Build Business Better: Why Solopreneurs and Startups Should Choose Community Banks for Good
Where do you put your money?
In my experience, small business CEOs and founders fall into one of two camps with money. We're either the operations/project management-type, allotting for every dollar, or the creative/strategist-type, worrying less about the price of stickies and more about what's written on them. Depending on the day, you may have to be one or the other.
If you're lucky, you have the cushion to ignore the finance details and stay focused on the big picture. Regardless of your attitude to risk, debt, or your P&L, it's possible you haven't given where you bank or your credit card choices much attention. (Privilege plays its part here, but let's table that...for now.)
Despite what pro-capitalists will tell you, there isn't just one right approach to handle finances, nor is there only one business model you must adhere to. If you consider yourself a social entrepreneur, an anti-racist, sustainability and equity advocate, you already think differently and prioritize social and environmental impact over profit.
To be authentic in your "business for good" leaders must be holistic and transparent with money above all else. Yet, only a fraction of bigger companies voluntarily track EEOC data. Transparency is hardly their strong suit.
What drives your choice in where you bank? Here is is one area everyone can affect the global economic system. We must literally put our money where our mouths are, and move it to small, local, independent banks.
In this Inflation Nation, we have to look beyond interest rates when deciding which bank to deposit checks and run payroll from. Don't be fooled by headlines that "small banks are failing." Your money is insured up to $250k, and your safer at a local community or black owned bank-and better yet, at a credit union.
Does it matter who holds your hard-earned revenue? Absolutely. This should be your first big money move as a founder after you incorporate or set up your LLC.
Why? Because, climate change.
“In the six years since the adoption of the Paris Agreement, the world’s 60 largest private sector banks financed fossil fuels with USD $4.6 trillion.”
A Small Money Move Makes a Big Impact.
Why I bank with credit unions, reason #749
More reasons I choose to bank as much as possible with Local Banks and Credit Unions (CU's) include:
Local Banks and CU’s DO NOT fund big oil.
Local Banks and CU’s DO NOT kowtow to conservatives.
Local Banks and CU’s DO NOT use my money as a loan for the 1%.
“The four largest US banks (Bank of America, Chase, Citibank, and Wells Fargo) poured more than $210 billion into the fossil fuel industry in 2019 alone, accelerating an already dire climate crisis.” Bank for Good
Local Banks and CU’s DO NOT hurt the climate.
Why being choosy about your banking matters?
The report "Banking on Climate Crisis, Fossil Fuel Finance report, 2021" shows how U.S. banks are tiny in comparison to other state banks like China but "they disproportionately bankroll fossil fuels." Not only that, Citibank is just one example of these Big Banks seeking investments to expand extracting fossil fuels, increasing petroleum production.
Check out this report. It really does a thorough job of explaining the connection.
Who do Big Banks love help out first in an economic crisis? The little guys? We wish!
Who does the government send money to first in an economic crisis? Big Banks.
Big Banks gave preferential treatment to their wealthiest clients and large businesses through the Paycheck Protection Program.
It wasn’t until credit unions, community banks and online lenders were added to the Small Business Administration’s roster of financial institutions that the loans flowed to those in most need. The importance of the community-focused lenders such as community development financial institutions (CDFIs) became so apparent that when the PPP portal reopened at the beginning of 2021, CDFIs were granted an exclusive access period. As of June 2021, these institutions have deployed close to $15 billion in PPP loans. – Glaring omission in climate policy: Community financial institutions - The Hill
Need another reason to bank small? Big Banks do NOT care about small businesses or solopreneurs.
Local Banks and CU’s saved small businesses during the Pandemic and until their help, small businesses received virtually zero federal money from the CARES Act and PPP.
They also flagrantly discriminate with lending and racial profile those who need their money fast. Big banks have a big racism problem which harms loyal customers like this gentleman, grieving a parent, and simply trying to cash a check for funeral expenses.
Despite large U.S. banks being tiny compared to other global banks, such as those headquartered in China, they disproportionately bankroll fossil fuels. It was these same banks that gave preferential treatment to their wealthiest clients and large businesses through the Paycheck Protection Program that emerged to help businesses sustain the economy.
