisingly the failures were concentrated at the smaller end of the banking sector with the vast majority of failures – over 85 percent – from banks with less than $1 billion in assets.⁹ Still more small banks were consolidated into larger banks. The result is that more than one in four community banks have disappeared since 2008. Community banks comprised around 40 percent of assets and lending in 1994, a figure that has dropped to half that amount today, further evidence of the consolidation of the banking sector that is described above. Black‐owned banks, already a small percentage of overall banks, have also been in decline, falling from 48 in 2001 to just 21 today. None has assets greater than $1 billion.

It's impossible to overstate the importance of our community banking infrastructure for financing the grassroots entrepreneurial economy. As former Federal Reserve Chairman Ben Bernanke described it, “Community banks [play] a critical role in keeping their local economies vibrant and growing by lending to creditworthy borrowers in their regions. They often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties to the communities they serve.”¹⁰ Community banks play an especially important role in smaller and rural markets that have fewer resources and where businesses have limited alternative financing sources. Seventy‐five percent of all community banks are located in communities with populations of less than 250,000, and nearly half are in counties with populations of less than 50,000 people.¹¹

Some have tied the decline in community banking to the financial reforms put in place after the Great Recession of 2008–2009, and in particular to the Dodd‐Frank Wall Street Reform and Consumer Protection Act.¹² Dodd‐Frank was passed in 2010 and enacted sweeping reforms of the banking industry by establishing myriad new regulations as well as the oversight bodies to keep watch over them. This included the establishment of the Consumer Financial Protection Bureau, a new federal agency charged with protecting consumers from abuses related to financial products such as credit cards and mortgages. Without question, these moves added cost to the operations of banks, something smaller banks were less able to absorb. But the reality is a bit more nuanced than simply blaming a single (albeit sweeping) piece of legislation. True, the regulatory oversight imposed by Dodd‐Frank was burdensome to banks – it was meant to be. The regulations were designed to stave off the kind of predatory lending and other poor banking practices that led to the financial collapse of 2008. Clearly, the “too big to fail” mentality that Congress adopted for our nation's largest banks, essentially giving them special status in our economy and allowing them to operate free from the concern that their actions might someday result in their closing down, did not extend to smaller, community banks. In fact it didn't extend to any banks other than the very largest.

In an influential and widely read 2015 paper on the subject of community banking, Arthur E. Wilmarth of the George Washington University Law School argued that it was actually the changes adopted in the 1990s that started the precipitous decline in community banking across the United States.¹³ By disconnecting banks from their communities and by allowing – and later through the Fed's actions, encouraging – large‐scale consolidation in the banking sector, Congress set the stage for the demise of our community banking system. Dodd‐Frank simply added gasoline to the fire of a system that was already moving to favor larger, national banks over their smaller cousins. By further commoditizing loan products through an increasing array of regulation, Dodd‐Frank plays into the hands of larger banks, which were already commoditizing these loans and automating the systems needed to process them. This stands at odds with the more relationship‐based loans that are the hallmarks of community banks.

There is an important role to be played by large banks in financing the entrepreneurial sector of our economy. Those banks, especially the four largest banks that control such a significant portion of the lending market, should be encouraged to increase their investment in, and support of, local entrepreneurs. Nevertheless, a robust, local banking system provides critical infrastructure to grassroots entrepreneurs that simply cannot be replaced by larger, national banks. We heard time and again in our conversations with New Builders that local banking relationships played a critical role in their businesses. Local bankers took the time to better understand the needs of their companies and were willing and able to take on the risk necessary to finance their operations.

We didn't go looking for stories of how the community banking infrastructure helped entrepreneurs. Those stories found us.

Redlining Is Real, Even Today

When it comes to economic development in areas that have long been starved of investment, there are typically two key issues. The first, and perhaps most insidious, is that in many cases trust has broken down. Communities, developers, and financiers often find themselves at odds with one another. Because of long histories of mistrust, often there is little middle ground to be found. The other key issue is the lack of investible opportunities. The small businesses that could, together, create enough jobs to make a difference are too small individually to receive investment, and often aren't ready for it.

