The American promise is one of equal opportunity, but in most of our communities today, access to the resources that enable prosperity are too far out of reach.
That’s because there is one unseen factor that influences who is able to thrive and who cannot: capital. The flow of capital into communities has a dramatic effect on which kind of people can open small businesses, buy homes, and generally participate in the American Dream.
Places that are already thriving are able to easily access capital. Banks see these neighborhoods as a “safe bet” and will readily support the opening of new businesses, construction of new homes, and mortgage lending. But those places that are struggling—and have been struggling—do not receive the same treatment. These are the inner-city neighborhoods, the rural communities, and the suburban areas that have been abandoned.
There are some capital options for these under-resourced communities. Nonprofit and community banks offer concessionary loans, and government grants help fill gaps. For example, the Bipartisan Infrastructure Law helped drive $28.3 billion in federal grants to over 1,500 cities, according to the National League of Cities.
But this is not enough. We need a different way to think about capital to drive the prosperity that has been out of reach for too many for too long.
THE 3 TYPES OF CAPITAL
Decades of redlining, exclusionary lending, and the uneven distribution of government funds have created entrenched divisions in American communities. Despite legal reforms, barriers to capital still persist, including higher burdens for lending placed on marginalized groups, discrimination against those groups, and capital providers simply not showing up for these places. Over 12 million Americans live in a “banking desert,” with no bank close by. These deserts are rural and urban, but also overwhelmingly suburban: two thirds of banking deserts are in suburban areas.
Overcoming these barriers is not as simple as getting more money out to communities that need it. Communities need ways to not only absorb the capital, but use it. Offering money is not enough; the dollars must be combined with expertise and knowledge to help get it to the people who actually need it.
At Living Cities, we have identified three different types of capital that lead to prosperity:
1. Financial capital: Funds, credit, and investment needed to start businesses, buy homes, and generally support community growth. Systemic gaps in creditworthiness, collateral requirements, and bias in financing limit the spread of financial capital.
2. Social capital: Networks of trust, mentorship, and informal connections that open doors to opportunity.
Research shows social capital is strongly associated with upward mobility and improved economic outcomes, with limited networks leading to lower rates of entrepreneurship and employment. Not all communities have equal access. Decades of segregation and underinvestment have eroded social infrastructure in marginalized neighborhoods.
3. Knowledge capital: Information, skills, and know-how required to navigate business, government, and civic systems.
When you have financial capital, but lack knowledge of regulatory systems, market trends, and grant opportunities, the capital can’t get to where it’s most needed and most effective. Knowledge capital is a multiplier: pairing capital with business training or legal literacy increases success rates for entrepreneurs.
THE “CAPITAL EQUATION” IN ACTION
Only when all three types of capital come together can the cycle of exclusion be broken. Offering only one isn’t enough.
For example, small business programs that blend loans (financial), local business incubators (social), and technical training (knowledge) see higher success rates than those providing only cash infusions. Our Breaking Barriers to Business cohort is leveraging all three types of capital to create and execute projects that create jobs through hands-on small business assistance.
Cities should audit procurement, zoning, and economic development policies to identify the gaps in all types of capital access, not only financial capital. Any federal and philanthropic interventions should require grantees to demonstrate not only financial investment but strategies for bridging social and knowledge capital divides.
TOWARD INCLUSIVE GROWTH
Equitable capital flow is about more than headline numbers. It’s about shifting the deeper patterns that determine who gets to build the future. By understanding and reshaping capital flows, cities can fire up new engines of shared prosperity.
Joe Scantlebury is president and CEO of Living Cities.
