Black and Hispanic companies half as prone to get wanted financing, Fed research finds By Reuters


© Reuters. FILE PHOTO: People make their way onto a local street in Chinatown in the New York City borough of Manhattan

(Reuters) – The coronavirus pandemic exacerbated the challenges for minority-owned companies, which had higher closings and revenue losses and more access to credit than white entrepreneurs, according to a report from the Federal Reserve’s 12 regional banks.

According to the study released Thursday, companies owned by colored people were more likely to scale back their operations during the pandemic. Black-owned companies in particular have struggled to access finance and were more inclined to use personal savings or borrow money from family and friends to help them stay afloat.

“The COVID-19 pandemic has in many cases impacted color communities and small color companies more than their white counterparts,” the researchers wrote in the report.

Black and Hispanic-owned businesses were half as likely to be eligible for non-emergency credit as white-owned businesses, even if they were all similarly rated as having low credit risk. Only 24% of black business owners and 25% of Hispanic business owners with low credit risk got all of the funding they were looking for, compared to 48% of white business owners.

In fact, Black and Hispanic business owners with low credit risk were eligible for credit at the same interest rate as white business owners rated as medium or high credit risk, the study found.

Black business owners are more likely than any other group to have had a blow to their personal finances. About 38% borrowed money from a friend or relative, 25% had a second job during the crisis, and 74% used their personal funds.

The report is based on a survey conducted last September and October of nearly 10,000 companies with fewer than 500 employees and another 4,500 non-employer companies.

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