Marshawn Wolley: In business loans, equity pays

When it comes to black businesses, fairness pays off.

My company, Black Onyx Management, conducted a survey of black businesses and loans earlier this year, receiving almost 250 responses statewide.

As part of our analysis, we disaggregated black businesses certified by the city because, as part of the certification process, they are required to produce financial statements and a business plan, which are key documents in the lending process. companies.

Over 70% of this sample have been in business for more than four years and just over 70% have more than two employees, with just over 47% employing two to five people.

With just over a third of certified black businesses in the city responding, more than 56% said they had never received a loan from a traditional bank.

Just over 25% of certified black businesses reported receiving a loan from one of the community development financial institutions in Indianapolis, which is significantly higher than the national CDFI penetration, which stands at a paltry 7 %, according to the Federal Survey on Small Business Credit.

The majority of certified black business loans have been less than $ 100,000.

It’s no wonder that 71% of those surveyed did not apply for loans from the Federal Paycheck Protection Program or were unable to complete the process.

Less than half said they applied for a loan during the life of their business. Almost 20% of businesses said they were discouraged, while 17% were against taking on debt and around 15% thought the cost of credit was too high.

Too many black businesses do not see the traditional financing system as a partner in their growth. And the black business community has been allowed to languish in this city. Indianapolis is ranked 55th out of 85 metropolitan statistical areas for business start-ups, according to a study of the region commissioned by CICP.

For a black community, which could be the third largest city in the state in terms of population, but which has the lowest median income in the county and experienced double-digit employment from 2010 to 2019 as well as a of deteriorating home ownership, equity efforts will have a disproportionate impact.

There are also promises in the black business community. According to the City’s Disparities Study, black businesses in Indianapolis surpass the nation’s average annual business revenue.

Helping black businesses take advantage of the traditional financial system can be helped, but educating the local business lender community on how best to support black business owners who, for a variety of reasons, may have low incomes. relationships with traditional financial institutions.

Through education and improved practices when engaging black businesses, fairness can pay off.

In a soon to be released report, Brookings researcher Andre Perry notes that while the number of black-owned businesses in the Indianapolis MSA correlated with the number of black residents at the same rate as white residents, there would be an economic impact of $ 52 billion and 170,000 additional jobs in the region.

Of course, this economic impact calculation includes a number of “ifs”. But some banks in the market are already showing that they can do things differently by developing specific programs for black businesses based on the nation’s racial calculation.

While the moral imperative of fair lending processes is important, it alone does not overcome the five Cs of credit: capacity, capital, collateral, terms and character. By unleashing the potential of black businesses as an economic engine in the region, education on both sides of the loan transaction becomes imperative.

Equitable loans to black businesses could be one of the most important economic development strategies the region can implement. That’s why the fair lending practices supporting black businesses in Indianapolis are not only good for business, but also good for the region. Equity pays. •


Wolley is President and CEO of Black Onyx Management, Inc.

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