Most approaches to reviving areas like Oklahoma City's East Side are policy‐based. Opportunity Zones, the preeminent current policy to steer investment to underserved areas that need it, were no help at all on the East Side. The funds raised to take advantage of Opportunity Zone tax incentives typically look for much larger investments, and individual investors motivated by tax incentives look for the least risky ways to make a return on their money. The breadth of Opportunity Zones means there are much less “marginal” districts, even in Oklahoma City, that still qualify. There is a pecking order to projects such as these, and Oklahoma City's East Side had historically fallen to the bottom of the list.

But as it turned out, the East Side's time had perhaps finally come. The key ingredients turned out to be passion, and relationships between people who had power and resources of the traditional kind, and people who had social capital.

“We desperately need more investment and entrepreneurship along northeast 23rd Street,” said Oklahoma City Mayor David Holt.¹⁴ “I think this will be a catalyst,” he added, referring to the work that Johnathan Dodson was proposing to undertake. “I think [Jonathan's] extremely inclusive and empathetic approach in a historically African American district is innovative … Some of it is the way he listens.”

To really understand how the East Side project came to be is to understand how three key players in the project – Jonathan Dodson, Jill Castilla, and a local entrepreneur and activist named Sandino Thompson – were open to working across boundaries.

A stylish, talkative, and blunt man, Sandino Thompson left Oklahoma City a few years after college to work for a construction company in the southeastern part of the United States. “After a project that included rebuilding over 600 units of housing and seeing a devastated community come back to life, I started to think about how the communities I grew up in Oklahoma City could be a part of the renaissance,” he told us.

Sandino returned to Oklahoma City in 2010 and started thinking about how revitalizing blighted real estate could be a path to reinvigorating the communities of Oklahoma City. He and Jonathan eventually met through city organizations and established a relationship. Slowly and cautiously.

“One day, I'm going to like being your friend,” Sandino told Jonathan at some point, after one of Jonathan's earnest and, to use his description, “naïve” questions about racial dynamics.

Oklahoma has an inspiring and horrific race history. The Black community was particularly active in fighting Jim Crow laws in the early 1900s. In 1921, in Oklahoma City's sister city, Tulsa, White rioters looted and burned an affluent Black community, an area that had come to be known as “the Black Wall Street” because of its success and prosperity. Thousands of White citizens poured into the city's Greenwood District, destroying homes and Black‐owned businesses, including two newspapers, hotels, and shops. As many as 300 people were massacred and the formerly prosperous community never truly recovered.

The East Side had developed in the 1940s and 1950s as a redlined Black suburb of Oklahoma City. Poverty grew entrenched even as Deep Deuce, Ralph Ellison's home and a center of Black music and culture close to the city's heart, slowly gentrified.

Sandino Thompson encouraged Jonathan Dodson to consider an inclusive approach to developing in Northeast Oklahoma City. He knew there would be obstacles, but was willing to put his reputation on the line to work together. That, as far as Jonathan was concerned, was powerful.

But after years of failed ventures, East Side neighbors were skeptical of outsiders. “If developers showed up in all their whiteness, there would be riots,” said Erica Emery, one of two sisters from the East Side whose real estate firm, Monarch Property Group, is active in the city.

“Once or twice a month, I get a call from someone working on a project. They want a Black face involved,” added Monique Short, Emery's sister.

Sandino knew collaborating with an outside developer carried risk. If the project failed – or worse, extracted wealth from the community – he'd be considered a turncoat. In Jonathan, however, he found a person with a heart for the work. The son of parents who worked in evangelical nonprofits, Jonathan started his career as a banker. But events changed his life's path, forcing him to consider what happened to people without the same power and privilege he had because he was a White man.

One day, he heard his boss at the bank tell an assistant: “If you don't have sex with me, you'll lose your job.” Jonathan reported the executive, who was given a year off with pay. The female assistant was given two months to find a new job.