What's worse? Billionaires who claimed massive tax deductions qualified and took PPP loans. Don't be fooled.Only SOME of them returned the money and acknowledged the error, when the media called it out.
"ProPublica found 270 taxpayers who collectively disclosed $5.7 billion in income, according to their previous tax return, but who were able to deploy deductions at such a massive scale that they qualified for stimulus checks. All listed negative net incomes on tax returns."
The wealthiest Americans reported negative income (pure B.S. tax razzle dazzle) which led to more negative outcomes for small businesses, negative impacts on our planet, and greater wealth inequality. Federal money was passed back and forth through Big Banks, and they keep on doing it now.
Our broken financial system affects the same communities bearing the burden of ecoterrorism.
What's also not a shocker? The Federal Government Supports Big Banks.
Our representatives prefer big banks with consolidated power, despite the incredible impact credit unions and local banks can have for small businesses.
If the companies who invest and bank with the places that support fossil fuels, they are creating a bigger opportunity for banks to fund and loan to big oil.
This data viz (above) shows how money flows and how much interdependency their is between these banks, fossil fuels, and wealthy people.
Guess which sector is most involved in funding Big Oil due to volume?
Big Tech.
It's not just your banking choices that impact carbon emissions. It's companies you use everyday to get work done in a capitalist society. Tech Companies are the biggest contributors to climate change, but not necessarily with their own operations.
“For some of the world’s largest companies, including Alphabet, Meta, Microsoft, and Salesforce, their cash and investments are their largest source of emissions. In fact, for Alphabet, Meta, and PayPal, the emissions generated by their cash and investments (financed emissions) exceed all their other emissions combined.
That means for a company like Microsoft, in 2021 the emissions generated by the company’s $130 billion in cash and investments were comparable to the cumulative emissions generated by the manufacturing, transporting, and use of every Microsoft product in the world.” https://www.carbonbankroll.com/
Let's consider how our individual money impacts this mishegaas. Example, I pay $30/month to LinkedIn, owned by Microsoft. I do so through the App store so no doubt Apple takes 30%. For $20, I get shadow banned whenever I try and make a living or post about work.
Linkedin wants me (all of us) to buy Ads to boost my post. Somehow, most of my Big Tech, Big Bank, and Big Oil posts get 1/4 of the impressions (I can't imagine why?!) As a result my engagement goes down after each one for weeks till I build back up with more banal content. Meanwhile they use my money to loan to a bank like Bank of America who loans it to Exxon. Sweet, right? FML.
"Researchers selected the companies featured in this report to illuminate the magnitude of corporate cash and investment emissions and to highlight how companies’ climate accomplishments are being undermined by a misaligned financial system that is channeling hundreds of billions of corporate U.S. dollars into the carbon-intensive sectors driving the climate crisis.
...A comprehensive breakdown of the methodology used to calculate the emissions each company’s banking practices generate can be found in the Appendix."
“Banks play a foundational role determining our climate and economic future by taking short-term money and investing it in long-term infrastructure. Presently, too much of that infrastructure is furthering the climate crisis. The longer this situation persists, the more challenging it becomes to achieve global climate goals. As a result, by passively enabling their cash and investments to finance carbon-intensive sectors and infrastructure, companies have been unintentionally funding a future they are working tirelessly to avoid.
Need more reasons to move your money and bank small?
Conventional banking has not worked for businesses led by anyone other than those led by white men. PPP loans stats proved this beyond a shadow of a doubt. By design, using Big Banks also contributes to systemic racism and wealth inequality because you are supporting inequitable institutions and because climate change and pollution impacts Black and Brown communities much more than white communities.
"So you have a big idea, you start your business and you want to take this fledgeling product to the next level. Typically, you’d go through a “standard” funding journey. First, you’d turn to your closest allies for the friends-and-family round where they can support you before you’re able to prove yourself to creditors or funders. After that, you either turn to the traditional financial system for a loan, or to venture capital firms for backing." –– Cristina Díaz Borda
But, we know this doesn't work for the 98% of white women and 99.9% of Black women who do NOT get VC funding. Not only are they looking at speed to get money to those who need it, using local banks and credit unions. They're exploring a different lending model based on character, not Credit Scores, another racist and sexist part of finance.
