Fairness needed in small business loans on Long Island

Building a small business isn't easy, no matter who you are or where your business is. On Long Island — where everything is more expensive — the road is even more arduous. And if that was not enough, Black business owners can face an additional obstacle.

A recent Consumer Financial Protection Bureau study of small business lending — a study that included Nassau County and Virginia's Fairfax County — found that there are still "significant disparities" in the way Black borrowers are treated when seeking small business loans. It's another disappointing reminder of the scourge of institutional racism — and its devastating economic impact.

The federal study found lenders were more likely to offer Black borrowers credit cards or home equity loans, which are more costly to business owners than business lines of credit and other more typical small business lending products. Black borrowers' options often came with additional potential pitfalls, from higher interest rates to being asked to put personal property — including one's home — at risk.

The study, which used Black and white testers in ways similar to Newsday's Long Island Divided series about housing — another expose of systemic racism in the region — found lenders expressed interest in just 23% of Black testers' applications, compared with 40% of white testers. Nearly 60% of Black testers were offered problematic alternative credit products, compared with just 39% of white testers. The testers posed as borrowers with similar circumstances and credit scores.

Ideally, there would be no differences in how those borrowers were treated. And yet, sadly but unsurprisingly, there were. 

Access to financing is critical when starting or expanding any business, large or small. When banks won't work with owners of any color, Long Island loses opportunities to diversify its economic landscape, add new industries, and provide young residents with employment opportunities. Compounding those ripple effects, some areas in the region remain unbanked or underbanked, leaving them open to predatory lenders, check-cashing institutions, and other harmful options. And some don't provide the same mortgage options to Black would-be homeowners as they do for white potential borrowers, as a recent report by the state attorney general found.

The conclusion is clear: The data shows we have a long way to go before the small business playing field is close to even. To make any headway, we first have to acknowledge the problem. The New York Bankers Association's response to the report — the group suggests banks don't discriminate at all — doesn't meet even that minimum threshold.

Lenders must do better, by reaching out more to local chambers of commerce and other minority business organizations to provide guidance and develop relationships. And they must take a careful look at their own practices and make changes where necessary. Long Island's small business owners are the heartbeat of the region. They all deserve the same chance to grow and succeed.