Jonathan resigned.

As his family's financial situation slowly deteriorated, he found unexpected generosity in a developer friend, David Wanzer. “On my 35th birthday, he handed me a contract and said, ‘Why don't we tackle [this project] together?’”

In 2017, armed with what he thought was decent knowledge about how to get a deal done, he visited the East Side with Sandino Thompson. They located a two‐piece property with potential – a shopping center and a former service station.

They needed to lease to area tenants to win local support for the project, but they didn't want those tenants to be displaced by gentrification if the project succeeded. Eventually, they came up with a lease structure they thought might work. In exchange for signing 10‐year leases, tenants would earn equity in the property. If one wanted to cash out after the initial 10‐year term had expired, the property would be reappraised, and money would be borrowed to issue a payout based on the then‐current value. If Jonathan could find an investor or lender to put money into building, they'd also be supporting the growth and long‐term health of local businesses.

He obtained the city's commitment for $2.6 million in economic‐development financing on the $9 million project and found an anchor tenant, Centennial Health, to open an outpatient clinic as part of the project's Phase One.

With that solid capital structure in place, he started approaching lenders in late 2017. “We had done 15 deals as a development company. We had an anchor tenant,” Jonathan said. “I thought this would be an easy project.”

He thought wrong. Even though the city had agreed to fund $1.2 million in incentives for Phase One, which was $4.3 million in total, and although an equity partner and community supporter pledged an additional $600,000 for both phases, the bank rejections started piling up.

Several banks told him outright, “We don't lend money over there,” meaning the East Side. Redlining, while illegal, is still prevalent in many places across the country. Others said they couldn't find comparable sales necessary to appraise the property, or suggested that Jonathan needed another guarantor. So he lined up a commitment from a wealthy friend. “He had more wealth tied up in single malt Scotch than debt on the loan,” Dodson said.

The banks still said no.

As the months rolled by, Centennial Health tried to pull out, and one of Jonathan's other projects ran into trouble. “Out of a 10, I was a 10,” referring to his level of fear, he recalled. Then, he remembered Jill Castilla, who runs a bank with a uniquely entrepreneurial spirit.

“That Evil Woman”

The Citizens Bank of Edmond understood risk and redevelopment. It had a long and well‐regarded history, but by the time Jill joined in 2010 it was the worst‐performing bank in the state. Many of the bank's problems were self‐inflicted, from poor management practices, to bad collections and credit management, to cases of outright fraud. To make matters worse, the bank, which had historically garnered a strong reputation and working relationship with the local community, was suffering from a reputational crisis brought on by the change in management and practices. Change can be hard to accept, and Jill was in the middle of it.

“I went across the street after being at the bank for a couple of months to get my hair cut, and the lady cutting my hair asked, ‘Why did you move back to Edmond?’” Jill recounted in an interview about the turn around.¹⁵ “I said, ‘To work at Citizens.’ And she put her scissors down and said, ‘Oh my goodness, you need to be careful because there's this evil woman that's come to work there that's destroying that bank.’”

That “evil woman” was Jill. Clearly, she had her hands full.

But she persevered and took a creative approach to solving the bank's economic problems. In hundreds of phone calls, she asked local customers to move their high‐paying CDs out of the bank, relieving the bank of these expensive capital obligations. Slowly, the bank's ratios righted themselves. “When we were in trouble, when our backs were against the wall, people came to us and said, ‘What can we do to help?’” Jill recounted.

Under her leadership, the community came around, and ultimately she and they saved the bank, for which the largest shareholder is its employees. “There's a special place in my heart for communities that are pulling themselves up,” she said.

After listening to Jonathan Dodson's pitch, she felt compelled to act. “We'll find a way to get to yes,” she said. After she thought it over, she asked Jonathan to get Steve Mason, a local entrepreneur who had sold an engineering firm and is active in development projects, to sign on as an additional guarantor on the bank's debt.

