Betpack.com, an online comparison service, recently released a study that shows loan approval rates vary significantly by race, with white businesses having the highest approval rates and Black-owned businesses facing the greatest challenges.
Studies have shown that the ability to obtain bank loans has a direct correlation to whether a business flourishes or not. The study reveals that white-owned businesses have a 77% approval rate for loans while Black owned firms get only 51%.
The study suggests that white-owned firms have more success due to factors such as better credit scores, longer business histories or simply more access to resources to help navigate the loan process.
However, for Black businesses, it is a different story. Among Asian, Hispanic, Native American and Black businesses surveyed, African American-owned firms have the hardest time getting approved for loans. Nearly half of all loan applications from Black-owned businesses are turned down, the highest disapproval rate among all racial groups.
This disparity points to ongoing systemic barriers, like racial biases in lending, lower credit scores, and less access to collateral or financial education.
Among businesses of color, Asians have the highest approval rate with 67% followed by Hispanics with 59% and Native Americans at 57%.
The study said the difference in loan approval rates among the races has implications for economic fairness and the future of minority businesses in the U.S.
It said: “Access to capital is essential for business growth and success.”
“Without it [access to capital] businesses owned by people of color might struggle to expand, compete or even survive,” according to the study. “The data shows a clear need for policies and programs that directly address these inequalities. This could include expanding credit access for minority-owned businesses, boosting financial literacy, and tackling biases in the lending process. Creating a more level playing field is crucial to ensuring that all entrepreneurs, regardless of race, have the opportunity to thrive.”