Wednesday, August 27, 2014

Black and Hispanic Entrepreneurs Face Discrimination When They Apply for Small Business Loans

By Marilyn Silverman

You’re standing on line in your neighborhood bank. You want to start a small business, or you want to expand a growing business. Business ownership is the name of the game; it’s the American Dream. Small businesses are the lifeblood of our economy—the government is always telling us. Well, someone ought to tell this to the banks out there, since they’re making it difficult, if not impossible, for Blacks and Hispanics to share a piece of that pie and obtain that loan.

Whatever, you don’t have the wherewithal to invest in yourself. What do have, however, is a dream. It’s a truism that banks tend to approve small business loans.  You’re a business owner, so ipso facto, your neighborhood bank should approve your loan application.

Well, I’m going to paint you a depressing and shocking scenario that is being played out in banks today across America, the land of opportunity, but not for all. You possess practically the duplicate credentials of that white entrepreneur who is standing directly in front of you or directly in back of you in your neighborhood bank. You both possess a professional demeanor in your attire—no jeans, T-shirt or running shoes today. You both possess the identical education credentials. You are both requesting $60,000 loans for the identical business genre. That’s all you need to launch your business. Furthermore, you both possess the same credit history and credit score. The only difference is the color of your skin which should not make a difference but shockingly  and deplorably, it does. 

You want to go to college, get a job and get an apartment—all the ingredients of a successful quality of life that every man and woman living in the U.S. deserves. But we all know that Blacks and Hispanics face discrimination in these areas. Now, there’s a shocking milestone—for the first time ever—discrimination has invaded the marketplace.

A study was conducted by three business school professors from three respected universities—Jerome D. Williams (Rutgers), Glenn L. Christensen (Brigham Young) and Sterling A. Bone (Utah State), “Rejected, Shackled, and Alone: The Impact of Systemic Restricted Choice on Minority Consumers; Construction of Self” and published in the Journal of Consumer Research.  The academics utilized an interesting experiment —they recruited three Blacks, three Hispanics and three whites to amass their shocking and deplorable findings by sending them into banks as mystery shoppers, posing as business owners needing loans.  “Our research offers evidence against the general assumption in the United States that choice is equally distributed, democratized and available to all,” the authors wrote.
We have the global reputation of being the land of opportunity which justifies the massive influx of immigrant to our shores. But not everyone can enjoy these opportunities.

Unbeknownst to that Black or Hispanic business owner in that neighborhood bank on a crisp morning, is that he is going to be the beneficiary of less information vis-à-vis his white counterpart and is going to be asked many, many, probing questions.   He will receive far less information on the loan terms and requirements which is dominated by a plethora of facts and figures. Business owners should be able to put their faith and trust in the bank, confident that they can explain its many provisions and clauses.  

Will he be handed a business card that as per business etiquette occurs at the end of the meeting signaling that they will be embarking on a long-term relationship?  Not very likely.  But they can most certainly be assured of unpleasantness –their personal financial status will be probed and furthermore, they are not likely to have that loan request approved. And, according to Alicia Robb, co-author of the Kauffman Firm Survey, Black and Hispanic entrepreneurs are less likely to even apply for loans for fear of rejection.

According to the SBA’s Office of Advocacy, the Federal Reserve and the U.S. Department of Commerce Minority Business Development Agency, Blacks and Hispanics are compelled to pay higher interest rates that takes quite a sizable bite out of their profits.

These insurmountable barriers to secure funding may have a detrimental impact on the budding entrepreneur’s quest to start their business or on the long- term success of an existing business.  The collaborators on this study, wrote, “Not only does restricting a person’s choice threaten the success of a new business, it also has…damaging effects on the individual’s self- esteem and their personal sense of control and power in the world.”

According to, in today’s economic climate baby boomers are increasingly facing retirement and increasingly the face of their buyer is Black or Hispanic—that is wonderful news but how is that Black or Hispanic business owner going to be able to buy that business without a bank loan?

It is indeed brutal for Black and Hispanic business owners in their quest to get a loan; as The Washington Post said, they “are treated significantly worse than their white counterparts …even when all other variables—their credentials, their companies, even their clothes—are identical.”


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