Research shows minority businesses have lower loan approval rates than their white counterparts

Many small businesses across the country have been doing everything they can to stay afloat after being hit hard by COVID-19 restrictions.

Owners have applied for small business loans to help keep their doors open, but research released by the Federal Reserve Bank of New York found minority-owned businesses were less likely to receive loans than their white counterparts.

To qualify for the Paycheck Protection Program as well as other loans, businesses have had to turn to third-party lenders or banks to apply. Requests vary from bank to bank, with some requiring race and gender information.

Data from branches that required this information shows a disparity between white and minority businesses that received funding.

“If they don’t have a long-standing relationship with a financial institution, it could increase the difficulty of establishing one,” said Dr. Robert Tennant, A&M Central Texas professor of finance and economics.

Dr. Tennant says there are a number of different things that go into getting approved for a business loan. He believes the most important thing is to build a relationship with your bank or loan officer.

“So if you ever need to borrow money or need financial services, you’re not just an app. You’re someone they have an established relationship with,” Dr Tennant said.

The professor advises having the loan application reviewed by a third party before submitting it to ensure that you have all the required documents. However, there are people who are refused.

“I think there’s a huge disparity because the racism is real,” said Luvina Sabree, owner of So Natural Catering.

Crossing the Ts and dotting the Is, Sabree says she did everything right, but was denied the Economic Disaster Loan, forcing her to choose between her business and her family.

“For what unknown reason, I don’t know. I just know that it has a negative impact on our community and our businesses. Right now, today in February 2021, I’m still waiting. I had to choose who I wanted to feed, family or customers, and of course I chose my family,” Sabree said.

Nationally, the number of active small businesses fell 22% between February and April 2020, the largest decline on record, according to the Federal Reserve Bank of NY. They report that 44% of black businesses went inactive during the peak of the pandemic. That’s more than double the 17% of white businesses that went bankrupt during the same period.

There are many factors that play into these statistics. One of them is lack of approval for loans.

“We have good credit. We have no problem paying our bills, we have shown that we have no problem paying our bills. It hurts to see other people getting loans and not us,” Sabree said.

Sabree says she may have received grants in the past, but when she applied for loans with the same information used for grants, she was told there was a discrepancy with her documents.

With the help of the Innovation Black Chamber of Commerce and the support of the community, she was able to keep herself afloat.

The Federal Reserve Bank of New York also analyzed the geographic distribution of PPP loans and found that aid had not reached many of the hardest hit areas. This data also correlates with areas that have a high concentration of minority businesses.