“I have faith in our underwriting,” she said. “I knew it was a good deal.”

About a month later, the bank approved a market‐rate loan for $2.6 million.

Nothing has been easy since. Tenants have signed letters of intent and backed out. “We had it leased three times over,” Jonathan said. While the project is generating enough cash to cover the debt service, it won't be cash‐flow positive until more units are leased.

By late 2020, despite the Covid‐19 economic crisis, the first tenants at the EastPoint project had moved in. The health clinic is open for business. A restaurant called Family Affair will be reopening soon. Local rapper Jabee is opening another restaurant. And Kindred, a bar in which Sandino Thompson has an interest, has opened.

There's also an optometrist, a nonprofit – Oklahomans for Criminal Justice Reform – and an art gallery launching soon. Sandino plans a co‐working space for people in the creative economy. And there's a fitness center, the first tenant up and running in Phase Two.

Erica Emery, of the Monarch Property Group, said she drove by not long ago and said to herself: “There are Black people working out at the gym. I'm like, ‘Look at y'all.’”

There is plenty of work still to be done to ensure the EastPoint project is sustainable. Jonathan Dodson is optimistic and thinking about the long term. He says that he'll consider EastPoint a success when the first tenants receive substantial checks for their equity. The Tulsa Race Riot is still on their minds a century later, but they are fighting racism and segregation with the tools at their disposal, and helping their community turn over a new leaf.

The Forgotten Hero of Community Finance

Within the community banking system lies a special subset of banks that's worthy of highlighting in more detail. Community Development Finance Institutions (CDFIs) are a product of the Riegle Community Development and Regulatory Improvement Act of 1994. CDFIs were championed by President Bill Clinton as a way to increase support for community organizations and to promote community development. The Riegle Act created the formal concept of CDFIs as well as establishing a Community Development Financial Institutions Fund with the goal to “promote economic revitalization and community development through an investment and assistance program for community development financial institutions.”¹⁶ By focusing on traditionally underbanked markets, CDFIs fill a particularly important role in communities of color, rural communities, and other locations where traditional banking infrastructure isn't available. There are several types of CDFIs, ranging from credit unions to loan funds to a small number of CDFI‐certified venture funds. Each of them must be private and have community development as part of their primary mission in order to be certified by the CDFI Fund. Certified CDFIs serve specific, underserved target markets, and provide technical assistance – known as development services – in addition to other traditional financing services. There is an overlap between community banks, many of which have missions of promoting economic growth in underserved communities, and certified CDFIs. There are around 1,000 CDFI‐like banks in the United States that aren't certified but have similar missions.¹⁷

Community‐minded banking dates back to the founding of the United States, and there are many examples throughout history of banks or bank‐like entities being established for the purpose of supporting community development. Benjamin Franklin set up small business loan funds in the late 1700s and early 1800s to fund the endeavors of early American entrepreneurs. Later, the Freeman Bank was set up to provide financing to newly emancipated slaves. Starting in the 1960s with President Johnson's “War on Poverty”¹⁸ and accelerating in the 1970s with the advent of Community Development Corporations, this portion of the US banking infrastructure focused on working in low‐income urban and rural communities. Since its inception, the CDFI Fund has directly funded nearly $3.6 billion, provided $57.5 billion in tax credits through its New Market Tax Credit Program, and has guaranteed more than $1.6 billion in bonds through the CDFI Bond Guarantee Program. All in an effort to “increase the impact of Community Development Financial Institutions (CDFIs) and other community development organizations in economic distressed and underserved communities.”¹⁹

CDFIs can and should play an increasingly important role in helping finance New Builders. CDFIs disproportionately support local and small businesses in their target markets and, with the increasing consolidation of the banking sector, provide critical access to capital in markets where banking infrastructure is lacking. However, it is important that CDFIs are not politicized. There are some signs that the program – although it works in areas across the country and with underlying entrepreneurs of all political backgrounds – is viewed as a “Democrat‐supported” program. For example, CDFIs were left out of the initial Covid‐19 relief programs passed by Congress in a deliberate compromise to appease Congressional Republicans. The result was that early access to Covid loan programs wasn't available to many smaller entrepreneurs. This, of course, was exactly the opposite of the help that was needed. Ultimately, Congress fixed this and the later relief bills brought CDFIs and other institutions serving smaller businesses into the fold. It serves as a stark reminder of the risks of a concentrated approach to finance, and the increasingly consolidated banking sector, has on access to capital for critical areas of our economy.

