Thursday, November 19, 2020
Carlos Berdejó recently posted a fascinating new article to SSRN, entitled Financing Minority Entrepreneurship. In it, he examines the reasons why minorities struggle to access capital when starting businesses and takes a close look at how existing programs have not succeeded at increasing access to capital. He argues that a successful program will increase equity and hybrid investment while also addressing informational asymmetry issues.
He proposes that a new type of Small Business Investment Company (SBIC) -- a Local Impact Small Investment Company (LISBIC) might offer a way to address many of the barriers faced by minority-owned businesses. A LISBIC would do much of what a SBIC does, but with a more localized focus. This local focus would allow the LISBIC to better evaluate soft-information about investment opportunities while its structure and design would generate credibility with investors.
The article also explores many practical and technical challenges to implementing such a program. It left me with the sense that this sort of program would be achievable and might even pass through a divided Congress. Hopefully, policymakers and legislators will consider this approach to increase access to capital.