Illinois is encouraging entrepreneurship by providing high-potential minority and women entrepreneurs with access to elite business leaders and preferential lending arrangements. Participants are selected based on their Entrepreneur Viability Score, a system developed by Illinois in partnership with Gallup to measure entrepreneurial potential. They undertake a six-week business education course, receive access to a mentor from their area of expertise and are connected directly to microlenders and financial institutions.
Results & Impact
The program, Advancing the Development of Minority Entrepreneurship, aims to spur job growth and business expansion in deprived communities. It will be evaluated at the end of its first year by the Illinois Department of Commerce and Economic Opportunity to determine its effectiveness. If the scheme is successful, it will be rolled out across Illinois.
Illinois Department of Commerce and Economic Opportunity, Advantage Illinois, Intersect Illinois, Minority Economic Development Council, Illinois Diversity Council Community Partners
Applicants for the Advancing the Development of Minority Entrepreneurship (ADME) program are assessed and selected on the basis of their entrepreneurial potential. This is determined through an Entrepreneur Viability score, a metric designed by Illinois in partnership with Gallup. It is based on Gallup’s BP10 assessment, which identifies individuals’ potential to build and run businesses by scoring them on 10 personal traits deemed to be the characteristics that determine entrepreneurial success. Additional questions are also included in the assessment, which when combined with the BP10 test, gives a score between zero and 100. Those with the highest scores are selected to take part in the program. Participants undertake six to eight weeks of business coaching run through Illinois’ small business development centre. The sessions, delivered in groups of approximately 15 people, give an overview of how to run a business, including marketing strategies, financial planning, customer relations and managing human resources. After completing the course, participants are paired with a business mentor with experience in their industry who provides one-to-one guidance on an ongoing basis. ADME also delivers direct access to funding by connecting participants with community development organisations and microlenders. The state helps lenders and entrepreneurs reach a funding arrangement, both by interceding on behalf of the ADME applicant and by offering to share the cost of loans. Lenders participating in the ADME program are eligible to receive up to 50% of the loan amount from the state, up to an amount of $400,000.
Ethnic minorities, entrepreneurs, women
Cost & Value
It was difficult for program coordinators to determine whether the mentors and entrepreneurs paired together would develop a personal rapport, which is necessary for the process to be effective. Persuading financial institutions to lend to ADME participants was also difficult. When lenders agree to act as partner organisations, they are not required to commit to funding ADME participants. While there was an understanding that these groups would lend on the basis of character and adopt a more flexible approach when assessing candidate's financial backgrounds, this was not always the case.
Illinois has launched a business incubator for high-potential minority entrepreneurs to drive job growth in deprived communities.
The scheme selects entrepreneurs on the basis of their individual potential and provides them with six to eight weeks of business training, a mentor with experience in their field and preferential access to state-linked financial institutions.
“We realised that there had been a history of a lack of support for minority communities as far as small business owners and entrepreneurs were concerned,” said Marcus Yancey, Deputy Director of the Office of Minority Empowerment at Illinois Department of Commerce and Economic Opportunity (DCEO).
“We looked at opportunities where the state could step in and create an ecosystem for them to be successful and thrive. The hope was that these entrepreneurs and business owners could go back into their communities with some of the knowledge and resources that we provided and open up businesses, hire from their community and help reduce some of the unemployment rates that we see here at the moment,” said Yancey.
The Advancing the Development of Minority Entrepreneurship Program (ADME) is an attempt to harness the growth of Chicago’s technology and business community to help minority and women entrepreneurs develop their own businesses. Chicago has seen one of the highest rates of tech sector growth in the country: tech jobs in the city grew by 35% between 2010 and 2015, putting Chicago ahead of New York and Los Angeles.
Launched this year, the pilot program is being run in three cities across Illinois (Chicago, Peoria and Rockford) with the aim of identifying and supporting high-potential aspiring minority and women entrepreneurs. Participants range from business owners turning over more than $800,000 per annum to individuals looking to launch new enterprises.
To discern the highest potential entrepreneurs, program organisers partnered with Gallup to develop an Entrepreneur Viability score, which is the primary means of assessing applicants. Based largely upon Gallup’s BP10 assessment, it stems from the idea that entrepreneurial success depends on psychological factors which individuals either possess or they don’t. Gallup’s BP10 assessment tests individuals’ abilities in 10 competencies deemed critical to success in business. These results are supplemented by additional competency questions developed by the state in partnership with Gallup. When combined with the BP10 assessment, the process produces a viability score for each entrepreneur with a value between zero and 100. Applicants with the highest scores are selected to participate in the program. For ADME’s pilot, 35 business leaders were selected to participate out of 100 applicants.
“Whether you’re a Fortune 500 CEO or you’re a small business owner, all entrepreneurs have these 10 innate qualities within them,” said Yancey. “We basically look at the top 15 in each area who score very highly showing that they have the potential to be entrepreneurs and create jobs. That was the most important thing: people that could go out and create jobs.”
