Black entrepreneurs have greatly missed out on federal business loans in small business lending since the financial crisis from 2007-2009, and from past generations. Now more than four years into America’s economic soft recovery, African Americans seeking loans are still struggling to overcome deeper financial distress due to tighter lending standards and cutbacks by certain lenders.
US financial institutions made $382.5 million in Small Business Administration loans, but Black businesses only saw a tiny percentage of that total. Only 1.7% exchanged from lenders to Black business owners during the business fiscal year in 2013. Black business ownership has made great strides in America, but the advancements are still more like Black business owners from the 1960s- tough.
New academic research shows that minority entrepreneurs are treated significantly different and worse than their White counterparts when seeking financing for small businesses, even when all other variables— their credentials, their companies, even their clothes are all identical.
Professors, teachers, journalists, economists, and researchers don’t have to conduct research to communicate to African Americans that they have more difficulty than their White counterparts in fishing for business loans- and how White, Black, and Latino men similar in size and stature, wearing the same suit, and have similar education and finances get treated differently at the same banks when seeking a business loan. Some research goes a bit further adding men who own the same kind of business requesting a loan, but once inside the bank their individual experiences are different. Studies also show that Black and Latino business owners are interrogated more about personal finances and loan terms than Whites, offered less application help by loan officers, less frequently handed a business card, and denied loans at a much higher rate than their White counterparts.
It’s not unusual to find people from different racial backgrounds thinking differently about this issue. Research found that White business owners expressed their journey more so as being on a fair playing ground while Black and Latino business owners were more likely to describe it as an uphill battle. The uphill battle or the distress can cause a self-defeating attitude that lingers and affects succeeding generations. The tribulations can linger in a community for generations, while studies continue to build on existing evidence that supports minority business owners having more difficulty securing business ventures than their White counterparts.
Black and Latino entrepreneurs starting companies often start with less funds than White entrepreneurs, and forced to rely on personal finances rather than on external investors. Although minorities do get loans for businesses, few minorities get approved for business loans.
Minorities who do beat the odds in getting approved for business loans still have the uphill battle of interest rates to tackle. White business owners pay lower interest rates than their minority counterparts. The Federal Reserve reported two years ago that minority business owners pay more than White business owners at a 32 percent higher rate.
The differences don’t end with taxation, but higher tax rates in minority communities means the racial gap spreads even wider in America. The U.S. Census Bureau Survey of Income and Program Participation data shows that between 2005 and 2011, the median net worth of households of color remained near their 2009 levels, reflecting a drop of 58 percent for Latinos, 48 percent for Asians, 45 percent for African Americans but only 21 percent for Whites. Severe financial losses in homes, and losses in home equity contribute to more dramatic declines in the net worth of households of color.
Data shows that many African American and Latino households are considered “liquid asset poor,” meaning that they do not have cash or assets readily converted to cash to cover basic living expenses if they are without income for three months. Whites are doing pretty good; the average liquid wealth of Whites is now over 100 times that of African Americans, and more than 65 times that of Latinos.
Whites aren’t the only group to be at an advantage; Asian American families own 68 cents for every dollar of wealth a White family owns, and nearly 57 percent of Asian Americans own a home compared to 73.5 percent of Whites. Black households in the U.S. was less than $9,000 compared with $114,000 for Whites in 2004, and that gap has widened further since the recession between 2007-2009. Personal, psychological, or educational shortcomings do play a role in advancing, but lack of wealth is correlated with discriminatory governmental policies that excluded people of color from the formal economy up until the latter half of the 20th century- policies still practiced informally even after the 20th century. Many from these communities are barely hanging on at the margins of the U.S. economy, while the lack of communication leads to citizens not knowing about organizations that could help.
America is known to be the land of the free and of opportunity, but opportunity is not always equally accessible to all racial or ethnic groups. The nation relies on its workers to boost the nation’s gross domestic product as well as generate taxes to pay for everything from Social Security, public education, bridges, freeways, highways, roads, mail delivery system, and local waste collection. It will be difficult for the US to sustain and grow its economy or support the kind of society citizens have come to expect without investing in building human and financial capital in communities of color. If minorities were just a tack on a map, it wouldn’t matter, but because people of color are a part of the larger population, it becomes vital to the nation’s economy too.