Fewer Loans and Higher Interest Rates

Why are smaller banks, community banks, and CDFIs so important to New Builders? Our traditional banking infrastructure is failing women and, especially, people of color. Study after study has documented the racial and gender gaps in access to bank capital. Much of this work has been sponsored by the Federal Reserve itself, which seems keenly interested in understanding these gaps, but still has a way to go in finding solutions to address them.²⁰ The Minority Business Development Agency has also published a number of reports documenting these disparities.²¹

Alicia Robb, formerly an economist with the SBA and Federal Reserve as well as a fellow at the Kauffman Institute, has looked deeply at these issues and has co‐authored several key reports on the topic. Patterns haven't changed since the 1980s in terms of access to capital and higher denial rates, Robb says: “People of color are less likely to apply in the first place because they are afraid of being turned down.” This trend holds true even after controlling for other underwriting factors such as income and credit score.

Alicia's research has shown that minority‐owned firms are less likely to receive loans than nonminority firms. Additionally, they received lower loan amounts and are three times more likely to be denied loans. Minority‐owned firms are also less likely to apply for loans in the first place, due to fears of being rejected, applying for loans at less than half the rate of their White counterparts, even after controlling for other factors such as the size of business. Finally, when minority‐owned firms do receive a loan, those loans cost them more than loans to White‐owned firms. Alicia's analysis of the data shows that minority‐owned firms paid an average interest rate on their loans of 7.8 percent compared with 6.4 percent for nonminority firms.

The rise of wealth and income inequality – especially since the early 1990s and exacerbated by the Great Recession of 2008–2009 and now the Covid‐19 recession – have significantly limited potential entrepreneurs with fewer resources from either self‐financing their businesses or raising startup capital from friends and family members. For grassroots entrepreneurs, accessing capital from personal funds or through existing networks or extended families, or using other assets such as home equity or business loans, often isn't an option. For New Builders, this lack of access to personal capital is even starker. Simply put, White families across every income range and every level of educational attainment have more wealth than their Black and Latino counterparts. On average White families have 10 times the wealth of Black and Latino families.²² In 2016, 15 percent of White families had a net worth of over $1 million, according to data published by the federal government. That compares to under 2 percent of Black families.²³ This speaks to a systemic and generational challenge among Black and brown business owners to access capital from their families and their communities. A number of New Builders made a point to explain to us an additional financial challenge many are faced with. As they achieved some level of financial success, they were expected to support those in their extended families yet to make the jump to greater economic stability, pulling on their resources and taking away from their ability to invest back in their businesses.

The Relationship Factor

There is so much potential to change the trajectory of grassroots entrepreneurship in the United States by increasing the access these entrepreneurs have to the financial resources they need to start and grow their businesses. There are signs of hope that more inclusive and innovative capital ideas are beginning to spring up. From technology platforms such as PayPal and Square starting to make funding available, to innovative partnerships between CDFIs and their local communities, to new forms of financing that fall between bank loans and venture capital, there appears to be a wave of new innovation starting to crest.

For the East Side of Oklahoma City, that hope is turning into reality through the unlikely partnership between a developer, community leaders, and a bank that was willing to look past generations of stigma and outright racism to make possible the first step in a road to development and recovery for an area that has historically lacked opportunity. There's a fundamental lesson here: long‐term, systemic change always starts with relationships between people, and often the most profound changes start with people prepared to take risks to build those relationships.