Despite all THE challenges involved in starting a business, a number of young black Americans are betting on themselves and put one’s energy into entrepreneurship. However, many of the financial resources needed to grow a small business remain beyond the reach of black Americans, who have long faced historical bias and systemic racism.
A recent post in the Journal of Marketing Research, published online last month, found that black entrepreneurs are still severely discriminated against by banks, even when they are more qualified than their white counterparts. In an attempt to update an equally disturbing study Ten years ago, a team of researchers conducted three field studies, two of which focused on Atlanta and Washington, respectively, which yielded disturbing results. Apparently, little has changed in the way discrimination “taints the American dream of minority entrepreneurs,” as new paper report says it eloquently.
In the Atlanta-area research, white and black test subjects used fabricated wallets to apply for business loans from banks to determine how the experiences of the two groups differed. But even when black testers had stronger financial profiles and higher credit scores than their white peers, they still received lower loans.
Data in Washington showed that while black testers with high socioeconomic profiles received similar treatment to their white counterparts, white testers with low socioeconomic profiles were less discriminated against than their black peers. This opens up a whole other conversation about classism – but I’ll save that for another time.
These findings echo the results of a recent Intuit QuickBooks survey in which 57% of black business owners said they had been refused at least one bank loan when setting up their business, while only 37% of non-black business owners said they had been refused. Other reports suggest that these rates could be even worse for Black woman who own businesses.
While this discrimination is due to a failing and racist banking system, the researchers behind the Journal of Marketing Research article aimed to empower black entrepreneurs by offering advice on spotting bullshit bias and fighting back. According to their findings, Black entrepreneurs who had joint business structures experienced less racial bias in loan approvals, while those who set up LLCs or S corporations were approved at even higher rates than their white peers.
For this reason, researchers have suggested that black entrepreneurs “do their best” by structuring their businesses as LLCs and citing high credit scores early in the application process with lenders.
Listen, it’s exhausting to have to play the game this way, but until we root out racism from the banking system – and it’s going to take a minute – it’s necessary.
And speaking of disrupting the system, the researchers also had suggestions for financial institutions: Take responsibility for historical biases, then enforce systems that prevent and remedy them. Also develop policies to ensure all products are advertised to every customer, a checks and balances system to mitigate employee bias during the selection process, and self-service technology so customers can access resources directly. .
The researchers further asserted that policymakers need to create standardized loan forms, find programs that inform and provide assistance to Black-owned businesses, and strengthen oversight.
“Banking bias training just doesn’t work,” said Sterling Bone, a marketing professor at Utah State University and co-author of the new paper.. “It’s time to do something different.”