Equity still sought in commercial loans

To serve minority-owned businesses seeking commercial loans more equitably, financial institutions should update lending guidelines, increase awareness of available loans and serve as a mentor, some business owners and community watchers say here.

Kiantha Duncan, president of the NAACP Spokane, said commercial loans to minority small business owners have historically been “almost impossible.”

Much of that, Duncan said, is because people of color are less likely to have the financial means to start or grow a business.

“Because historically there has been a problem with people of color being able to borrow money or have assets like houses, (access to private loans) has been difficult,” she said. declared.

Those with less personal capital to start their business have a harder time getting business loans, she said.

For example, minority business owners are less likely to have the collateral required by many lenders.

“They’re about to say, ‘I realize I’ve got this great thing, this product, this idea, and I need a little more support to make it happen’, but they haven’t not what it takes to get the loans,” Duncan said.

According to a 2019 survey of consumer finances conducted by the Federal Reserve, black families hold less than 15% of the median wealth of white families – $24,100 and $188,200, respectively. Hispanic families have about 20% of the median wealth of white families, at $36,100.

Much of the wealth of American families is often tied to inheritances and real estate – which black and Hispanic families are less likely to have.

The survey shows that in 2019, about 17% of white families expected an inheritance, compared to 6% of black families and 4% of Hispanic families.

Among young families, 46% of white families own their homes, while this is the case for 17% of black families.

Bob Hemphill, 30, owner of Spokane’s Chicken-N-More restaurant, said finding funds for minority-owned businesses isn’t always a barrier.

“There’s a lot of funding for minority-owned businesses,” Hemphill said. “It’s about knowing where to apply and what’s available.”

Hemphill said that between the US Small Business Administration, banks and nonprofit organizations, thousands of dollars are available for minority-owned business owners.

However, obtaining a business loan can be more difficult than seeking other forms of financing.

Ben Cabildo, president of AHANA, Spokane’s multi-ethnic business association, said many underwriting guidelines for commercial loans make lending to minority-owned businesses more difficult.

“If you want to get a business loan, you have to have collateral,” Cabildo said. “Because of the racial wealth gap, because there is no generational wealth with multi-ethnic communities, the guarantee is out of the question.”

Credit reports also sometimes cause problems, he said.

“When multi-ethnic businesses don’t have that generational wealth, sometimes they get credit, but it’s at a very high interest rate because they don’t have (previous) credit or their credit rating is low. “, Cabildo said. “There is an inequity in interest rates for loans to multi-ethnic businesses.”

That’s especially concerning during times of economic turbulence associated with the COVID-19 pandemic, Cabildo said, because the roughly 450 minority-owned businesses in AHANA’s Spokane County directory are generally smaller and financially fragile.

“This pandemic and the associated economic downturn has really impacted many of our businesses,” Cabildo said. “Some people don’t have the power to stay in business because they don’t have the capital.”

Lars Gilberts, assistant vice president of community development and impact at Numerica Credit Union, said his institution has begun to take a closer look at commercial loan equity, including loan rates and interest rates. .

Gilberts said financial institutions should focus more on providing minority business owners with alternatives, such as a business line of credit, if a business loan isn’t feasible.

Financial institutions can also serve as connection points for minority-owned businesses, Gilberts said.

“We seek to ensure that we identify diverse business people within the community who can work with our members and other business people,” Gilberts said.

“We realize that our members in the community don’t just need a bank account. They don’t just need a loan. They need resources and support,” he continued. “Even though it’s not our job, it’s our chance to be able to connect our community members to these resources.”

Duncan said she would like to see more banks and credit unions start mentoring programs for minority entrepreneurs who aren’t necessarily about to need cash, but have a business plan that will require possibly to contact a financial institution to obtain capital.

“Let’s start at the beginning, because that way banking institutions can help them take the right steps along the way,” Duncan said.

“So when they get to the commercial lending stage, they don’t have a lot of hurdles to jump through, because they’ve already been guided to that door.”

Vince Peak, CEO and co-founder of Spokane-based online farm-to-consumer marketplace Share Farm, is involved in a University of Washington program that’s not far off from Duncan’s mentoring idea.

Peak said he was one of a cohort of minority entrepreneurs and business owners working with MBA students through the Michael G. Foster School of Business in Washington.

The program, which runs until March 8, pairs each company with a team of MBA students who perform financial assessments, risk analyzes and forecasts.and creates a loan file that the business must submit for bank approval.

“You work with an institution to learn the ins and outs, create a financial schedule, and then execute the loan at the end of the program – if your company meets all the ratings throughout the program and you are deemed eligible to receive this commercial loan,” Peak said.

It’s a good time for Share Farm, Peak said, as the company has tentative plans for expansion in 2022 – plans he refuses to reveal except to say Share Farm will require a commercial loan for the real estate. .

“We’re an 8(a) company, so we’re working directly with the SBA on a lot of projects right now,” Peak said.

The SBA’s 8(a) Business Development Program helps socially and economically disadvantaged entrepreneurs access capital.

“We will probably go for a 7(a) loan from the SBA, but ask our bank to help us prepare our documentation to improve the chances of the process being successful,” Peak said.

SBA-backed 7(a) loans are often used to start or expand businesses.

Peak said his existing relationship with US Bank influenced his decision to involve the bank in the SBA’s loan documentation process.

So far, Peak said it has learned the importance of accounting in accordance with standard financial practices.

“A lot of records aren’t characterized properly or documented at all, but that’s because a lot of people aren’t familiar with accounting,” Peak said. “That’s what the bank says is one of the biggest setbacks when trying to lend to small businesses.”

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