Lending to business is slated to increase in the disadvantaged areas. It is for this reason that two programs are being launched for businesses headed by minorities and women. SBA-guaranteed loans of up to $250,000 will be issued by mission-based financial institutions. The new initiatives are ‘Small Business Advantage’ and ‘Community Advantage’.
Karen Mills, SBA Administrator, says, “These new ‘Advantage’ initiatives are aimed directly at getting more loans into these markets so these small business owners can get the capital they need …” But, new loan programs may not be an answer for minority business owners to start businesses.
According to an analysis of Bureau of Labor Statistics, whites outnumber blacks and Hispanics in terms of starting new businesses. The incorporated and unincorporated self employment rate is 6 percent for blacks, 8 percent for Hispanics and 11.6 percent for whites. The reason for this difference can be attributed to family background, lack of interest, little work experience, and low net worth of minority households. The recent Federal Reserve Survey of Consumer Finances show that net worth of minority households is $28,000, compared to $170,000 for white households.
Lending Programs like the Small Business Administration 7(a) loan serves very few entrepreneurs to fill in the credit cases gap for minority owned small businesses.
The entrepreneurship gap between minorities and whites is addressed by increasing the equity capital available to minority entrepreneurs. The answer is in making a source of equity investment to potential entrepreneurs. Investment through churches, community groups, and informal investors is another option.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to