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Racism Impacts Small Business Loan Applicants

Racism Impacts Small Business Loan Applicants
Racism affects small business loan applicants. / Credit: Business loan via Shutterstock

When it comes to obtaining financing to start a new business, minorities are facing an uphill battle, new research shows.

Minorities seeking small business loans are treated differently than their white counterparts, despite having identical qualifications on paper, according to a new study that appears online in the Journal of Consumer Research.

"There is a general belief among Americans that we're the land of opportunity and that anyone can pull themselves up by their bootstraps," said study co-author Glenn Christensen, an associate professor of marketing at Brigham Young University. "It is a land of opportunity, but that opportunity is not always equally accessible."

As part of the study, the researchers recruited three black, three Hispanic and three white small-business owners to try and secure loans. The entrepreneurs wore the same clothes, asked for identical $60,000 loans to expand identical businesses and had nearly identical backgrounds.

The study's authors found that the minority loan seekers were given less information on loan terms, were asked more questions about their personal finances and were offered less application assistance by loan officers.

"If you are white and set out to get financing for an entrepreneurial venture, it might be a tough journey," Christensen said. "But, generally speaking, you would experience fewer obstacles and find more help along the way than if you came from an African-American or Hispanic background."

In the second part of the study, the researchers conducted in-depth interviews with 39 small business owners — 16 white, 13 Hispanic and 10 black — about their experiences seeking funding. They discovered that the denial, rejection and restricted access to loans for minorities led to self-questioning and diminished self-worth and self-esteem.

"While racial and ethnic minorities have made significant progress in terms of race relations over the past several decades, the harsh reality is that there still are remnants of discrimination in society," said co-author Jerome Williams, director of the Center of Urban Entrepreneurship and Economic Development at Rutgers University. "It is appropriate to continue asking the question, 'Is the glass half empty, or is the glass half full?' in terms of progress being made in eradicating discrimination in the marketplace?"

The researchers said the study offers evidence that choice is not open, unrestricted and available to everyone in the United States.

"Many consumers are driven to start their own business as part of their journey for the American Dream," said study co-author Sterling Bone, a professor of business at Utah State University. "They knock doors, and they chase after this dream, only to find that because they are a minority, their ability to lay hold of that dream for themselves and their families is frustrated."

Originally published on Business News Daily

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.