Earlier this month the Washington Post reported on the state of small business lending, highlighting findings that come as no surprise to CDFI industry practitioners, “Small black-owned businesses are significantly more likely to face financial challenges than white-owned firms and have a harder time obtaining credit even when compared to white business owners with similar performance profiles and credit risks.” The article was informed by findings from the 2016 Small Business Credit Survey conducted by the Federal Reserve Banks of Cleveland and Atlanta, who worked with OFN to gain CDFI borrower input. The 2017 survey is currently open, OFN is hosting a webinar Tuesday, November 21 so CDFIs can learn more about how to participate as a survey partner.
“This survey is one of the few sources of data on the experience of small business owners trying to obtain credit,” said Lauren Stebbins, OFN Vice President, Small Business Initiatives. Lauren connected with members of the Federal Reserve at a 2016 Small Business Working Group hosted by CFSI, and it soon became clear that OFN would be a useful distribution partner for the 2016 survey. With outreach to OFN Members and allies, Lauren helped connect the survey to CDFI borrowers and clients.
The findings highlight the critical role CDFIs play for these small businesses, and also makes the case for the CDFI Fund as a tool for job creation.
Overall the results of the survey show:
- More white-owned firms are profitable than minority-owned firms. The gap is most pronounced between white- (57%) and black-owned (42%) firms.
- Black-owned firm application rates for new funding are 10 percentage points higher than white-owned firms, but their approval rates are 19 percentage points lower.
- Forty percent of nonapplicant black-owned firms did not apply for financing because they were discouraged (i.e., they did not think they would be approved), compared with 14% of white-owned firms and 21% of Hispanic- and Asian-owned firms.
- Looking at just firms that were approved for at least some financing, when comparing minority- and nonminority-owned firms with good personal and/or business credit scores,11 40% of minority-owned firms received full amount sought compared to 68% of nonminority-owned firms.
- Large banks are the most common type of lender applied to overall, regardless of race. Black- and Hispanic-owned firms are less likely to apply for financing at small banks and more likely to apply at community development financial institutions (CDFIs) and online lenders, relative to white-owned firms.
“OFN is excited to partner again with the Federal Reserve to amplify the outreach and awareness of the survey among small business lenders,” said Lauren. CDFIs who join in distributing the survey receive a custom report on their borrowers and clients. In addition, OFN is hosting a webinar on Tuesday, November 21, 2:00-3:00 PM ET for a discussion on how to get involved as a survey partner.