Access to capital is the most important factor in determining a company’s ability to thrive. Yet, Black-owned small businesses are about twice as likely to be denied credit, contributing to constrained growth rates and widening the racial wealth gap by at least $1 trillion annually.

The net effect results in depressed productivity as business leaders of tomorrow are being turned down today for construction loans or operational financing, and the consequences are staggering—ranging from unrealized potential for Black neighborhoods to disproportionate exclusion from conventional financial services.

To level the playing field, CDFIs were created in 1994 so disadvantaged populations can compete on a stronger footing. To date, CDFIs have offered $1.1 billion in low-interest loans or grants to provide a pathway to new business opportunities in distressed communities. Moreover, they take the extra step by helping businesses receive no-cost professional services in accounting, marketing, job training, and strategic planning for continuous improvement.

Fintech has taken on a similar role in recent years, serving the same purpose as CDFIs, but on a slightly different track. Online banks help reach those who live in communities where access to a brick-and-mortar bank is scarce, and CDFIs help reach those who have historically had trouble getting the attention of larger financial institutions because of their race, gender or social status. By working together, the two can address multiple social inequities in ways that open up access to capital and reverse trends of crippling debt that have so often held these people back.

This is where fintech and community banks can play a significant role in reversing the tide. Closer collaboration between fintech organizations and community banks could help legacy policies evolve by utilizing “big data” to identify paths to improvement. The deeper insights could also assist in developing more flexible credit scoring systems to create more equitable access to capital.

The right mix of innovation and tradition can negate structural obstacles to building up Black businesses and add $290 billion in new equity. But overcoming economic, market, sociocultural, and institutional barriers is easier said than done—especially when rising inflation and recessionary signals of broader market uncertainty are already making a bad situation worse.

We saw the disproportionate impact of these issues wreak havoc on Black-owned businesses during the COVID-19 pandemic, when many of these business owners accumulated debt on their personal credit cards as they were unable to secure other available financing. In fact, 41 percent of Black-owned businesses either closed for good or were on the brink of doing so. McKinsey estimates that, between 2020 and 2021, an additional $7.6 billion to $15.4 billion in liquidity for Black-owned small businesses could have saved 460,000 to 815,000 jobs, for an average of $9,325 to $33,478 per job.

Researchers from New York University’s Stern School of Business found that Black-owned businesses increased their chances by 12 percent in getting access to a Paycheck Protection Program loan through community banks than a big bank. Further, data shows that Community Banks made 60 percent of all PPP loans – including 72 percent of PPP loans to minority businesses. These loans served households with incomes of $40,000 or less, uplifting vulnerable populations facing long-term unemployment rates near 10 percent.

During this period, Carver responded by embracing innovations in fintech to process applications and originate $200 million in loans to local entrepreneurs and real-estate owners, helping preserve 5,000 jobs in Upper Manhattan, Brooklyn, the Bronx, and Queens.

The success of these programs in the hands of community-focused financial institutions is undeniable because these institutions understand the socio-economic dynamics and, in turn, are authorized to provide more flexible access to capital and resources in underserved areas. The good news is the Biden Administration directed more than $15 billion towards supporting their objectives going forward.

At Carver Federal Savings Bank, we have seen firsthand how targeted, principled community banking programs that leverage the latest technology can impact America’s most underserved communities. The more fintech and community banks work together, the more barriers to capital can be removed, personal debt avoided, and lending policies will continue to improve.

In sum, the role of Community Banks and CDFIs partnering with fintech platforms has never been more important in helping small businesses and entrepreneurs gain certainty with access to capital they need to recover, restart, and thrive for years to come.