Some new research by the National Community Reinvestment Coalition (NCRC) seems to validate some of what many lending advocates have feared amid coronavirus-related recovery efforts: inequity in access to helpful banking services.
The latest report, released Tuesday, Feb. 2, builds on prior NCRC research documenting lending discrimination within the Paycheck Protection Program — and as we covered last summer, there were some documented instances of smaller, minority-owned businesses in Northeast Ohio facing more challenges when it came to securing PPP funding compared to others.
The latest NCRC research includes findings from surveys sent to 938 small business owners in nine metropolitan areas between Oct. 23 and Dec. 29 of last year. The results indicate that Black and Latino business owners had less access to bank help not just in securing stimulus money, but for doing things like modifying terms on outstanding loans and credit card debt.
The survey was designed to see whether small business owners explored options like lease and loan modifications and if they did, if they got access to that help.
Per NCRC: The survey found significant differences in the rates at which Black, White and Latino small business owners contacted lenders to inquire about credit product modifications, and in the rates of approvals of loan modifications. White small business owners received modification approvals at a significantly higher rate (26.7%) than Black (10.9%) and Latino (12.0%) small business owners who contacted commercial financial institutions.
“These troubling findings underline the need for financial institutions to strengthen their internal systems to root out discrimination that still pervades the lending experience for borrowers,” said NCRC CEO Jesse Van Tol in a statement. “Regulators need to strengthen their enforcement of fair lending laws, banks need to scrutinize their lending files for evidence of discrimination, and they need to incorporate rigorous testing and training programs to ensure compliance with fair lending laws. Our findings also highlight the need to expand access to education for small business owners.”
NCRC research also points to Black and Latino small businesses having significantly less access to business credit cards and business lines of credit than their white counterparts.
Especially as it relates to the Small Business Administration’s PPP effort, simply quantifying the extent of inequity as it pertains to accessing stimulus funds and other possibly business-saving banking services is the incomplete data collected by the SBA itself: loan applicants aren’t required to disclose race, which can be both a good or bad thing. It’s bad in the sense of having a dearth of data to get a real snapshot of which groups are getting access to what, or who’s being left behind. Some of these issues could come down to distrust of financial services harbored by individuals in minority groups and a lack of education about what options exist for borrowers to get help from their banks or lenders.
While PPP applicants aren’t required to disclose race, the NCRC nonetheless has found evidence of discrimination in how banks respond to PPP applicants. You can read that report here.
And you can find the full NCRC report on access (or lack thereof) to loan modifications here.
In terms of other resources available for minority-owned business in the local area, the Urban League of Greater Cleveland recently unveiled its UBIZ Loan Fund, which is seeking donors to help it reach a $10 million funding goal. You can read more about that here.
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