Michael Pugh, CEO and president of Carver Federal Savings Bank, one of the biggest Black-owned banks in the country, talked to Forbes during National Black Business Month about ways Black-owned business owners can successfully navigate financial institutions to meet their business needs.
One of Pugh’s suggestions is for Black-owned businesses to use institutions designated by the federal government (such as Community Development Financial Institutions) because they receive money directly from the U.S. Treasury’s CDFI fund. This fund is designed to “expand economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers.” according to the CDFI website.
Forbes asked Pugh, “Why given the increase in number of Black businesses, why hasn’t the position of Black America advanced?”
Pugh’s response: There are about 40 million people in America who don’t qualify for traditional credit scoring. Banks, he noted, can use non-traditional credit scoring based on utility payments and other monthly expenses to help give them a loan which can positively affect their credit score. Pugh then called upon the banking industry and banks, in particular, to use these resources to increase the funds available for Black business owners.
A move by the federal reserve is also affecting Black businesses. The federal reserve recently adjusted interest rates to 5.5%, the highest it’s been in 22 years. Financial analysts have cautioned that this move could serve to keep Black business owners out of the market for capital.
Pugh suggests that Black owners of businesses seek to utilize community banks or credit unions because they have “a very different scope” when it comes to loan arrangements.
“Financial institutions have a responsibility to come up with access to capital that doesn’t drive an entrepreneur to use their personal credit card at a much higher interest rate,” he stressed.
Pugh will take over as president and CEO of The Local Initiatives Support Corporation (LISC) on October 2, 2023.
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