SBA seeks to remove barriers to minority lending

The U.S. Small Business Administration is taking steps to combat the discrimination that causes minority entrepreneurs to receive fewer loans than their white male counterparts, a top agency official told Newsday.

SBA dropped questions about a loan applicant’s criminal background when they seek help from Community Development Financial Institutions, Certified Development Companies, microlenders and others via the agency’s Community Advantage Pilot Program.

“The criminal-background history questions disproportionately include Black and Latino small-business owners; they are systemic barriers,” said Veronica Pugin, senior adviser to SBA’s Office of Capital Access, which oversees lending programs.

SBA also permits a cash-flow analysis to substitute for a credit score.

“You see that the small business is bringing in revenue, paying their bills, has a profit, and that they can get this loan and pay it back,” she said in an interview.

The community advantage program, begun under then-President Barack Obama, targets loans for low-income borrowers and small businesses in poor communities. It expires on Sept. 30, 2024.

“We’ve been working on identifying barriers” to minority lending, Pugin said last week. “What is causing those barriers? How can we remove them?”

She said banks and other lenders often turn down loan applications from small firms that are owned by members of minority groups because the owner lacks a strong banking history, has a low credit score or committed a crime in the past. Racism is also a factor, she said.

Pugin cited data from SBA’s popular 7 (a) loan program for working capital, where financing from private lenders is backed with a federal guarantee.

The data show that Black people are 15% of the U.S. population but received only 7.5% of the loans. Hispanics are nearly 20% of the population but secured only 12% of the loans.

“We see that minority and women small-business owners do not obtain small business loans at the same rate as non-minority male entrepreneurs,” she said.

Locally, the Long Island African American Chamber of Commerce has won grant funds to help Black entrepreneurs obtain financing. The chamber is participating in SBA’s Community Navigator Pilot Program and provides training and lender contacts.

Pugin “is correct” about the lending barriers faced by Black-owned small businesses, said chamber president Phil Andrews.

“Our businesses were undercapitalized before the pandemic and therefore had fewer assets to survive the emergency — and some didn’t make it,” he said on Monday. “The wealth of Black communities decreased significantly during the pandemic.”

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.