One of the biggest challenges small businesses experience is access to capital. Historically, this has been particularly true for businesses started and owned by African-Americans, Hispanics and women. Many studies associate this disparity in business lending with factors such as lower median household incomes and assets, reduced likelihood of entrepreneurial knowledge and experience through family owned businesses, and lower credit scores and profiles. During the Great Recession, these groups were disproportionally affected by tightened credit standards of commercial lenders and negative hits to individuals’ credit profiles.
Along with lack of business capital, other reasons small business fail include non-viable or unsustainable business concepts, underestimating competitors in the marketplace, ineffective marketing, and inadequate operating and management systems. Many experts contend these issues are more prevalent among minority- and women-owned businesses along with start-up businesses. The U.S. Small Business Administration (SBA) has programs and resources that can address some of these issues and contribute toward “leveling the playing field” for businesses in traditionally under-served populations.
An important step to facilitate obtaining capital, as well as to increase long-term success rates, is starting with a feasible business concept and plan. Education and assistance on how to prepare and present loan requests are also important. The SBA offers one-on-one counseling and education through our resource partners: Small Business Development Centers, Women Business Centers and SCORE (Service Corps of Retired Executives).
Working with these and similar business resource entities can assist prospective business owners early in the process if they have a workable business idea. For prospective and existing business owners, these resources can assist with loan application preparation. Such pre-loan education and assistance can also help reduce the apprehension that may discourage minorities and women from applying for commercial loans.
The U.S. Department of Commerce and the SBA have conducted studies that indicate the importance of lower-dollar loans to small-business formation and growth in under-served communities. The SBA’s microloan program allows approved non-profit organizations to provide loans of up to $50,000, along with crucial pre- and post-loan technical assistance.
The SBA’s Small Loan Advantage (SLA) Program seeks to increase the number of these crucial smaller loans. For loans of up to $350,000, this program offers the borrower and commercial lender a streamlined guaranty application process based on the SBA’s preliminary review of the proposed deal. SLA loans, along with the SBA’s other loan guaranty programs, can be an important bridge for business owners in under-served markets. Loans made to start-ups, minorities and women are more likely to be SBA-backed loans.
For decades, minorities and women have started businesses at higher rates than the general population. To be competitive in a global economy, it is important to continue supporting not only these start-up companies, but also their expansion and long-term success. The economic well-being of our city, state and country depends on it.
Terri L. Denison is district director for the Georgia office of the U.S. Small Business Administration.
