Small Business Loans for Minorities

Business analysts observing the United States financial landscape have noticed a glaring absence among entrepreneurs: minority entrepreneurs remain an underrepresented group. More alarming is that small businesses with minority owners, particularly Black and Latino, struggle to obtain long term success than their counterparts. Of the current business shares, Hispanics-owned businesses make up 10.6 percent of all U.S. businesses, with Black and Asians following with 7 percent and 4.3 percent respectively. Although Latinos and Blacks occupy more business real estate than Asians, it’s the Asians who have the lowest business failure rate amongst all minority entrepreneurs.

Attributing to the large disparity of White vs. Non-White entrepreneur numbers is that small business loans for minorities aren’t as plentiful. The reality is that minority entrepreneurs receive significantly different treatment than that of their counterparts as they attempt to acquire funding for their business, leaving them critically hampered when competing in the business marketplace. Minority entrepreneurship is on the rise, but when minorities apply for small business loans, they describe their experience as an uphill climb. Often, they visit banks or a small business lender for funding to begin or expand their business, but end up leaving with more rejection letters than stamps of approval. This is not to say that other entrepreneurs have it “easy” however, as a small business lender or bank is typically hesitant to provide any start up business with funding due to the profitability and success rate of unestablished businesses. Still, minority entrepreneurs seeking small business loans are subjected to interest rates that are on average 32 percent higher than what their counterparts pay.

“It’s like climbing Mount Everest — close to impossible,” I can’t get to the top of Mount Everest.” – a black entrepreneur stated.

Minority entrepreneurs that are rejected by banks and small business lenders for startup funds, resort to utilizing their personal savings and credit cards as their go to for working business capital. Unfortunately, minorities don’t usually come from background where a plethora of cashflow is readily available, limiting their growth prospects. One California based Latino entrepreneur found himself in this same predicament.

“They declined me saying that I didn’t have enough financial background in the business to qualify for a loan,” said Richard Santana, owner of Cafe Santana Roasting Company in Oakland’s Laurel district. “That was kind of tough and discouraging, and I almost did give up. I was about ready to throw in the towel and say, ‘Forget it, I can’t do it.’”

Santana had invested his own personal funds into launching his brick and mortar business after previously selling his in-house roasted coffee at farmer’s markets. As a result, he accumulated tens of thousands of dollars in credit card debt and required outside funding to help make up the difference after already expending his entire savings to remodel the new location. He was overwhelmed by construction and permit costs and forced to seek new capital. After being turned down by banks, he found a small business lender that was more amiable to giving small business loans to minorities. He was awarded $100,000 in loans to assist with the purchase of equipment needed to open the café’s doors.

“Opening a business is expensive, but we are definitely growing,” said Santana at his café. “Once we opened our doors, I just knew we were going to be OK.”

Small businesses like Santana’s will thrive if reputable small business lenders are willing to provide the funding that minorities need to survive the initial challenges they face after launch.