Like the rest of the nation, small businesses across the South have faced unprecedented challenges since the beginning of the COVID-19 pandemic. Millions of them saw demand drop and had to close their doors as their reserves were depleted. The breadth of the impact has been staggering — from industries like travel, food service and hospitality, to dentists, artists, mechanics, and farmers.
While federal relief efforts have been helpful for some, they have been insufficient or inaccessible for many, especially women, people of color, immigrants, and other underbanked populations. To address the gap, a number of philanthropic programs have been launched in states across the country to help small businesses at the back of the line — or not in the line at all.
The South has long suffered from a lack of philanthropic and institutional investment, a trend that has continued through the pandemic. The region benefits from only 56 cents of giving for every dollar granted in other regions. And for every dollar given to address structural change in the rest of the country, just 30 cents goes toward these issues in the South, despite well documented challenges with economic mobility, particularly in communities of color. This lack of investment could mean a slower, more difficult recovery and a deepening of those structural issues in the region.
Now is the time to change that trajectory, and supporting small businesses, including small-scale farmers and critical community organizations, is a place to start. Small businesses create jobs, drive economic vitality in communities, and have a tremendous impact on the well-being of families: entrepreneurship is second only to home ownership as an effective means of building family wealth. Plus, we know that small businesses tend to provide higher-quality jobs and are active participants in their communities.
Given adequate resources to navigate and rebuild from the pandemic, these resilient, creative, and resourceful entrepreneurs can overcome the immense hardships they are facing; in fact, many are already showing their resolve to do so. For countless small business owners, there has been no other option.
Unfortunately, even pre-pandemic, many of these businesses lacked access to affordable credit. NextStreet estimates that the credit needs of un- or underbanked small businesses exceeds $80 billion — and that was before banks pulled back because of the economic uncertainties created by COVID-19. We saw bank lending decline 16 percent during the Great Recession; given the recent trends of bank consolidation and the loss of many community banks, we expect the pandemic-driven decline to be even steeper in low-income, rural, and already underresourced communities across the country.
Luckily, we know — and have seen throughout COVID — that nonprofit community-based lenders certified as community development financial institutions (CDFIs) take the opposite approach. In times of crisis, they lean in. CDFI lending increased during the Great Recession, with many CDFIs doing five to ten times more lending in 2020 than in previous years to support the immediate needs of the small businesses and community-based organizations operating within their footprint.
That is why we are building and supporting the Southern Opportunity and Resilience (SOAR) Fund alongside thirteen CDFIs across the South. The program was designed to support the needs of local community lenders so they have access to low-cost capital, a technical assistance ecosystem, and a centralized technology platform that helps them find small businesses, including small-scale farmers, and nonprofits who need their help.
The economic recovery from the impact of COVID-19 is going to be long, and support for small businesses will be needed well beyond the administration of vaccines. If we want the post-pandemic recovery to be more equitable than the last one — and be focused on the potential and opportunity in local economies across the South — we need solutions structured to support the scaling of organizations that have been built in and served these communities for decades.
If we want to create asset- and wealth-building opportunities while maintaining the critical cultural fabric of our communities, philanthropists need to come together to support CDFIs and the small businesses they were built to serve.