A case in which a Madison non-profit organizer accused Forward Community Investments (FCI) of racial and economic bias raises important questions about how lenders should treat low-income borrowers of color.
On July 16, 2016, Felicia Davis met with two loan specialists from FCI and requested a $250,000 loan in order to purchase a facility to house a daycare center. As someone who lived homeless in Chicago for seven years, Davis told YGB that her dream was to provide a safe place for under-resourced youth in Madison.
“Identifying a location inside the community, providing youth programs and creating community involvement through the participation of the residents is vital to the transformation that is needed in the Brentwood Neighborhood,” Davis wrote in a questionnaire response to FCI.
While Davis lacked a significant funding base, she had a successful track record of providing quality care for children. Within two years, Davis said her non-profit was serving 60 youth on Madison’s north side, providing academic and career support at the Warner Park Community Center, the organization’s temporary base.
From the get-go, Davis believed that she was going to receive a loan from FCI to make her vision of owning a physical space for her own community center a reality. After a site visit on August 3 that FCI described as "wonderful," FCI provided Davis with a Letter of Interest on October 7, stating that FCI may “potentially provide financing to purchase a suitable building for daycare expansion of DSS, contingent on it meeting [certain criteria].”
Although things were looking bright for Davis, they quickly turned sour. In a meeting with FCI staff on April 24, 2017, Davis told YGB that she was asked to provide a guarantee that 50% of her budget was already being provided by other lenders. As a low-income owner of a non-profit, Davis did not have these financial resources.
FCI, which lists racial and economic equity as one of their top priorities, says on their website: “At FCI we believe that racial equity exists when people of color are able to fully participate in the political, cultural, and economic decisions of their community [and] are guaranteed fair treatment and access to the opportunities necessary to satisfy their essential needs, to advance their well-being, achieve their potential, and realize their vision of success.”
To Davis, FCI failed to realize this mission. As a woman of color without sufficient funds, she felt that she didn’t receive “fair treatment” due to her low economic starting point and her skin color as well.
“You sit in my face and you tell me that you don’t wanna help me because I don’t have a million dollars in the bank?” Davis told YGB. “And you claim that you believe in racial equity, social justice?”
In a letter sent on April 2, 2017, Salli Martyniak, the president of FCI, conceded that her organization made mistakes in communicating with Davis.
"What did we do wrong? Lots!", she wrote. "We didn't tell her 10 months ago that this funding plan was not good for either FCI or DSS...we should have told her that we would consider a gap loan if she wasn't able to raise all of the money prior to opening...[additionally], we didn't help her with solid advice about running a daycare center. This would have been a perfect place to ask our credit analyst, Jenn Wendtland, to sit in on a meeting a talk about daycare centers and what a solid budget should incorporate."
However, in an interview with YGB, Martyniak defended the organization’s decision to have strong capital requirements for awarding loans.
According to Martyniak, FCI regularly ensures that a company has sufficient financial reserves - whether in cash on hand or through pledges for loans and grants - before awarding loans. This practice is an attempt to maintain low default rates among FCI’s loans, something that Martyniak says is essential to pleasing its philanthropist donor base.
Due to FCI’s capital requirements for receiving loans, Martyniak said that Davis would be better off seeking other sources of funding like grants, which FCI awards at $3,000 per month to smaller and less financially stable organizations.
“The last thing that we want to ever do is to provide a loan, to provide a debt, to a non-profit that cannot afford to maintain that debt, to pay us back, or to really be a sustainable non-profit,” Martyniak told YGB. “Because, if they’re not successful, it’s not just a matter of the fact that we don’t get paid back - the fact is that we’ve seen non-profits go out of business and we’ve seen what that does to the community and the people that they’re serving.”
This response seems inadequate to Davis, who notes that under-resourced organizations often go out of business because of practices that discriminate against those with less financial backing from donors, investors, and organizations like FCI.
The case of Davis and Martyniak raises important questions about how we should view lending as a society. How do we provide financial opportunities to those most at risk like Felicia, while also allowing organizations like FCI to be fiscally responsible and satisfy their donors? How can we level the playing field for loan access without leading to high default rates for lending agencies?
Perhaps the solution lies in organizations like the Madison Alliance for Black Economic Empowerment (MABEE), which grants tens thousands of dollars in low-barrier grants to low-income entrepreneurs of color every year. It may also lie in affordable governmental assistance to emerging non-profits, financed through tax dollars. Or perhaps the solution is a policy or initiative that no one is discussing.
We at YGB are trying to answer these questions as well, and we are trying to find ways to help out low-income people of color like Felicia Davis.