Among the many challenges facing people of color in the United States is that it’s much harder for them to get small business loans. A 2023 Federal Reserve Bank of Cleveland report found that entrepreneurs of color are “much less likely than their white counterparts to get approved for financing.”

Even among startups deemed a low credit risk based on credit scores, entrepreneurs of color were “more likely to be denied at least some of the financing they sought,” according to the Fed report.

A new $70 million Equitable Access Fund aims to address the problem by giving small business owners greater access to credit and capital, emphasizing helping women, people of color, and other “credit-challenged” groups.

The fund, announced in June, is the product of a collaboration between Hello Alice, a fintech that provides credit, loans, and grants to more than 1 million small business owners in the United States, and the Global Entrepreneurship Network (GEN), which operates programs in 200 countries designed to ease the process of starting and scaling a business. Wells Fargo led the initial funding round.

Photo Courtesy Global Entrepreneurship Network

According to a press release, the fund will be developed and deployed over the next five years to provide credit enhancements to financing partners. Those enhancements include guarantees, loan loss reserves, and cash collateral deposits.

The idea is to help entrepreneurs and business owners “reasonably increase their risk tolerance” to help unlock credit access.

“One of the barriers to our small-business owners is the ability to collateralize,” Hello Alice President and Co-Founder Elizabeth Gore told Inc. Magazine in an interview. “We just see this over and over and over…So what we wanted to do is create this fund that could be a revolving fund to help these small-business owners.”

The fund is part of the GEN’s Equitable Access Program, which provides increased credit access and financial education to “high-potential” entrepreneurs with difficulty getting credit. It will be run and managed by Hello Alice and GEN. In addition to Wells Fargo, other partners include First National Bank of Omaha (FNBO), Mastercard, and the Kauffman Foundation.

The fund addresses “significant untapped demand” for business credit involving small businesses – especially those run by women, veterans, disabled people, minorities, and members of the LGTBQ community. 

“If you look at just the BIPOC (Black, Indigenous, and People of Color) small business owner community, there’s $40 billion in unmet demand for financing, based on how much they apply for and don’t receive,” Matt Brewster, Hello Alice’s VP of Capital, told Forbes. “The unmet financing demand is three to four times higher for BIPOC-owned small businesses than white-owned small businesses.” 

One of the advantages of the Equitable Access Fund is that it will “open doors for high-potential, credit-challenged entrepreneurs to achieve their full potential as founders, job-creators, and agents of change,” Jonathan Ortmans, founder and president of the Global Entrepreneurship Network, said in a statement.

Photo Courtesy Global Entrepreneurship Network

“We believe the outcomes of this work will also serve as a case study for other nations to learn from and adapt to support under-served entrepreneurs within their jurisdictions,” Ortmans added.

As Inc. noted, the fund’s creation came at an opportune time because it arrived during a tough stretch for the financial industry, hit by a series of high-profile bank failures during the first half of 2023. According to Federal Reserve data, one result is that banks tightened their lending standards for small businesses.

Given the need for greater access to capital for small business owners, leaders of the Equitable Access Fund have already set their sights on expanding the program. They’ve even floated the idea of Congress enacting a nationwide credit enhancement program for small-business loans.

“I just hope that there is a reality check through banks, Congress, everyone,” Gore told Inc. “The amount of small businesses that are opening now [is] unprecedented… It is so hard for them to get funding, so we really need to be creative right now writ large.”