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Black Small Business Owners Get Left Out Of Loans

By Bryce Covert  

"Black Small Business Owners Get Left Out Of Loans"

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CREDIT: Shutterstock

Before the recession, black-owned small businesses received 8.2 percent of all loan money through the Small Business Administration (SBA). That figure is now down to 1.7 percent, according to an analysis by the Wall Street Journal. The total volume of loans they are currently getting is similarly low: 2.3 percent of the roughly 54,000 doled out through the agency, down from 11 percent in 2008.

Other groups have fared better. Hispanic business owners are getting 4.7 percent of total loan volume, similar to the 4.5 percent rate they saw in 2009. About 7 percent of American business owners are black, compared to 10 percent that are Hispanic.

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“SBA loans are a crucial source of financing for many entrepreneurs, who generally can borrow as much as $5 million to start, buy, expand or run a small business through the agency’s two biggest programs,” the Journal writes. Given that the agency will cover as much as 85 percent of any losses a bank would incur on the loans, financial institutions are more motivated to make them.

A few factors could be driving the drop in lending to black-owned businesses. Many lenders are shying away from smaller loans, which can generate less profit through interest. The average SBA loan has more than doubled since 2005, rising from $192,919 to $426,796. This will be a problem for black borrowers, as 80 percent of the loans to black business owners are for $150,000 or less.

Meanwhile, black Americans’ average credit score before the crisis was 25.6 out of 100, while whites’ was 54, although those numbers haven’t been updated. Given that lending is tighter, those scores may be playing a bigger role. And black wealth has taken an enormous hit from the implosion of the housing bubble and the ensuing recession, with the gap between the wealth of whites and blacks doubling, which could put them in a more difficult financial situation.

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On top of all of this, the banks that black business owners were most able to count on have “sharply reduced or abandoned SBA lending,” the Journal reports, including Bank of America, which made just 247 SBA loans last year, compared to more than 1,400 in 2007 to black borrowers alone.

Black business owners are facing other obstacles. Of the $98.2 billion that the federal government awarded in contracts to small businesses in 2012, businesses owned by black people won just 7.2 percent despite being 13 percent of the population, a fall of about 1 percent from the year before and 6.5 percent from 2010. These drops are likely due to the budget cuts that have shrunk the overall pie.

Black workers don’t fare much better if they decide not to start their own businesses and work for someone else’s. Employers often hire people they know who tend to be the same race as them. While African-Americans have faced an elevated unemployment rate during the recession and recovery, it’s part of a longer story, as their unemployment rate is always at least 60 percent higher than for whites and since 1972, it has been over 10 percent more than three-quarters of the time.

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