Well, we are aware that traditional lenders have a weird perception towards doing business with women and non-white entrepreneurs; but only a recent study revealed the extent to which this acuity is affecting these two demographics.
Entrepreneurs cannot get far without financial backing and getting loans remains a major challenge for small business. But a Federal Reserve Bank of Dallas study has found that women and none-white borrowers suffer the most when it comes to acquiring financial support.
The Status Quo
It’s sad that these two groups suffer even in Texas; one of the states many would recommend for an entrepreneur looking to dive into business. Texas is considered one of the most business-friendly states in the U.S (or was, until this study showed some level of racial and gender discrimination).
In fact, the U.S. Minority Business Development Agency revealed that non-whites are three times more likely to be denied micro-business loans by banks. The Agency also reported that Non-white and women entrepreneurs lack the vast network their white counterparts may have which limits their potential to grow. The few who manage to qualify for a loan or secure an investor often get small amounts of money as compared to their white competitors. And the worst part, you may never get starting capital if you are female or non-white; which raises questions on what factors impact the decisions made by banks and investors.
Bridging the Gap
To bridge the wide financial gap, entrepreneurs of color and women business owners turn to credit cards and personal savings to keep their businesses going. In Texas, most of these entrepreneurs depend on small loans under $50,000. People of Color and Women are also introducing their own Venture Capital Funds.
According to Charles O’Neill, CEO Texas Association of African-American Chambers of Commerce, there won’t be real change until traditional lenders change their attitude towards people of color and women and “start signing bigger checks.”
Hopefully, these campaigns will open doors to more business loans for women as well as non-white entrepreneurs. Only intervention by banks and investors will help level the playing field for these two groups.
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has made him an expert at First American Merchant.