Baltimore Businesses Level Up With New Impact Investment Fund
- Investors are shelling out $25M to support business growth in historically underinvested Baltimore neighborhoods
- Bank loans to Baltimore businesses fell from a total of $457M in 2007 to $307M in 2016
In Baltimore, Impact Investors are launching a $25 million investment fund designed to meet the needs of business owners. The new initiative called Baltimore Arctaris is spearheaded by Boston-based Arctaris Impact Investors, who provide loan capital to small and medium-sized businesses in underinvested areas across the city. The loan amounts will be between $1 million to $5 million, using a new investment model called “growth debt”.
Why This Matters: Access to capital for small businesses is one of the biggest policy issues in the United States today. While this loan program is a start to addressing issues of inclusiveness there is some work that needs to be done. In a 2018 report from Johns Hopkins University’s 21st Century Cities Initiative found that bank loans to Baltimore businesses fell from a total of $457 million in 2007 to just $307 million in 2016. In that time, the average loan size fell from $191,819 to $70,877, and large loans of more than $200,000 were harder for businesses to obtain.
The loan amounts will be between $1 million to $5 million, using a new investment model called “growth debt”
This program seems like an example of another promising public/private partnership with growth debt financing. Growth debt is a new type of financing that consists of a blend between traditional bank debt and venture capital, offering a flexible structure with variable payments that lets companies grow without having to dilute ownership.
Through efforts like this, Arctaris is becoming a leading impact investor with a national strategy focused on bringing investment to underserved communities. This is accomplished through partnerships in cities where Arctaris provides 80 percent of the capital, and where partners from local communities provide 20 percent.
In 2012, a report by the Small Business Administration found that Blacks, Hispanics and women were less likely than white males to apply for loans out of fear of being denied. Not to mention that those who did apply were “much less likely” to have their loans approved. As the minority population continues to rise, it is more important than ever that these prospective business owners have the resources they need to launch successful firms.
Situational Awareness: Impact Investing is an increasingly popular approach to tackling social problems through the exploration of new business models. Despite Baltimore’s challenges, it is becoming a hotbed for innovation and black entrepreneurship. Through this community investment fund, loans could go to companies in any industry, especially, tech companies, given the area’s place as a hub for cybersecurity.
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