Why is there a Credit Crunch for Black-Owned Small Businesses?

David NayorSmall Business

Black-Owned Businesses

The percent of U.S. Small Business Administration (SBA) backed loans to black-owned enterprises dropped to 2.3% for the most recent fiscal year, down from 11% in 2008, according to an article in the March 15/16 weekend edition of the Wall Street Journal.

Although there are several reasons given for this dramatic decline, including tougher scrutiny of loan applications, declines in home values (thereby affecting the value of collateral for the loans) and decrease in lending by one of the nation’s larger banks, these do not adequately explain why these factors apply disproportionately to black-owned businesses.

Hopefully, the implication is not that tougher scrutiny is being applied to black-owned businesses or that greater collateral is required of them.  The SBA’s own guidelines state, “A loan request is not to be declined solely on the basis of inadequate collateral  . . . . “

This anomaly in credit access seems at odds with the statistics available from the Census Bureau’s survey of business owners, which shows that the number of black-owned businesses increased over 60% between 2002 and 2007, over triple the national rate.  In the franchise industry alone, over 20% of businesses are owned by minorities.

Clearly there is a disconnect between supply and demand for this fast growing segment of our economy. It is time for lenders to step up and meet the demand and for the SBA to continue to provide leadership in this endeavor.