One of the many long-standing frustrations for minorities is that their vital role in the U.S. economy hasn't made it much easier for them to obtain the means for success. Between 2007 and 2017, minority-owned small businesses grew by 79%, about 10 times faster than the overall growth rate for U.S. small businesses during the same time frame. This puts the number of minority-owned businesses at approximately 11.1 million, which isn’t much of a surprise, considering the U.S. is expected to become a minority-majority country sometime between 2040 and 2050.

But, despite leading a significant portion of the nation's businesses, minority-owned firms are still having a much harder time accessing small business loans than their white counterparts. Minority-owned firms are much less likely to be approved for small business loans than white-owned firms. And, even if they do get approved, minority-owned firms are more likely to receive lower amounts and higher interest rates. According to findings from the U.S. Department of Commerce Minority Business Development Agency, these discrepancies have made minority business owners more likely to not apply for small business loans, usually out of fear of rejection.

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Here are a few reasons why it’s particularly difficult for minority business owners to obtain small business funding:

1. Lower Net Worth

It seems that the most common reason minority-owned firms are rejected for small business loans is a lower net worth and/or lack of assets. Wealth levels for Latinos and African-Americans are reportedly 11 to 16 times lower than for whites. Data recorded in 2016 found that white business owners start their businesses with an average of $106,720 in working capital compared to African-American-owned businesses, which are started with an average of just $35,205.

Banks are traditionally biased against applicants with less money to spare, partially because such applicants probably cannot offer collateral. The lower net worth of minority business owners suggests that they are less likely to own homes or other expensive assets the bank can sell if the applicant cannot pay off the debt. A lack of collateral or higher net worth often makes the bank so worried about being paid back that it is only willing to distribute small business loans that must be paid back as quickly as possible and are therefore insufficient for fostering significant growth.

One of the many long-standing frustrations for minorities is that their vital role in the U.S. economy hasn't made it much easier for them to obtain the means for success. Between 2007 and 2017, minority-owned small businesses grew by 79%, about 10 times faster than the overall growth rate for U.S. small businesses during the same time frame. This puts the number of minority-owned businesses at approximately 11.1 million, which isn’t much of a surprise, considering the U.S. is expected to become a minority-majority country sometime between 2040 and 2050.

But, despite leading a significant portion of the nation's businesses, minority-owned firms are still having a much harder time accessing small business loans than their white counterparts. Minority-owned firms are much less likely to be approved for small business loans than white-owned firms. And, even if they do get approved, minority-owned firms are more likely to receive lower amounts and higher interest rates. According to findings from the U.S. Department of Commerce Minority Business Development Agency, these discrepancies have made minority business owners more likely to not apply for small business loans, usually out of fear of rejection.

Shutterstock

Here are a few reasons why it’s particularly difficult for minority business owners to obtain small business funding:

1. Lower Net Worth

It seems that the most common reason minority-owned firms are rejected for small business loans is a lower net worth and/or lack of assets. Wealth levels for Latinos and African-Americans are reportedly 11 to 16 times lower than for whites. Data recorded in 2016 found that white business owners start their businesses with an average of $106,720 in working capital compared to African-American-owned businesses, which are started with an average of just $35,205.

Banks are traditionally biased against applicants with less money to spare, partially because such applicants probably cannot offer collateral. The lower net worth of minority business owners suggests that they are less likely to own homes or other expensive assets the bank can sell if the applicant cannot pay off the debt. A lack of collateral or higher net worth often makes the bank so worried about being paid back that it is only willing to distribute small business loans that must be paid back as quickly as possible and are therefore insufficient for fostering significant growth.