It’s always been hard for Black business startups to obtain loans, but in Chicago and throughout the state of Illinois it may be a little harder than elsewhere. A new report has revealed why. According to a new study, minority areas in Chicago did not receive the same consideration when it comes to business loans and white areas.
The report by a Chicago-based nonprofit research and policy organization uncovered widespread racial and economic disparities in small business lending not just in the city, but also throughout the entire state.
“The Woodstock Institute’s ‘Patterns of Disparity: Small Business Lending in Illinois’ showed that businesses in nonwhite communities received fewer business loans and smaller loan amounts than their counterparts in predominantly white communities,” WBEZ reported.
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The report looked at business loans below $100,000 reported by banks as a requirement of the federal Community Reinvestment Act (CRA). The report discovered there were about 600,000 loans issued in Illinois between 2015 and 2017, with the majority of them going to white areas.
These disparities cost nonwhite communities and lower-income areas statewide tens of thousands of loans and hundreds of millions of dollars over the three-year study period, states the report.
“In the Chicago region, if businesses in census tracts where the nonwhite population exceeded 40 percent had received loans and loan amounts in proportion to their share of businesses overall in the region, they would have received 28,000 more loans and an additional $350 million over the three-year period, according to the report,” WBEZ reported.
This has far-reaching ramifications for minority communities.
“Businesses that have access to adequate levels of capital grow more rapidly, hire more workers, and make more investments than businesses without access to capital,” the study’s authors wrote. “Unfortunately, many businesses struggle to access traditional bank loans and instead are forced to turn to more costly forms of credit, such as personal credit cards or high-interest online loans.”
“Deavay Tyler, executive vice president of the Illinois Black Chamber of Commerce and an entrepreneur, said a lack of capital is the biggest impediment for small businesses, especially those owned by minorities. He said the problem is exacerbated by a lack of training for bank loan officers and poor preparation by business owners who can’t afford expert accountants,” The Chicago Sun-Times reported.
“There’s a perception in the banking community that a loan for a business in the minority community is just going to be harder,” he said. “They don’t give the borrower the benefit of the doubt.”
He added, “The missing link is education on both sides.”