Minority-owned companies report tougher time accessing credit

Small black-owned businesses are significantly more likely to face financial challenges than white-owned companies and have a harder time obtaining credit - even when compared to white business owners with similar performance profiles and credit risks, according to a new Federal Reserve Bank report.

The report, released Wednesday by the Atlanta and Cleveland Feds, is the first to focus on minority-owned businesses, using results from the 2016 Small Business Credit Survey.

The disparities in businesses' ability to get credit persist even among companies with revenues topping $1 million. Black-owned businesses apply for credit at a rate that is 10 percentage points higher than white-owned companies - but their approval rates are 19 percentage points lower, the report said.

That remains the case even though black-owned businesses generally seek lower amounts of financing than white-owned businesses, the report said. Their lower likelihood of receiving financing tends to steer black business owners away from even applying.

Forty percent of black entrepreneurs who did not apply said they were discouraged by their chances, compared to 14 percent of whites and 21 percent of Hispanic and Asian business owners.

Of those approved for financing, only 40 percent of minority-owned businesses received the full amount sought compared to 68 percent of white-owned companies - even among those with comparably good credit scores.

Black business owners who don't get financing are the most likely to tap into their personal funds to make up the gap, even though they tend to have lower personal wealth than white business owners.

Federal Reserve Bank officials who worked on the report said they did not seek to identify the causes for the racial disparities in accessing credit, nor does the report make any policy recommendations. Other research points to a mix of factors, from the credit risk of borrowers to racial bias on the part of lenders.