Don't give up! Black-owned businesses face obstacles in getting incentive loans
Black business owners keep experiencing difficulties because many don’t have relationships with banks, advocates declare.
“Much of the money that was set aside for small businesses did not end up in the businesses that we own and run,” said Ron Busby, the president of US Black Chambers.
Black-owned businesses deal with a “huge burden” getting the funding needed to keep their businesses operating during the coronavirus pandemic, according to advocates for minority businesses.
The US Congress allocated $349bn in its $2.2tn stimulus package and another $484bn when funds initially ran out, dedicated to loans for businesses which have 500 employees or fewer.
These funds are allocated through a lending program called the “paycheck protection program”. The loans are forgiven if a business uses at least 75% of their loans for their employees’ payroll, as stated by Congress. The other 25% can be used only for rent, mortgage interest or utilities.
“When this legislation came out and it did not address an equitable way for black and brown business owners to get access to capital. This is such a problem for us,” claimed Ron Busby.
As black Americans face unreasonably harsh economic and health costs due to the Coronavirus outbreak, advocates explain that the reasons why black business owners have been having difficulty getting access to the funds are because many black-owned businesses do not have relationships with reputable banks. As business owners rushed to apply for loans, which were given on a first-come, first-serve basis, some banks said they were giving priority to existing clients.
Black business owners keep facing discriminatory barriers when approaching traditional banks for a business loan that prevents them from building credit and building a relationship with a bank.
The statistics demonstrate that even with the same credit history, black business owners seeking small business loans receive less responsive treatments and information about a bank’s services compared with their white counterparts. Specifically, a Federal Reserve study carried out in 2017 found that, though black business owners apply for small business loans at a higher rate than white business owners, the approval rate for white entrepreneurs is 19% higher than the approval rate for black entrepreneurs.
For many black business owners these discriminatory obstacles when approaching financial support end up in a suffering process. They need to figure out how to pay, especially if they are not able to pay in full, which means the credit gets damaged when they are not able to pay on time. “We never get out of this hole,” Busby admits.
Even though many minority business owners have much stronger relationships with community development financial institutions and smaller minority depository institutions, however, they are often turned away when asking for support to traditional banks.
Kita Holmes, the owner of 5 Star Property Management, said that she has had difficulty getting a loan for her Maryland-based property management company that has seen a regression in new renters and property investors since the pandemic started.
Though she applied for a loan during the program’s first round of funding through her bank, she is still waiting for a response to her application. Now that the only line of credit she had was closed she is worried about the future of her business.
“I have some saving, but if this market doesn’t open up things won’t change, so I will probably need to look for work,” Holmes said. “I don’t want to give up, but it’s very hard times for a small black business owner.”
Indeed, many black business owners could be excluded from forgiveness since the majority of them do not have employees on payroll because the payroll protection program stipulates that a bulk of the loan must be used for payroll expenses to be forgiven.
It is estimated that only 120,000 black-owned businesses, out of the 2.7m in the US, have employees on the payroll. Since the average annual revenue of a black-owned business is around $75,000, “it’s very tough to have others who can work for you when you’re only bringing in enough revenue to pay expenses and keep yourself employed”, Busby concluded.