Magazine article American Banker

Comment: Race Matters: Lend a Hand with Minorities

Magazine article American Banker

Comment: Race Matters: Lend a Hand with Minorities

Article excerpt

A working paper from the Federal Reserve Bank of Chicago amplifies previous reports about minority businesses' problems obtaining loans.

This matter had been documented in a Federal Reserve Bank of Boston report that said these businesses often had a tougher time getting loan requests approved than similar-sized businesses that were not minority-owned.

Poor understanding of the lending process is part of the problem, but so is race: It has been shown that many nonminority bankers are less inclined to go the extra yard for loan applicants from a minority group.

The head of a minority bank in Newark, N.J., brought up this point in explaining the need for minority banks even though more traditional ones are trying harder to court minorities.

"When a potential borrower comes in and sits at a desk, he is far happier and more comfortable if the person on the other side of that desk is of a similar background," the banker told me.

The Chicago Fed's paper, "Supplier Relationships and Small Business Use of Trade Credit," focuses on the role of trade credit in financing small business.

This is not an issue to sneeze at. As the Chicago Fed points out, surveys have shown that more than 30% of small businesses' debt is trade credit. In addition, more than 60% of small businesses have credit outstanding from suppliers.

But black business owners, the Chicago Fed's analysis concludes, are less likely to use trade credit than their Hispanic or white counterparts. …

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