In addition to Common Future, Policy Link has explored the impact of bank access and predatory lending on Black and Brown communities. It bears repeating here that a lack of inclusive financing is one more reason to skip these banks. Climate, racial, economic, and gender are inextricably linked.
It is not going to get better unless people take bigger moves to halt climate change. As they point out in "There’s No Cheap Way to Deal With the Climate Crisis-Warming will bring enormous economic costs."
“We’re going to be burning money just to adapt...Just the status quo is going to start costing us more.”
They are the penultimate capitalists: making money off the poor, people of color, and incarcerated people.
Six banks – Bank of America, JP Morgan Chase, BNP Paribas, SunTrust, US Bank, and Wells Fargo – have provided major financing to the two main private prison companies, helping them expand, diversify the ways they profit from imprisoning people, and lobby for harsher criminal penalties and stricter enforcement of immigration laws.
For people in low and moderate income (LMI) households, financial and economic data shows the lack of access to banking has compounding effects.
Being poor is g.d. expensive. Knowing this doesn't do much for poor people who still have roadblocks keeping them broke and oppressed.
"Those with low- and moderate-incomes face numerous barriers to accessing regulated, low-cost, financial services that could improve their financial footing."
Predatory lending practices ensure that poor people, (1/2 are people of color) pay BIG TIME in some way, especially with banking access.
Some of Big Banks tools tricks include:
giving loans people can't afford (especially before the 2008 housing bubble burst)
late fees for credit cards, SaaS platforms, mobile phones
reconnection/ reinstatement fees
fees for overdrafts.
A Word About Late Fees.
PLEASE explain to me how this system has been in place so long? Only in the last decade is Congress even talking about this.
Why do those who run out of money get charged more money to then be further out of money?
Example: My credit card autopay was declined. My bank (a local credit union mind you) charged me $10 for the 1st attempt to pay, $10 for the second...before I even knew anything was amiss. When I had more money in my account, those fees were either covered or only $2, but when I am month to month, thanks to clients Net-45 and paying my people on time, I am out fees constantly. Society shames people who can't pay bills on time as if we don't want to or have a mental deficit that means we are less worthy, and charges us a tax for our "stupidity" or inability to make things work. Of course, the opposite is true. Their stupidity led to the belief that poor = lazy or incompetent. We are smarter and more resourceful with money. We understand The Economy better than a NY Times Economy "expert." Being wealthy does not make you wiser, but it does make you healthier.
Big Banks are notoriously opportunist and racist.
If people can't get approved for traditional banking, they remain unbanked or underbanked.
unbanked: no member of the household has a checking or savings account
Low credit scores and low cash flow forced the unbanked into AFS, alternative financial services (AFS) which include:
underbanked: someone in the household has an account, but they still rely on high-cost AFS
check cashing, payday lending
pawn shop loans, rent-to-own
Buy now, pay later (BNPL)
Big banks are incentivised to be predatory because it's more lucrative. Poor customers pay fees instead of building up a savings, (with AFS options charging up to 400% APR.)
"In 2017, the unbanked and underbanked LMI populations, and those with little or no credit history, spent more than $173 billion in fees and interest for AFS."
Americans unbanked and underbanked include:
63 million adults
47% Black households (nearly 1/2!)
43% Latina households
More than half (54%) of [those in poverty] are people of color.
Almost 1/3rd (96 million) of adults live on income of 200% below the federal poverty guideline (which is not even a good guide. It's an outdated metric never intended as a long term usage and keeps people working at jobs with unlivable wages.
The above May 2021 report "follows up the Asset Building Policy Network’s (ABPN) 2014 Banking in Color" and looks into the experiences within LMI communities of color with financial institutions.
Last but not least, "Banking for Good" is Good for Your Health. Mainstream financing is not.
Fringe borrowing, as noted in "Health Affairs" From Payday Loans To Pawnshops: Fringe Banking, The Unbanked, And Health does not require credit checks...which immediately places the person borrowing in a precarious position, used for an emergency that quickly balloons when that loan's APR is 400-600% of the balance.
