When the 2008 recession hit the housing bubble collapsed and 7 million people lost their homes and millions more their jobs. Minority home owners have been hit the hardest as many lenders have chosen to provide mortgages to those deemed as strong borrowers and as of now minority owned businesses are still reeling from its effects. Many banks are charging more interest rates to personal and business funding despite the Federal Reserves urging for a near-zero percent policy in fact since 2008 many lenders have created more restrictions in their standards when it comes to lending tightening it up by 65 %. Despite the recent economic recovery that has been made across the country the results have left many minority business owners on their own.
Ways business owners are affected
Minority owned businesses have contributed a lot to the U.S economy generating more than $ 600 billion dollars in yearly sales and employ about 4.7 million people according to a statistical report made by the Minority Business Development Agency and are among one of the fastest growing business groups in the country. Even with all this said many minority entrepreneurs are depending on short-termed funding, credit cards, funding against personal assets to financially support their small businesses even though most experts would say a clear line should be drawn between personal and business finance the current circumstances are leaving many minority entrepreneurs with no other choice. This type of action can be detrimental to your credit score but many businesses have done so and it has worked in their favor but there some people who don’t qualify for a credit card according to a Forbes article by James Carr who says “African Americans and Latinos, for example, are less likely to have traditional sources of credit, such as credit cards or mainstream consumer or business funding, all of which constitute the basis of outdated scoring models.” Carr believes minority businesses should be invested in more by lenders and although some would argue that would “loosen the credit standards”he believes the lack of minority business getting funing is traced to “outdated credit scoring models” that inaccurately measures risk. There are some credit reporting agencies however that are starting to recognize this problem and are taking steps to change it such as VantageScore which is now changing their scoring models so they can accurately predict risk.
How immigration can help
There have been misleading rumors however when it comes to who can get funding one of which is that the government is willing to give out funds to immigrants to start businesses or that the SBA has special funding programs for minorities and new immigrants alike while this can’t be any more false as government agencies would not choose to outright give out funding to them just because they have a policy that includes minority, women and disabled veterans. There is more focus now on trying to give minorities and immigrants equal opportunities to grow their business which many could say would have a large beneficial impact as according to a study done by the National Foundation for American Policy immigrants have “started more than half (44 of 87) of America’s start-up companies valued at $1 billion or more and are key members of management or product development teams in over 70 percent of these companies.” Sergey Brin a immigrant from Russia for example co-founded google the top used search engine in world being valued at $166 billion and being ranked the second most valuable brand in the world for 4 years. Brin and his family lived in the era of the Soviet Union which barred his father a current mathematician professor in the University of Maryland from attending graduate school and become a astronomer because of the anti-Semitic policies of the Soviet government. His father decided to move the family to the U.S as he was allowed to pursue his passion. Sergey attended Stanford University where he met fellow co-founder Larry Page and they created the search engine Google and launched it in 1998 after raising a million dollars from family, friends and investors and as of now employs 57,100 employees.
Building credit for emerging markets
The SBA has though offered to provide assistance to minorities through government contracts and even though they do not offer special privileges to minorities they do ensure that they are given an equal opportunity to assess business contracts if they can. There are other options when it comes to funding that small businesses can have assess to like peer-to-peer lending and alternative lenders with programs geared towards a specific demographic within communities which also have alternative methods of credit scoring. Minority and immigrant businesses also have a successful track when it comes to repaying business debt according to William Underwood, Public Relations Director at ezDinero Loan Solutions. He also believe the Latino community is largely overlooked due to the outdated scoring models and the focus of banks to focus on larger funding as he says ” represent an undeserved population, largely due to outdated scoring models, and mainstream banks’ focus on larger loans at the expense of SOHO operators who need business funding of $50,000 or less”. Banks now even though they’re improving their relationship with minority owners are not offering small business finance to everyone minority or not however this may not be such a bad thing as now the alternative lending market can grow and take their place.
This article was sourced and rewritten from http://www.business.com/business-loans/dan-blacharski-lending-underserved-small-business/