As of 2017, there were over 11 million minority-owned businesses in the United States, generating upwards of $1 trillion dollars annually. Yet those same hard-working and successful monitory-owned businesses are underserved by traditional financing channels, with high loan turndown rates and limits on capital that fall well below the requested amounts. This raises two very big questions: 1. Why is this happening so consistently to minority-owned businesses, and 2. What can we do to change the status quo?
The Bias of Net Worth
Overtly, banks are biased against businesses that have low net worth, few assets, and low credit scores. Wealth levels among minority groups are up to 16 times lower than those of whites. Since minority-owned businesses do not have the collateral to offer traditional lenders, banks make the assumption that those businesses will not be able to repay their loans, or at the very least present a higher risk to the bank. Minority-owned businesses also have credit ratings that average around 700, which is much lower than white-owned businesses. Since traditional channels require perfect or near-perfect credit ratings for consideration and approval – which can even overshadow the performance of the business itself – minorities are facing an uphill battle just to get the working capital they need to maintain or grow their businesses.
Finding Alternative Solutions
Over the past decade, alternative financing has made a big resurgence in helping minority-owned businesses get the capital and equipment they need without approvals hinging on credit ratings or net worth. The goal is to level the playing field so minority-owned businesses can access the financing they need affordably and efficiently, without running into loan turndowns because of parameters that – intentional or not – favor white business owners.
Teaching Lenders to Be Part of the Solution
At Commercial Capital Training Group, we teach our graduates to provide solutions that go beyond the bank, so that minority-owned businesses can get the financing they need. We recognize that the strength of our economy is in its diversity. Minority-owned businesses need to be able to access capital, equipment, commercial property, and more without prohibitively high requirements or loan turndowns. CCTG is proud of our graduates who are working with minority-owned businesses to help remove financing obstacles and keep them on the road to success.