Can a ‘Guaranteed Income’ for Black Entrepreneurs Narrow the Wealth Gap?

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As dozens of cities roll out or contemplate  “guaranteed income” pilot projects to give residents money with no strings attached, a program in Oakland, California, is testing a similar model to help small businesses.

Runway, which calls itself a “financial innovation firm,” originally helped Black women entrepreneurs mainly through small loans. But in 2020, Runway began gifting its business-owner clients — which it calls its “family” — with a monthly $1,000 stipend, no strings attached. The Rapid Emergency Fund project is a pilot, which Runway is billing as a “universal basic income” experiment for Black business owners, to see if this kind of supplemental income could be curative for the racial wealth gap. It started in March when all non-essential businesses were ordered to close to stop the spread of Covid-19. 

The experiment is the brainchild of Jessica Norwood who before co-founding Runway, studied the problem of why Black businesses fail as a research fellow for several organizations including the Nathan Cummings Foundation and the Center for Economic Democracy. She arrived at the often-cited reason that financial institutions don’t finance and capitalize Black entrepreneurs like they do white ones. But digging deeper, she found that many African Americans also don’t have a family-and-friends network to rely on for backup even if they do get financing. A 2016 Bank of America study found that more than a third of business owners received a financial gift from friends and family to help launch their companies. Because of the racial wealth gap — the median net worth of white families is an estimated $171,000 compared to the $17,150 median net worth of Black families — there’s just not a lot of disposable money laying around among Black parents, aunties and loved ones for them to help out kindred Black entrepreneurs when they need it. So Runway became the family Black entrepreneurs needed.

The firm launched in 2018, by providing low-interest loans of between $2,500 to $20,000 to a small group of Black entrepreneurs in Oakland, as part of its Runway Friends & Family Loan Program. To qualify, the awardees didn’t need an unblemished credit score or tall history of triumphant businesses. They only needed to  be “capital ready” — meaning having  a strong business plan and having completed a local business training program. The current crop of loanees were nominated through Runway’s technical support partner, the Uptima Entrepreneur Cooperative. Once awarded the loan, its clients were only responsible for making interest payments of 4% for the first two years.

In the spring of 2020, Runway’s rapid emergency fund began giving these loan recipients direct cash infusions of $2,000 upfront, and then a $1,000 monthly stipend through October to keep them afloat, also providing them with free business and marketing consultancy services.

After the first year of the experiment, some results are already clear: Not one of the 30 businesses in the Runway consortium had to close up shop due the pandemic shutdowns. Considering the dry run a success, Runway began a second round of guaranteed income funding to its clients in November.  

Candace Cox, who runs the Oakland-based artisanal jewelry and home decor store called Candid Art, thought it might be time to hang it up when cities and states first started ordering businesses to close last year. She had run out of fabric so she couldn’t even make face masks. The emergency stipend allowed her to purchase the bulk fabric she needed to change her fate.  

“I was already in my head like, ‘I have to find a job or do DoorDash,’ but with the [Runway funding] I was able to pivot quickly,” said Cox. 

The funding has been especially helpful given that many Black businesses were reportedly left out of the federal pandemic relief funding from earlier this year. There is incomplete data on the demographics of loan recipients from the Paycheck Protection Program, because the Small Business Administration did not require race data on its loan applications, according to the Center for Public Integrity. However, of the 10% of loans where race was reported, 78% went to white business owners compared with 3% for Black owners, according to the report. Far more PPP loans went to businesses in majority-white congressional districts in the first round of funding compared with loans made to businesses in majority-nonwhite districts — though there was more parity by the second round of funding. 

Runway sees its loan and guaranteed income work as part of a mission to build “emergent financial practices and infrastructure that close the racial wealth gap for good.”

While Norwood describes the cash payments as a sort of “universal basic income,” it differs from other such projects because the money is coming from a private organization and donors, not the government. To fund their own project, Norwood and her fellow co-founders —  all women of color —  approached investors and donors who’ve been inquiring in the past few years about what they could do to help with anti-racist work and addressing the racial wealth gap problem. Several banks and financial institutions, including Berkshire Bank and the Self Help Federal Credit Union in Oakland, have also signed on as investors in Runway.

“This is a unique model where we try to put the entrepreneurs first and they all in fact see themselves as a cohort, helping to grow each others’ businesses,” said Norwood. “They know underneath all of this is a common set of values and that is what keeps them working as a community.”

Runway is currently developing a new cohort of Black businesses to finance in Boston. Norwood said she’s also fielding demand from many other cities, but cautioned that they weren’t looking to do a rapid expansion, mindful of the “violence of rapid capitalism” that she says has actually destroyed many Black communities.

“The history of capitalism has been predatory and violent for Black people, so we want to make sure that doesn’t happen with us,” said Norwood. “Capital needs to move, but it has to be the right kind of capital with the right kind of money. It can’t be episodic and it has to be deeply, deeply generous.” 

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