Billed as an attempt to close the racial wealth gap, Berkshire Bank plans to offer entrepreneurs of color seed capital through a new product created in partnership with The Runway Project, which will provide business coaching to borrowers.
The product is fueled by a “Friends and Family” NCUA- and FDIC-insured and -certified certificate of deposit that offers a market-rate return on investment while providing liquidity for the loans.
This racial wealth gap can be traced to the long history of discrimination in America, including discriminatory redlining practices through which the federal government and banks blocked black homeownership and access to other lines of credit and banking services. Without the same ability to build and transfer generational wealth as white families, minority families have much less wealth than their white counterparts.
“Our strategy at Berkshire Bank is to be a bank of and for the community. We recognize that all too often banks have been seen as an obstacle rather than a partner – we want to change that,” Berkshire Bank CEO Richard Marotta said in a statement. “Our new Friends & Family Fund will serve as a model of how banks can expand access to capital in communities that have traditionally been boxed out of the investments needed to help spark economic growth. We are doing our part to invest in our communities because we know that banks can’t continue to grow future profits unless we help to grow wealth across the board. We anticipate that the seed loans we provide to entrepreneurs of color will help generate wealth that returns dividends for decades to come.”
Applicants will be reviewed using a “community-based” underwriting process that is designed to see past low credit scores, a lack of personal collateral or other historic barriers faced by entrepreneurs from low-income communities.
“This virtually risk-free community investment will be a great win-win for everyone and go a long way towards bridging the seed funding gap for minority entrepreneurs,” The Runway Project founder Jessica Norwood said in a statement.
