Canada’s big six banks almost came together to help Black entrepreneurs – but then they went their separate ways

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The Black Entrepreneurship Loan Fund started with a vision: bring government and financial institutions together to provide a pool of money that would help Black business owners, who disproportionately face systemic barriers to accessing capital.

When Prime Minister Justin Trudeau launched the program on May 31, 2021, he was joined by members of his government, representatives of financial institutions and leaders in the Black business community. No one from Canada’s big six banks spoke, but Small Business Minister Mary Ng said the banks were on board and were putting up $128-million to help fund the program – nearly half its budget.

Although the banks had been at the table for months, they had all walked away just days before the launch. And the millions of dollars they had supposedly committed to the fund never arrived.

Instead of a single fund, what has evolved is a patchwork system, where it’s largely public money that is at stake and the big six banks – Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank, Royal Bank of Canada, Bank of Nova Scotia and Toronto-Dominion Bank – offer their own individual programs that vary widely in how generous they are and how vigorously they try to get funding into the hands of Black entrepreneurs who need it.

Those who cheer the current system say Black business owners are given a wider choice of loan programs than they would have been offered under a centralized government program. And they argue that, if all the private money that has been promised is spent, there will be a larger total amount of funds available.

But, others say, the scattered approach means there is no national standard for how to reform access to credit – a long-standing concern of Black entrepreneurs – and little transparency concerning what the various programs have to offer.

When the pandemic started, in spring 2020, Tiffany Callender was executive director of the Côte-des-Neiges Black Community Association, in Montreal. At the time, she said, she and other leaders at nonprofits serving the Black business community watched the federal government roll out the Canada Emergency Business Account (CEBA), a loan program for companies affected by COVID-19. She worried that the loans – which were backed by the government but distributed through banks – would be just as inaccessible to Black entrepreneurs as traditional bank loans were.

“The criteria that were set, we knew innately that a lot of Black entrepreneurs would not qualify,” Ms. Callender said.

Black business owners have long said lack of access to capital is one of their biggest challenges. Last year, in an Abacus Data survey of more than 300 Black entrepreneurs, nearly eight in 10 said it would be difficult or impossible to find even $10,000 to support their companies. Fewer than one in five said they trusted banks to do what is right for them.

Black Canadians have a much lower rate of homeownership than the national average, which means they are less likely to be able to use houses as collateral on businesses loans. And, according to Statistics Canada, more than half of Canada’s Black population is made up of first-generation immigrants, many of whom have low credit scores simply because they haven’t had much time to build up their credit history in this country.

Ms. Callender said she and representatives of other Black-led community organizations met with MPs during the early months of the pandemic. George Floyd had just been murdered by a police officer in Minneapolis, Minn., and there was widespread public discussion about racial discrimination. Institutions wanted to make changes to address those issues, and be seen to be making changes.

Ms. Ng became the lead minister on the file. Her office recruited representatives from Canada’s big six banks to sit with members of the Black business community and craft an ambitious lending program that would make an unprecedented amount of funding available to Black entrepreneurs.

What followed were months of talks that, participants said, included frank discussions about the barriers Black entrepreneurs face, and also about the constraints banks in the heavily regulated financial sector felt they were up against in making change.

“The kinds of conversations that took place over that year were, really, between the Black entrepreneurs and the financial institutions, with the federal government at the table. It was really to begin to understand where some of those challenges really were,” Ms. Ng said.

A key issue for the banks was what level of risk they were prepared to take on if, for example, they were to accept loan applicants with credit scores lower than their usual minimums.

Four sources with knowledge of or involvement in the talks said the financial institutions wanted the government to guarantee the loans. The government had done so with CEBA, but did not want to extend similar protections to the Black entrepreneurship program.

The Globe and Mail is not identifying the sources because they were not authorized to discuss the private negotiations publicly.

One of the sources, a senior government official, said the minister’s office was concerned that, if the changes were linked to full loan guarantees, they would last only as long as the guarantees were in place. The official said the government did explore options for guaranteeing portions of the loans, but did not settle with the banks on how that would work.

As talks continued for months, the banks grew more uncomfortable with collaborating with one another and with the government.

Ultimately, with the public announcement of the program just days away, the banks raised concerns about whether they could co-operate on a lending program without violating the law, four sources said.

The Competition Act contains criminal and civil provisions that prohibit collusion between financial institutions. But the act also spells out some circumstances in which financial institutions can collaborate. For example, one exception allows banks to work together on guaranteed loan programs created by Parliament – such as CEBA. Another exception allows the federal finance minister to endorse a collaboration if it is in service of a financial policy.

The government did not want to guarantee the loans, so the first option was out. The senior government official said the government considered the second option. But it had never been used before, and officials were reluctant to set a precedent.

The banks pulled out. The government quickly instructed the Business Development Bank of Canada, a Crown corporation, to provide $130-million to back the loan program, along with $33-million from the government itself. The government publicly said the banks would join in a second phase of the program and provide $128-million, so that the total budget of the fund would be $291-million.

The second phase was never announced. For much of the past year, the government’s website continued to say it was coming.

When The Globe began to inquire about that claim in late February, the government said the banks were still considered the program’s partners. But it was at this point that the website changed. Mention of the big banks was removed. And the overall budget of the program, once touted as $291-million, was revised down to $160-million, meaning the bank money was no longer being counted.

