The 2021 Report on Firms Owned by People of Color, part of a series of reports from a national survey of small businesses conducted by the 12 Federal Reserve Banks, found that Black- and Latino-owned firms that applied for non-emergency financing were less than half as likely as white-owned firms to be fully approved.
This was the case even when the Black-owned, Latino-owned, and white-owned firms were all categorized as presenting a low credit risk.
• Among Latino-owned firms with a low credit risk, 25% received all the non-emergency financing they sought, nearly half the rate of white-owned firms with a low credit risk, 48% of which received all the financing they sought.
• Low-credit risk businesses with Black and Latino owners were approved for full financing at nearly the same rate as high/medium credit risk white-owned firms.
• Latino-owned firms with one or more employees were five times as likely as white-owned firms with one or more employees to get none of the Paycheck Protection Program funding they sought.
The report is based on the Federal Reserve Banks’ Small Business Credit Survey, an annual survey of small business owners that was fielded in September and October of 2020.
The report collected data about both traditional financing and emergency assistance funding, including loans provided through the Paycheck Protection Program. Unless otherwise specified below, the data in this release are about non-emergency credit.
The survey yielded 9,693 responses from a nationwide sample of small employer firms with anywhere from one to 499 employees, and another 4,531 responses from non-employer firms.
The data is for firms that were currently operating at the time of the survey; it does not include permanently closed businesses.
Among the other key findings of the 2021 Report on Firms Owned by People of Color:
• Businesses owned by people of color were more likely than white-owned businesses to report reducing operations or temporarily closing during the pandemic.
• Ninety-three percent of Asian-owned firms, 86% of Black-owned firms and 85% of Latino-owned firms reported sales declines due to the pandemic, compared with 79% of white-owned firms.
• More than 60% of firms owned by people of color that did not apply for funding in the prior 12 months needed funds but chose not to apply, compared to 44% of white-owned firms.
• Latino-owned firms reported challenges covering basic payments, including rent.
•Sixty-seven percent of Latino-owned firms classified their financial condition as “poor” or “fair,” compared with 54% of white-owned firms. Fifty-one percent of Latino -owned firms had trouble paying rent, compared to 40% of white-owned.
•Thirty-nine percent of Latino -owned firms applied for financing in the prior 12 months. Of those, 39% received none of the financing they sought.
•Of the Latino-owned firms that applied for financing, 64% said they were seeking to meet operating expenses, including wages and rent.
Other findings of note:
•More than 10% of firms owned by people of color do not use financial services.
•A quarter of Black- and Latino-owned firms that applied for financing in the prior 12 months sought $25,000 or less.
•Half of all firms of color reported being dissatisfied with their online lender during the pandemic..
As reflected in Census data and Small Business Credit Survey calculations, small businesses owned by Blacks, Asians, and Latinos are concentrated by region. For instance, 35% of Black-owned businesses and 27% of the Latino businesses surveyed are in the South Atlantic, while 40% of the Asian-owned businesses are in the Pacific region.