CNN – When customers at Silicon Valley Bank (SVB) rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to assist some panicked founders of color who were concerned about losing access to payroll funds. As a Black woman with nearly a decade of business experience, Hamilton understood the limited options available to these startup founders. SVB had a reputation for serving underrepresented communities, like hers. However, its failure has raised concerns about lending discrimination in the banking industry and the resulting disparities in capital for people of color.
Hamilton, the 43-year-old founder and managing partner of Backstage Capital, stated that when it comes to entrepreneurs of color, they are already at a disadvantage. She compared it to being in a smaller house with a rickety door and thinner walls. So when a crisis, like the collapse of SVB, occurs, the impact is greater on these entrepreneurs.
Established in 1983, SVB was the 16th largest bank in America at the end of 2022 before its collapse on March 10. SVB provided banking services to almost half of all venture-backed technology and life-sciences companies in the United States. Hamilton and other industry experts told CNN that the bank was dedicated to fostering a community of minority entrepreneurs and provided them with social and financial capital. SVB frequently sponsored conferences and networking events for minority entrepreneurs, funded the State of Black Venture Report, and offered discounted tech tools and research funding to its clients.
Lending discrimination has long made it difficult for minority business owners to access capital. According to data from the Small Business Credit Survey, Black-led companies faced higher denial rates for bank and nonbank loans compared to white-owned companies. This disparity contributes to the economic inequalities experienced by people of color. Experts argue that addressing historic and systemic racism in lending and banking is crucial to addressing these disparities.
The collapse of SVB prompted immigrant founder Asya Bradley, who runs multiple tech companies, to join a WhatsApp group of over 1,000 immigrant business founders. Together, they mobilized to support one another and find alternative funding options. Immigrant founders often face challenges due to their lack of Social Security numbers or permanent addresses. Bradley highlighted that many women, people of color, and immigrants turn to community or regional banks, like SVB, because they are often rejected by larger banks like JPMorgan Chase, Bank of America, Wells Fargo, and Citibank.
The top four banks did not provide a comment to CNN. However, the Financial Services Forum, representing the eight largest financial institutions in the United States, stated that the banks have committed millions of dollars since 2020 to address economic and racial inequality. Wells Fargo, for example, has invested in minority depository institutions and initiated the Black Entrepreneur Fund to support Black and African American entrepreneurs.
Black-owned banks also play a role in closing the lending gap and promoting economic empowerment in traditionally excluded communities. However, their numbers have been declining, and they have fewer assets compared to larger banks. For entrepreneurs, seeking funding from venture capitalists becomes crucial. Arlan Hamilton’s experience in searching for investors led her to establish Backstage Capital, a venture capital fund that invests in companies led by underrepresented founders, specifically women, people of color, and LGBTQ individuals.
Hamilton’s Backstage Capital has invested in nearly 150 different companies and made over 120 diversity investments. Despite the collapse of SVB, Hamilton and other entrepreneurs remain hopeful that community banks, regional banks, and fintechs will step up to fill the void left by SVB and continue supporting underrepresented entrepreneurs.