The Globe contacted each of the big six banks, but all declined to explain why they left the program.

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The Black Entrepreneurship Loan Fund launched in two parts: a large loan program, and a microcredit program.

The large loans provide up to $250,000 to each applicant, with financial backing from the government. The microcredit stream provides privately funded loans of between $10,000 and $25,000, and is run through two credit unions: Alterna, in Ontario, and Vancity, in British Columbia.

The microloan programs are modelled after similar programs the two credit unions have run for years, which aim to get money into the hands of people who might be denied traditional bank loans.

Bill Cunningham, Vancity’s vice-president of community, business and real estate, said his organization will consider low credit scores by looking at what contributed to them. He said there is a difference between an applicant whose low score is because of negative factors – such as a bankruptcy – and someone whose score is low because they are a new Canadian who hasn’t had time to build up their credit history.

The large loans are reviewed and administered by the Federation of African Canadian Economics (FACE), a Black-led organization created for the purpose and led by Ms. Callender. It’s a coalition of five Black business groups: the Côte-des-Neiges Black Community Association and Groupe 3737, in Montreal; the Black Business and Professional Association, in Toronto; the Africa Centre, in Edmonton; and the Black Business Initiative, in Halifax.

The launch was rocky. The announcement and the promised millions of dollars for Black businesses led to thousands of applications. But FACE, which had just been built from scratch, was woefully understaffed and unprepared for the surge. The organization is still digging through the backlog.

Cheryl Sutherland, a Toronto entrepreneur who owns an e-commerce stationery business called PleaseNotes, said she applied for a loan shortly after the program launched and still hasn’t received an update on her file, more than nine months later.

She said the BBPA, one of the groups that helped found FACE, recently sent out a mass e-mail to loan applicants inviting them to a webinar. But the organization forgot to hide the addresses of recipients, which led to a group e-mail chain full of complaints

“It’s kind of, unfortunately, indicative of what ends up happening for a lot of things that they create for people of colour,” she said, referring to government programs in general. “It’s like, yeah, we’re doing something, but it’s all smoke and mirrors.”

FACE said it has received 16,000 applications and approved $14-million in loans.

One of the recipients is Margaret Adekunle, the founder and chief executive officer of City Lending Centres, in Edmonton. Her company provides credit cards and credit-education services to Black Canadians and immigrants in the area.

Ms. Adekunle, who has a background in financial services, said she faced skepticism from banks when she began to inquire about a startup loan in 2021. She said she felt much more supported when she applied for the federal loan.

“I think they understood what I was trying to do for the community and they believed in it from the beginning,” she said.

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In the year since the federal loan fund launched, the big six banks have pursued their own programs.

National Bank said it had made a $1.25-million donation to the Black Opportunity Fund, an endowment started in 2020 by a group of Bay Street executives, and that it had also partnered with the BOF to create a $5-million investment fund. The bank said it had also given $10-million to EVOL, a Quebec-based organization that supports diverse business ownership.

Scotiabank said it is spending $500-million over 10 years on its ScotiaRISE initiative, which aims to direct money toward underrepresented groups, including the Black community.

TD said it would donate $10-million to the BOF over five years. The bank said it is focusing on its Black Customer Experience Strategy, which aims to improve relations with Black clients.

Three banks have unveiled programs similar to the federal one.

In October, RBC launched the RBC Black Entrepreneur Business Loan, which provides up to $250,000 to each applicant. RBC said the program is part of a five-year, $100-million commitment the bank made in 2020 to supporting Black communities.

In January, CIBC launched the CIBC Black Entrepreneur Program, which provides loans of up to $250,000 as part of a $15-million investment. The bank said it was working with the BOF and the Canadian Black Chamber of Commerce.

And in February, BMO launched Business Within Reach: BMO for Black Entrepreneurs, which provides loans of up to $250,000 as part of a $100-million commitment. The bank said it was also working in partnership with the BOF.

All the federal and bank loans are repayable in 10 years. The federal loans have interest rates of between 6 and 8 per cent. CIBC said its interest rate is the bank’s prime rate plus 1.25 to 3 per cent. RBC and BMO wouldn’t reveal their interest rates.

None of the three banks would say how many applications they have received so far, or how many loans they have disbursed.

Craig Wellington, executive director of the BOF, said his organization has spoken to hundreds of Black entrepreneurs about the financial barriers they face and has shared those lessons with some of the banks.

He said the BOF is working closely with CIBC on its program, and he encouraged Black business owners who had previously been denied loans to try again.

“Because they were declined a year, a year and a half ago by CIBC does not mean they will be declined from this current program,” he said.

But some entrepreneurs say any change hasn’t gone far enough.

Before launching her business last year, Ms. Adekunle had worked as a branch manager for three different banks over the course of 20 years. She said she looked into the terms of the banks’ Black entrepreneur programs and spoke to former colleagues to get a better sense of how they worked.

“What I was trying to figure out was, what really makes what they’re offering a Black entrepreneurship program? What is different? What is new?” she said.

She came away with the impression that the only thing different was the word “Black” in the names. “It’s the same criteria,” she said.

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