The course itself consists of a six- to eight-week training program delivered through the Illinois Small Business Development Centre. The curriculum was designed specifically for the ADME program and aims to give participants an understanding of all key aspects of building and running a business. Delivered through workshops with approximately 15 people, the sessions focus on marketing strategies, financial planning, customer relations and managing human resources, among other things.
The training course also provides an opportunity for ADME leaders to assess entrepreneurs’ abilities in more depth and understand the areas of support they are most in need of, with a view to assigning them mentors who will be most useful.
Personal business mentors are assigned once the participant has completed the training course. They are selected based on the relevance of their experience, industry knowledge and ability to provide practical, ongoing guidance. The mentors provide advice specific to the participant’s industry and make connections to other influential business figures. The point is to build relationships that outlast the program and can be useful in the long-term.
“From the mentor’s perspective, it’s about helping participants avoid some of the mistakes they ran into being an entrepreneur. It’s about saying, ‘I’ve been doing this 10 or 15 years, here are some of the contacts that I have – let me share them with you’,” said Yancey.
One key element in making the relationship between mentor and entrepreneur work is partnering mentors with participants who have businesses of similar sizes.
“Partnering someone whose business is only turning over $100,000 per year with a mentor whose company is making $50 million per year… the gap is just too wide,” said Yancey. “There is a lack of connection. We wanted to make sure they were as closely aligned as possible so that mentors understand the same concepts.”
Although external organisations were drawn on to source some mentors, they were selected primarily through the connections of ADME administrators.
As well as opening doors to people, ADME makes capital more accessible. After completing the training process, entrepreneurs are connected directly with a partner financial organisation based on the amount they are looking to borrow. These are primarily non-profits and microlenders, and include US Bank, the Women’s Business Development Center and Chicago Neighbourhood Initiatives Micro Finance Group, among others.
Although there are no specific lending requirements for financial institutions who agree to be partner organisations, the understanding is that they will look more sympathetically at ADME participants. They are asked to focus on the individual’s character and their business’s value to the community, rather than base the decision to lend entirely on the applicants’ financial history.
“Character lending is totally different to running a matrix on a business looking at credit rating, collateral and cash flow,” said Yancey. “Character lending is really understanding the viability of this business to the community. They are able to truly understand what our applicants have been through. When you couple that with their financial history, we would hope that the financial institutions would be more enticed to lend to those individuals.”
By linking entrepreneurs with financial institutions, the program aims to help businesses overcome one of the biggest barriers in minority communities: lack of access to capital.
“A lot of microlenders don’t have brick and mortar buildings set up within these neighbourhoods, so they have trouble finding people to lend to,” said Yancey.
In some cases, completing the ADME training program and being connected to financiers through the scheme has helped participants get loans with less stringent requirements than they would otherwise have faced. Nevertheless, it is up to the lender to set the requirements for each loan – and they are free to turn down any request.
This process is assisted by the Community Reinvestment Act, which requires banks to provide funding for underserved communities in their districts. Failure to do so can negatively affect their chances of opening new branches or being granted other legal requests.
“With the ADME program having close to 100 participants, we are able to have a conversation and actually shop deals as well – because it assists them to be able to hit their numbers in lending to minority and underserved communities,” said Yancey. “So it’s a win-win for everybody.”
In addition to making the introduction, ADME officials are on hand to support the entrepreneur throughout the loan application process. They can advocate on participants’ behalf, or even share the costs of the loan with the financial institution. As part of the ADME scheme, the state is able to draw on its Advantage Illinois program, which provides financial assistance to lenders supporting minority business owners and communities. Under the scheme, Illinois can share as much as 50% of a loan, up to a total limit of $400,000 across the entire ADME program. This sum is paid to the bank up front, while the repayment rate is just 2% for the entrepreneur on the state portion of the loan. The aim is to help close loans where the participating lender is hesitant or the applicant does not quite meet the criteria.
“We’ve provided 50% of the loan payment up front to clear some of the obstacles that these individuals ordinarily face,” said Yancey. “Sometimes there will be a situation where the applicant’s credit score may not meet the criteria, their collateral or their cash flow may not meet the criteria. So the lender may say ‘We want a bit of assistance from the state to get this loan done’.”
Participants are made aware of the potential for state contributions to the loan, but it is up to the financial institution whether they choose to request state assistance. The only restriction from Illinois’ perspective is the amount of money it has to lend.
To participate, entrepreneurs must be 21 or older, a US citizen and either a woman, ethnic minority, disabled person or a veteran. In addition, all participating businesses must turnover less than $1,000,000. Participants’ businesses cover a variety of different sectors, including tech startups, food outlets and retail enterprises.
The pilot is set to be assessed by the Department of Commerce and Economic Opportunity (DCEO), which will measure its impact on job creation and participating businesses’ revenue. If the scheme is successful, the DCEO hopes to roll it out across the state as a whole.
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