Black-owned businesses are twice as likely to be turned down for loans. Is this discrimination? | Gene brands
AAccording to data recently made available by the U.S. Federal Reserve, more than half of businesses that have black owners have been turned down for loans, a rate twice as high as white business owners. The report found that while black-owned businesses were the most likely to have applied for bank financing, less than 47% of those applications were fully funded. Even when black business owners are approved, their inability to receive full funding rate is the highest of any category by over 10%.
The bad news doesn’t end there. The report also found that black-owned businesses were the group most likely to have applied for a credit card and to experience the highest refusal rate. For those who applied for bank financing, a smaller proportion of black and Hispanic-owned businesses received loans of $ 100,000 or more compared to other ethnic groups.
Is this discrimination?
Absolutely. Galen Gondolfi, a senior loan adviser at a nonprofit that helps small business owners create credit, recently told NPR’s St. Louis Public Radio: them ‘, but [also] the types of businesses that are unique to these populations. “
But discrimination is not the only reason. There are other factors that make bankers think twice when considering a loan to a black business owner.
Dell Gines, senior community development advisor with the Federal Reserve Bank of Kansas City, believes that the lack of intergenerational wealth and “insufficient knowledge” of the banking system are also significant obstacles. “Let’s say, hypothetically, that there is no discrimination in the banking industry, we would probably still have disparate results because the system itself did not prepare us to use the banking system effectively,” Gines said. , which is black. “Then when you overlay the levels of discrimination that the research has shown … when you combine those two, that’s why you see these kinds of disparate results.”
Confidence, or lack of confidence, also plays a role. The Federal Reserve report found that one in four black businesses said they gave up on applying for credit, with 56% of those businesses saying they didn’t want to rack up debt and 60% saying they thought they would. refused if they applied.
There is no doubt that while the share of black-owned businesses has increased over the past decade, it is even more difficult for these businesses to obtain financing. So what’s the answer? There is no foolproof solution. But more education and assistance would certainly help a lot.
Companies such as the Center for Acceleration of African American Business – which has helped more than 700 businesses since 2006 – are among the groups that help black entrepreneurs make money through educational programs and counseling. Many local communities have nonprofit groups that help black business owners better understand finances and apply for loans. The Small Business Administration provides resources to minority entrepreneurs, as do national groups such as the Minority Business Development Agency, Accion, and the National Minority Supplier Development Council Business Consortium Fund. NerdWallet and Fundera provide great lists of lenders that provide financing to minority business owners.
But the data doesn’t lie. It is more difficult to get a loan if you are a minority, especially if you are a black owned business. Racism and discrimination are a fact, although some people do not want to admit it and unfortunately attitudes will not change overnight. The best way to overcome these challenges is education and the good news is that there are resources available to help these business owners get that education… and the money their business needs so badly.