As US lenders strive to divvy up the government’s $349bn aid package, Black-owned and other minority-owned businesses are struggling to meet the banks’ requirements.
Thousands of minority-owned businesses—which have traditionally been less likely to secure bank loans—are at risk of being shut out of the government rescue package, as banks favour existing customers.
The aid package, known as the Paycheck Protection Program, could be a lifeline, especially for minority-owned businesses, whose limited resources are quickly depleted as a result of the government-mandated lockdown.
The loans do not have to be repaid, provided they are used to cover payroll, rent, mortgage interest, and utilities.
Persistent historical tendencies
Minority-owned businesses in the US often have weaker banking relationships than their white-owned counterparts, a stubborn legacy of historical discrimination.
A 2016 study by economists at the Stanford Institute for Economic Policy Research found that only 1% of black business owners get a bank loan during their first year of business compared with 7% of white owners.
Twice as many white business owners — 30% of the total — use business credit cards during their inaugural year, compared with black owners, among whom only 15% rely on a credit card.
Black businesses also start out with far less capital — whether from investments or bank loans — than white businesses, the study found.
Efforts to redress disparity
Anticipating that minority business owners will face an uphill battle accessing the federal aid, some lawmakers have proposed setting aside additional funds specifically for these businesses.
A group of prominent black investors, including John W. Rogers Jr., the billionaire co-chief executive of Ariel Investments, a mutual fund manager, sent a letter to lawmakers expressing concern that the emergency loan program was already leaving black borrowers behind.
“This roughly $68bn will only begin to address the disparities within capitalism brought into relief by coronavirus,” they wrote.
“By prioritizing clients that already have existing lines of credit, black businesses and nonprofits find themselves yet again excluded from live-saving relief.”
While racial discrimination in banking is outlawed on paper, it continues in practice, in very subtle forms. Some minority business owners in the US have avoided dealing with banks entirely.