The Small Business Administration is teaming up with New Orleans-based Liberty Bank to guarantee loans for black business owners, the first such partnership between the agency and a black-owned bank.
The new partnership will allow the SBA and U.S. Black Chambers to back as much as 50 percent of some business loans provided by Liberty Bank to remedy one of the most widely voiced complaints from black business owners-that they can’t get adequate capital for their enterprises when they need it.
“Most lenders have a box, and the access to it is so high that many businesses are unable to reach it and are left out, specifically African-American businesses,” said Liberty Bank Vice President Ann Duplessis. “This allows us to be flexible. We [can] mitigate that disadvantage.”
Latest data from a U.S. Census Bureau data shows that just 47 percent of black business owners received the full amount of funding requested from banks, credit unions or other financial institutions, compared to 76 percent of whites.
Because many black business owners forgo seeking capital in the first place, the credit gap is exacerbated. However, the fear of rejection has listed as the top reason black business owners choose not to seek capital, with 59 percent saying they didn’t think they would be approved.
Generally, lending backed by the SBA helps shield banks from loans that are considered riskier, particularly if the bank lacks adequate capital or if the business owner has a lower credit score or business revenues. The backstop gives banks the ability to lend to small-business owners who typically wouldn’t qualify for traditional business loans.