07 Jul 2021 Limiting Access to Online Lending will Hurt Black Entrepreneurs, by Richard Holt
We desperately need more growth to rebuild the post-COVID American economy. Yet liberals are hard at work waging war on business in general, and on minority entrepreneurs in particular.
While large corporations have fewer problems applying for and receiving loans, the hundreds of thousands of black Americans who are self-employed or who run small businesses are not so fortunate. The left’s anti-growth agenda is setting the black community up for failure once again.
The latest stumbling block put before black Americans comes as the left makes moves to ban online lending. Online lending can be the lifeblood for black start-ups – especially those in need of quick infusions of cash. Considering that blacks are culturally leery of a banking industry that has treated them unfairly in the past, the proposal to cut off a sector that has been helpful is troublesome.
Studies have shown black people are 80% more likely to have their home mortgage loans denied. The rates among business loans fare a little better according to the Federal Reserve, where only 47% of blacks get turned down for business loans. When loans are approved however, they often aren’t for the amount actually needed.
Analysts say white business owners have traditionally enjoyed access to capital because of a lack of lending discrimination. Yet, it’s the amount of capital that matters most. Black start-ups face higher failure rates because they don’t have access to all the capital they need to get off the ground.
Even when controlling for factors such as creditworthiness, education and type of business, all minority groups were significantly less likely than whites to obtain business loans. To add insult to injury, the loans blacks do receive, still had higher interest rates and higher refinancing fees overall.
What to do about discrimination in the loan process? Offering fewer options isn’t the right course.
Online lenders largely use a series of data analytics to decide their loan process that can factor out things like race and gender. Blacks are looking to online lenders. Not just for convenience, but because we all know traditional banks won’t be as responsive.
To fill in the gap between necessary capital and borrowing ability, black businessmen tend to lean on credit cards to get through the hard times. The accumulation of credit card debt has continued to plague black Americans in general who continually rely on this type of credit. In fact, 99% of blacks business owners report that they rely on credit cards to pay expenses – while only 80% of whites do.
The accumulation of wealth – or the lack of that accumulation – hinders overall black advancement. Red-lining, segregation and racism has crippled black advancement overall. Despite these setbacks, black America can catch up, but not by limiting options. Instead, America should welcome and embrace online lending.
First, online lending needs to continue to be an option to ensure that blacks and all other groups, have access to capital for start-ups. Secondly, we should consider expanding opportunity zones which will encourage investment in inner-city communities.
A third solution would be for the black community to finance its own start-ups. There are enough black businessmen in America with the skill set and resources to lend their expertise, and capital, to other black businesses.
A rise of black lending institutions also will create a ripple effect throughout the black community and ensure that wealth is attained broadly in our community and beyond. But, so long as the community continues to elect politicians who sabotage our progress, there’s really little anyone else can do to help.
New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21, other Project 21 members, or the National Center for Public Policy Research, its board or staff.