A recent Wall Street Journal business report detailed the inability of black-owned businesses to be approved for SBA-backed loans made through America’s most prolific small business lenders. And while it was satisfying – in a weird kind of way – to have confirmed what black business owners have known for years, it was however, something of a gut punch to learn just how bad the situation has become. As you might imagine, there are several reasons this latest report is so disturbing: the economy overall is “rebounding,” at least according to the WSJ report of March 14.
As a function of the rebound, SBA lending spiked to $30.29 billion in the most recent fiscal year, but black-owned businesses were approved for just 2.3 percent (1,242) of the 54,000 SBA-backed loans last year which pales in significance. And to the further horror, those loans represented a palty 1.7 percent of the dollar value of those loans, or $325 million. So get this straight: While the economy is (relatively) booming and the number of black-owned businesses is skyrocketing — now about 7 percent of the total number of US businesses, federally backed loans to support the growth and development of these businesses is not just shrinking, it’s practically disappearing. Shameful is one way to put it… The state of SBA lending, is a challenge worthy of a solution is the way we see it!
Since the market crisis that saw the average credit score of black borrowers plummet, and the average size of business loans surpass a million dollars, we also saw: Congress enact the Wall Street Reform and Consumer Protection Act (Dodd-Frank); USBC forge a relationship with the National Bankers Association that resulted in $5 million being deposited into black-owned financial institutions, and most recently, Maria Contreras-Sweet confirmed as the new Administrator of the U.S. Small Business Administration. We believe that Administrator Contreras-Sweet — who founded ProAmerica Bank in Los Angeles —”gets it.” Our conversations with her lead us to believe that the shrinking numbers of loans to African American businesses troubles her too, and that she will immediately go to work to make improvements.
During her recent confirmation speech, Administrator Contreras-Sweet declared that one of her top priorities would be to ensure that sufficient funding would be granted to hardworking minority businesses that need it the most. We support utilizing innovative, non-traditional avenues of lending money to minority firms to guarantee success. Continuing the same old strategies of asking banks to lend to black firms and expecting a different outcome is insanity! Among our recommendations to her is enforcement of Section 342 of the Dodd-Frank Act. This piece of the Wall Street Reform Act, authored by California Congresswoman Maxine Waters, contains little used — and more rarely enforced provisions governing the activities of financial institutions and the federal agencies that oversee their operations. If enforced, Section 342 would fit the description “Community Reinvestment Act on Steroids.”
In a nutshell, if a bank’s hiring practices, procurement policies and lending performance don’t demonstrate their commitment to a level playing field, (at least on paper) that bank can’t —or shouldn’t be allowed to — borrow money from the Federal Reserve. If a bank can’t borrow money cheaply, it can’t lend money at a profit. If a bank doesn’t make a profit it’s either declared insolvent and goes out of business, or it’s bought by another, bigger bank. Unfortunately, it seems some banks would rather face the prospect of insolvency or takeover than lend money to a black-owned business!
One bright spot that we are working furiously to replicate is the success of the USBC member chamber in Beaufort, SC. Beaufort County Black Chamber of Commerce president, Larry Holman, and his team underwent the rigorous training to become a Community Development Financial Institution and have actually begun to make loans to business owners. We believe there is a near-term opportunity to capitalize on the South Carolina CDFI success story and improve access to capital for black-owned businesses. Who knows? Maybe the U.S. Black Chambers, Inc. will solve the riddle of access to capital for black businesses! Now that would be real news!
In the Spirit of Success, Ron Busby, Sr. President U.S. Black Chambers, Inc. P.S. If you are in the Washington, DC area, please register now for our Access to Capital for Minority-owned Small Businesses Policy Forum tomorrow, Wednesday, April 16 at 2:00pm in the U.S. Senate Small Business Committee Hearing Room 428A.