When Bacary Diatta moved from Senegal to the United States in 2018, he knew he wanted to start a business that would add value to the market and help him support his family.
With the help of some local mentorships, as well as his background working in nonprofits and international trade in Senegal, Diatta launched his company Kassumay LLC in 2020 with help from Hope & Main, the local culinary business incubator. Through Kassumay, which means peace in the Jola language that is spoken in parts of Senegal, Diatta produces jams and drinks made from hibiscus flowers.
“Preparing food is something that I know, and the hibiscus flower is my passion because we grew it back home in West Africa,” Diatta said.
While Diatta was enthusiastic about his budding venture, one thing stood in the way of getting it off the ground: money.
“Accessing capital is the most stressful thing,” said Diatta, noting that he needed $25,000 when he first opened Kassumay.
Diatta says he took on a part-time job at a warehouse but struggled to get loans because he lacked a credit history in the U.S. Though eventually he was able to get $15,000 from the Center for Women & Enterprises Inc., as well as a total of $10,000 in cash advances for which he owed more than $18,000. Diatta says he has also received generous support from the Rhode Island Black Business Association and Social Enterprise Greenhouse, which were crucial in keeping his business afloat.
But even now, after building his credit score and growing Kassumay to occupy shelves in local markets and major retailers such as Whole Foods Market Inc., Diatta says he still faces challenges with accessing capital.
“It’s not different,” Diatta said. “I thought it was going to be different if I built my business and people were still interested, but I’m in the same situation; access to capital is still a struggle.”
Diatta is not alone, as a recent study conducted by Goldman Sachs 10,000 Small Businesses found that 78% of small-business owners were concerned about their ability to access capital. The study also showed that 85% of small-business owners said if access to capital remains a challenge, it will affect their plans for growth.
This is something that Rick Simone, president of the Federal Hill Commerce Association, has heard from members as he’s noticed a decline in businesses opening or expanding.
Simone says rising interest rates are one of the primary reasons for this slowdown among small businesses.
Since March 2022, the Federal Reserve has raised its benchmark interest rate 11 times to reach a 22-year high of 5.5%-5.75%. While these rate hikes were meant to address fast-rising inflation, they also made it more expensive to borrow money.
On top of this, Simone says business owners he’s spoken with have noted that banks are asking them to offer more collateral and are enforcing stricter requirements to take out a loan. Some banks, he says, are setting minimums on the loans they give out and asking borrowers to follow more-stringent payment schedules.
Jeanne Lapak, executive vice president and chief commercial banking and lending officer at BankNewport, agrees that rising interest rates are affecting affordability, adding that the tightening of lending standards stems from the pressure banks are under.
Lapak notes that coming out of the COVID-19 pandemic, banks’ balance sheets were flooded with deposits. But for some banks, it’s been a struggle to retain deposits as interest rates rise because customers look to put their money into higher-yielding products. As a result, banks are clamoring to maintain their liquidity.
“Liquidity had never really been an issue for businesses or for banks for a long time, but now banks are really fighting for deposits to make sure that their balance sheets stay in balance,” Lapak said.
Further, the study found that challenges in accessing capital have been even greater for minority-owned businesses. In the past year, 43% of Black and 31% of white business owners applied for a loan or line of credit, according to the study. But only 26% of the Black business owners reported receiving all the funding they requested, compared with 51% of white small-business owners.
When deciding to give out loans, Lapak says banks typically consider a business owner’s ability to repay, which is based on revenues and cash flows, as well as collateral as a secondary form of repayment. But several national studies showed that minority-owned business owners have more difficulty satisfying those requirements.
“We work really closely with our borrowers to really understand their business and particularly when it comes to minority-owned businesses, we see that a lot of them can use additional support because they may have a shortfall in collateral or profitability,” Lapak said.
To help these businesses, Lapak says BankNewport leverages government and nongovernment programs.
Amid these ongoing challenges, Diatta says he is optimistic, even though he is still seeking approximately $120,000 to help fill orders and export products to countries such as the Dominican Republic – where he has recently made a deal while on a trade mission that is expected to generate $2.2 million in revenue.
“I have struggled, but I will say it’s a kind of good struggle,” Diatta said. “People want the product; I just need to find the money to manufacture.”