Not surprisingly this is terrible for your health, where fringe loans were "associated with 38% higher prevalence of poor or fair health, while being unbanked (not having one’s own bank account)" increased the prevalence of poor/fair health by 17%.
As Health Affairs noted, the solution is not to fix the impacts from poor health but to address systemic inequality by "expanding social welfare programs and labor protections would address the root causes of the use of fringe services and advance health equity."
More than this, the United Nations and World Bank predict that there will be between 140 and 200 million climate refugees by 2050 as continued warming leads to increasingly frequent and intense natural disasters.
A recent report from the APA (American Psychological Association) published in October 2022 shows just how much of a wreck our country is financially.
"Money is causing stress for 72% of Americans," and this doesn't account for those without digital access. The virtual Harris Poll survey was conducted in English and Spanish on behalf of the APA.
Americans who are already the most underbanked and underfunded, who don't speak English or Spanish, or who have no wifi were left out. Missing huge swaths of the population relevant to this data is why we can't have nice things. 72% is probably low.
Per a different study from Bank Rate & Psych Central, "42% of U.S. adults say that money negatively impacts their mental health."
If we continue to claim that Big Banks (fueled by Big Tech, Big Oil, and an even bigger military budget) can solve our financial woes, we are ignoring more than one elephant in the room.
We cannot "build business for good" if we ignore the negative social and emotional impacts that a lack of banking and finance options can cause. As the same study, whose takeaways feel suspiciously conservative observed,
"Everything from dealing with debt to managing money was linked to a decline in psychological well-being, leading to such outcomes as anxiety, stress, worrisome thoughts, loss of sleep and depression."
What can you do about it?
A lot, actually, but not through less Starbucks or saving more. Systemic economic inequality cannot be fixed overnight. Remember how Bernie was always ranting about "breaking up the banks"? This is why.
Still, there are policies you can support and money moves you can make IF you have some, especially if you are a small business owner and social entrepreneur.
1. SUPPORT those who use "CHARACTER BASED LENDING."
"Conventional banking hasn't worked for businesses owned by people of color. But a new network is designed to get money flowing fairly to BIPOC economies."
Why? Credit scores are racist.
This makes it easier for Big Banks to be racist when it comes to lending for small businesses and home mortgages.
While banks pay out a few hundred million to make racial discrimination lawsuits disappear, we need systemic changes to the way banks finance communities already impacted more by pollution and climate change. It predicates the need to change not only using big banks, but the lending practices themselves that still impact Black and Latina families at credit unions (by far less).
2. MOVE YOUR MONEY. Think small, local, and Black-owned.
Where can you bank instead?
Community banks: Where we bank matters
3. EDUCATE YOURSELF AND OTHERS about the dangers of BNPL and other predatory lending.
It's not easy! For more on why it's hard to escape Big Banks, read the report below: Breaking up with Bad Banks-from ACRE (Action Center on Race and the Economy)
Conclusion:
Put your money where your morality is.
If you care about the climate and systemic wealth inequalities due to systemic racism...move your money elsewhere and dig in DEEP to what the companies you support are doing with your money.
Seek alternative financing, avoid debt, especially VC money that forces a quick exit. Keep your budgets and compensation structures transparent. Prioritize people and planet over profit by taking your money out of Big Banks and investing more in Black businesses and keeping your money in Black-owned banks and coops.
Founders make a million decisions all day, often stretching a bank accounts and our bodies beyond capacity. One decision I have always felt great about? Being a member of a local Credit Union, and not just a consumer, feels good, confident I am doing business differently where it starts: money. We can't stop capitalism, but we can stop financing is at scale. Bank small; Collectively our small moves can make a big impact!
Ask anyone who has ever struggled to pay rent or build a business. Money is stressful and emotional. Pretending it doesn't exist is what the Big Banks are doing with climate change. We can do better than throwing up our hands. Make a plan at BankForGood.org. Find your bank, set a date, and start moving your money. Not ready yet? You can sign up for reminders to do it in the future. A budget is more than some numbers on a spreadsheet. It's your story. What will your story be?
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