Racial Disparity Found in Small Business Lending Study – Banking Dive

Racial Disparity Found in Small Business Lending
Racial Disparity Found in Small Business Lending. Photo by bruce mars on Unsplash.
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More than half of Black sole proprietors that applied for financing received none, according to a New York Fed report released recently. This category of small business typically relies more heavily on the owner’s credit score or personal assets for financing. A study posted on Inequality.org shows the median white family owns 41 times more wealth than the median Black family. As a result, the figures from the New York Fed survey show Black-owned businesses experience greater difficulties in several categories.

Profitability, Revenue and Cost Challenges:

  • 34% of nonemployers operated at a loss at the end of 2017. Firms with non-Hispanic Black ownership were more likely to report losses.
  • A majority of nonemployers reported an increase in their input costs over the prior 12 months. However, only 34% of nonemployers increased the prices they charged, suggesting challenges with passing on these heightened costs.
  • Nearly three-quarters of nonemployers (72%) earn $100K or less in annual revenue. Lower annual revenues were more common among firms with younger decision-makers, firms with non-Hispanic Black ownership, and women-owned firms.

Financial Well-Being and Funding

  • Nearly two-thirds of nonemployers reported having financial challenges in the prior 12 months. This was more common for firms with non-Hispanic Black ownership (76%).
  • While 39% of all nonemployer firms reported their funding needs were met, only 17% of firms with non-Hispanic Black ownership reported their funding needs were satisfied.

The data “underscore financing challenges for non-white business owners,” Claire Kramer Mills, assistant vice president at the New York Fed, said in a press release accompanying the report.

Financing and credit represent other hurdles. 38% of nonemployer firms that applied for financing said they received none. That breaks down to 36% of white-owned small businesses, 54% of Black-owned companies and 45% of Hispanic-owned firms, according to the data. And 36% of companies surveyed said they were either debt-averse or were discouraged from doing so.

Credit: Original article published here.