Study: Seventy-one Percent of Inner City Businesses are Dramatically Undercapitalized

Nov 10, 2011, 14:55 ET from Initiative for a Competitive Inner City

Capital access program helps urban entrepreneurs raise $406 million in capital and create 2,790 jobs

BOSTON, Nov. 10, 2011 /PRNewswire-USNewswire/ -- Seventy-one percent of inner city businesses in the U.S. are dramatically undercapitalized, according to a study, "Capital Availability in Inner Cities: What Role for Federal Policy?" released today by the Initiative for a Competitive Inner City, a non-profit research and strategy organization and the leading authority on America's inner city economies. 

In the study, ICIC examined the supply and demand of capital in America's inner cities and the impact federal agencies and programs such as the Small Business Administration (SBA), New Markets Tax Credits (NMTC) and Community Development Financial Institutions (CDFI) have on capital access. 

Some of the key findings include:

  • Seventy-one percent of inner city businesses are undercapitalized having on average only 1/4 of the capital needed to compete in their industries.
  • Of the businesses undercapitalized,­ 50% are likely to be minority-owned businesses.
  • Community banks are crucial participants in the SBA loan programs, accounting for 38% of SBA loan value.
  • Inner cities received $6.1 billion from the NMTC program, about 1/2 of all NMTC dollars allocated from 2004 to 2008. However, NMTC dollars are used primarily for real-estate transactions; only 9% of NMTC dollars were used to finance inner city businesses.
  • The CDFI program is primarily a source of real-estate lending. Of the $6.5 billion of CDFI assistance awarded to distressed urban areas from 2006 to 2008, only 1/5 of the total was used for business transitions.

"This study is the first of its kind to look at both the demand and supply for capital in economically distressed urban areas," explained Teresa Lynch ICIC senior vice president and director of research.  "We believe it's a critical step in better understanding the capital access challenges of inner city businesses."

ICIC will present the findings from the study at the Federal Reserve System's conference, "Small Business and Entrepreneurship during an Economic Recovery" in Washington, DC on Thursday, November 10th.

To help address the capital access challenges for inner city businesses, ICIC and Bank of America partner together through the Inner City Capital Connections program to educate investment-ready companies about sources of capital and match them with investors to grow their businesses and create jobs.

"Supporting these entrepreneurs is an essential component of moving our economy forward," said Ed Powers, BAML Capital Access Funds managing director.  "ICCC has helped hundreds of growing small businesses get even stronger by connecting them to millions of dollars in investor capital."

As a result of the program, participating businesses have raised more than $406 million in capital and created 2,790 jobs, according to the program's 2011 impact report, "Capital and Job Creation."

"ICCC demonstrates that growing inner city companies, given access to capital, generate the jobs and wealth that are crucial to the transformation of their communities," stated Mary Kay Leonard, ICIC president and CEO.

The Inner City Capital Connections program will host its annual National Matching Day on Thursday, November 10th at the headquarters of Fortune Magazine. More than 125 companies and 50 capital investors will participate in the event.

Facts about ICCC:

  • 275 inner city businesses have participated in the program
  • 150 investors, representing private equity, venture capital, angel networks, mezzanine financing and debt, have participated
  • $406 million in capital has been raised – $154 million in equity and $252 in debt
  • 49 ICCC businesses have raised multiple rounds of capital, on average 3 times per company
  • 2,790 jobs have been created by ICCC businesses since 2005
  • 38% of the ICCC workforce is comprised of inner city workers
  • 76% of ICCC CEOs are minorities and 38% are female

About ICIC: The Initiative for a Competitive Inner City is a nonprofit research and strategy organization and the leading authority on U.S. inner city economies and the businesses that thrive there. Founded in 1994 by Harvard Business School Professor Michael Porter, ICIC expands inner city economies by providing businesses, governments and investors with the most comprehensive and actionable information in the field about urban market opportunities. ICIC's unique knowledge and expertise about inner city success factors and thriving companies is developed from specialized urban networks and path-breaking research.

About Bank of America: Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 58 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,750 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

SOURCE Initiative for a Competitive Inner City