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SBA data show Black,
Hispanic businesses shut out of stimulus loans By Aaron Glantz
New America Media
(December 17, 2009) Loans handed out to struggling small businesses as
part of President Barack Obama's stimulus package have largely shut out
minority businesses -- especially those owned by Blacks and Latinos --
according to data provided by the federal government's Small Business
Administration (SBA) to New America Media.
On June 15, the SBA, using money from the $787 billion American Recovery
and Reinvestment Act, launched the ARC program, America's Recovery
Capital, giving banks and credit unions 100 percent guarantees so
they're taking no risk when they make loans of up to $35,000 to
previously successful, currently struggling small businesses to help
them ride out the recession.
Under the program, the borrower pays no interest and makes no payments
for 12 months, then has five years to repay the loan. SBA charges no
fees and pays interest to the lender at prime - the rate of interest at
which banks lend to favored customers - plus 2 percent.
The Obama Administration does not report the racial breakdown of who's
benefiting from these loans at Recovery.gov, but data obtained by NAM
from the SBA found that of the 4,497 ARC loans where the race of the
borrower was reported, 4,104 (over 91 percent) went to white-owned
firms, 140, (3 percent) went to Hispanic-owned businesses, and 151 (3
percent) went to Asian- or Pacific Islander-owned businesses. Only 65,
(1.5 percent) went to black-owned firms.
Overall, white-owned businesses received over $130 million in loans
through the program, while Hispanic-owned businesses got $4 million and
black-owned businesses less than $2 million.
In five states - Alabama, Arkansas, New Hampshire, South Dakota, and
Wyoming -- every single firm that received an ARC loan was white-owned.
In eight other states, including Louisiana and Nevada, all but one loan
went to a white-owned firm.
Civil rights groups and representatives of the minority business
communities reacted with anger when told of NAM's findings.
"It's just horrendous," said Anthony Robinson, director of the
Washington, D.C.-based Minority Business Legal Defense and Education
Fund (MBELDEF). "During this economic recession, there is no recognition
or sensitivity to the need to support and benefit people of color."
"The data raises troubling questions" and should trigger an
investigation," says Oren Sellstrom of San Francisco's Lawyers Committee
for Civil Rights. "This should be a red flag for the SBA and the banks.
It gives us the indication that something may be amiss and further
explanation is warranted."
Census figures put black business ownership at 5 percent and Hispanic
business ownership at about 7 percent -- more than double the numbers
getting these SBA-backed loans.
At the SBA in Washington, spokesman Jonathan Swain argued racial
disparities in the ARC loan program don't paint the full picture of the
agency's lending practices. Many of the SBA's other loan products, he
says, have large minority business participation. For example, he says,
minority-owned businesses receive 29 percent of loans given through the
SBA's regular lending program and 37 percent of Microloans doled out by
"It's hard to look at the ARC program by itself," he told NAM. "It's
just one tool in the tool box, just one tool in the array to help small
business in these tough economic times."
One reason for the extremely low level of minority participation in the
ARC loan program, he maintains, is that the Recovery Act specifically
prohibits the agency from allowing an ARC loan to be used to refinance a
regular SBA loan, which minority firms are more likely to have.
That explanation isn't enough for minority business and civil rights
Sellstrom of the Lawyers Committee for Civil Rights isn't convinced by
that argument. "You would think that minority owned firms could use
$35,000 for a lot of uses other than paying down SBA loans."
Sellstom said SBA's response only underscores the need for further
investigation. "It's often the case that the first explanation leads to
further questions," he said.
Javier Palomarez, the president and chief executive officer of the
United States Hispanic Chamber of Commerce, says the ARC loan program
was poorly designed and "destined to fail."
When Congress was drafting the stimulus package, Palomarez said, his
agency and other minority business groups argued the severity of
America's recession should have led to the government handing out loans
to struggling small businesses directly - rather than simply backing up
loans from the very banks that caused the country's economic recession.
But the SBA and the banks lobbied against direct government financing of
small business, he said, and so Congress devised a $35,000 loan program
that requires a small business to wade through nearly the same paperwork
needed to obtain one of SBA's regular $2 million loans.
Because of the paperwork and the small sums involved, "most banks don't
want to participate in the loan program, and many of those that are
participating are restricting applications only to long-term clients."
And those long-term clients often exclude small, minority businesses,
which banks see as "risky."
"There's been a dramatic rise in the risk profile of small businesses,"
Palomarez said "and that is even more pronounced among minority
"African American and Hispanic entrepreneurs often self-financed their
start-ups or expansions, meaning, that they tapped into their own net
worth ... taking out home equity loans or second mortgages to invest in
their communities and create jobs."
"These businesses did not get a bailout and, while the Administration
has been generous with tax credits for struggling businesses, the banks
that caused this problem are nowhere to be seen," he said.
James Ballentine, senior vice president of the American Bankers
Association, told New America Media the banks have nothing to do with
the racial disparities apparent in the stimulus' small business loans.
"When somebody comes to us, we don't look at their race," he said. "The
can be red, white, brown, or green. The only thing we look at is their
The main problem, Balletine, said, is "there's been a real lack of
marketing and as a result, very few lenders have participated." He noted
that in the six months since the ARC Loan program was first announced,
the SBA has been able to underwrite fewer than 5,000 loans.
But Sellstrom of the Lawyers Committee says the bankers' analysis
doesn't address the question of the racial inequities. The fact that
there's been little marketing doesn't mean that nobody is being told
about the opportunities. It just means that it's going on in less formal
ways, and those informal channels are the ones that minority businesses
are not privy to."
"The breakdown is that people of color are not present at the banks,"
added Anthony Robinson of MBELDEF." And the government that's pushing
these benefits through are not sensitive to the fact that we are not
involved in this distribution network.
"So to solve this problem we need to incorporate people of color into
the distribution chain of banks, business, and government. Otherwise,
the flaws of the system will only magnify the inequality that's at the
center of our recession."
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