May 21, 2015
Minority businesses have a harder time getting bank loans than small companies in general, according to a survey released Thursday by Wells Fargo & Co. and the polling company Gallup.
The survey found most business owners don't struggle to get credit, but it also shows disparities between the borrowing experiences reported by minorities and by small-business owners in general, including whites.
Twenty-three percent of Asian owners said they've been rejected for loans, 20 percent of black owners have been turned down and 19 percent of Hispanic owners have been rejected. That compares with 14 percent of owners in general.
Although the majority of owners said they hadn't needed credit in the past year, fewer black owners got loans they needed than owners in other groups. Thirteen percent of black owners got the credit they needed, versus 20 percent for Hispanic owners, 24 percent of Asian owners and 23 percent of owners in general.
The survey results weren't surprising, said Ron Busby, head of the US Black Chambers Inc., a national business organization.
"If you ask any small business what their No. 1, 2 and 3 concern is, it will be access to capital. As you relate to black businesses, it's their No. 1, 2, 3, 4, 5 and 6 concerns in reference to growing, starting or expanding their firms," Busby said.
In general, as business revenue grows, so do loan rejection rates, the survey showed. This is probably because businesses with larger revenue have more opportunities to apply for credit, the report said.
The highest rejection rate, 38 percent, was among black owners with revenue of $250,000 or more. The rejection rate for blacks was 17 percent when revenue was less than $50,000.
Thirty-three percent of Asian owners with revenue above $250,000 were turned down for loans, and 14 percent for revenue under $50,000. Among Hispanic owners, the rejection rate was 26 percent in the high revenue category and 15 percent in the low revenue category.
Twenty-seven percent of owners in general were turned down when business revenue was above $250,000 and 7 percent when below $50,000.
When owners are turned down, some banks will help them find alternatives. As a result of the survey, Wells Fargo is increasing by $75 million the money it gives as grants to organizations called Community Development Financial Institutions, which help small businesses get capital, said Lisa Stevens, head of small business banking at Wells Fargo.
The company is also working with chambers of commerce to help owners know what their options are in terms of getting loans, and to help them make their businesses be more likely to get loans in the future, Stevens said.