SBA hopes loan deals rebuild black community’s faith

Historically, African-American business leaders have felt their community is less likely to ask for loans, because in the past they have been less likely to get approval.

The U.S. Small Business Administration is starting to change that perception. And it has the statistics to prove it.

In New Jersey, approvals are up 154 percent in the first four months of fiscal year 2018. Loan amounts have increased by 40 percent already.

That puts the SBA on pace to approve 132 loans totaling $21 million, compared with 85 totaling $17.8 million a year ago.

To date, New Jersey has approved 33 loans for $5.2 million, compared with 13 loans for $3.7 million for the same four-month period.

SBA New Jersey District Director Al Titone said in a statement Thursday that, while the news was encouraging, there is more work to be done.

“This tells me that, despite our advances, the SBA New Jersey district office needs to continue its outreach to lenders and borrowers alike to make sure they understand the possible opportunities they may have available to them,” he said.

“We’ll look to increase our participation with lenders and community economic development groups to provide more education and programs on credit repair and financial literacy so that loan approvals to the African-American small business community can continue to improve.”

A study from the SBA’s Office of Advocacy, using U.S. Census Bureau data, shows that 60 percent of African-Americans did not choose to apply for financing for their business because they assumed they would be denied.

At least 47 percent of white and 44 percent of Asian business owners feel the same way.

Recent studies and debates around the country increasingly focus on the root cause.

Some argue it is because there isn’t enough financial education and awareness in minority communities, while others blame the financial system — saying regulations and existing formulas for calculating credit ratings have allowed for prejudice to thrive.

While it is a little bit like comparing apples and oranges, this has been the case as well in the mortgage sector, according to another study released Thursday.

The investigation, done in collaboration with Reveal from The Center for Investigative Reporting and PRX, shows that Philadelphia metro area led the country in denying African-Americans loans for their homes.

The data collected showed that disparity to be true in portions of South Jersey as well.

U.S. Sen. Tim Scott (R-S.C.) unveiled a bill in August to require the federal government to vet credit standard used for residential mortgages, according to the article on Reveal.

Scott said he was calling for the vetting because the credit scoring model does not take into account factors that could be better metrics for housing, such as rent, utility and cell phone bill payments.

This has disproportionately affected the creditworthiness of minorities, he said.

The SBA’s report Thursday echoed similar problems of creditworthiness.

“In addition to being more likely to seek out multiple new funding sources in 2014, blacks or African-Americans and Hispanics were also more likely to demonstrate unmet credit needs than other groups (based on the percent of firms who established new funding relationships but did not receive the full amount of capital sought),” according to the report, prepared by SBA’s Alicia Robb.

“African-Americans were most likely to report unmet credit needs across every financing category. Most notably, 53 percent of black or African-American business owners reported not receiving the full amount requested from banks and other financial institutions, compared to 24.5 percent of white business owners,” the report said.

According to the SBA data, TD Bank approved the most loans, 12, totaling $580,000.

On the flip side, TD Bank was cited in the mortgage study as the largest lender, by volume, for 2015 and 2016, but the most likely to turn down African-American and Hispanic applicants.

The bank argued, using a defense that references a practice that led to the market crash a decade ago, that if it does turn down applicants, it’s to shield them from adverse results.

“TD Bank lends money with the confidence that our customers can repay their loans, decreasing the likelihood that a homeowner will become delinquent or face foreclosure,” the bank said in a statement to Reveal.

Banks have been criticized in the past for approving applicants who they knew could not make payments, which led to the market crash.

The SBA report Thursday highlighted gains in business lending but showed where improvements are still needed.

The largest loan total came from two approved loans at United Bank of Philadelphia, for $1.2 million.

Only 13 of the 21 counties in New Jersey had black-owned businesses that received loan approvals.

Essex and Union counties led the way, with six loan approvals for $1.3 million and $763,000 respectively, according to the report.  Others include Atlantic, Burlington, Camden, Gloucester, Hudson, Mercer, Middlesex, Monmouth, Morris, Ocean and Somerset counties.

John Harmon, president of the state African American Chamber of Commerce, is supportive of the loans, but remains critical.

“Although it’s encouraging, it’s still ridiculous,” Harmon said.

The state’s Economic Opportunity Act targeted known clusters of minority populations in the state, but the loans by the SBA miss those areas, he said.

“Essex County, you got six, that’s the larges concentration of black businesses and black folks in the state. And you have six loans,” he said. “The SBA needs to expand its partnerships to better leverage federal resources.”

Meanwhile, smaller loans are an increasing trend in order to help the SBA disburse greater quantities of loans.

“The trend toward smaller loans continues,” Titone said in a statement Thursday. “Between fiscal year 2014 and 2017, the SBA has not charged any fees for loans under $150,000.

“In order to continue the no-fee structure this year, the SBA lowered the loan amount for loans under $125,000. Small business owners throughout New Jersey, but especially in underserved communities, are benefitting from this incentive.”

Fees, Titone said, are an issue.

“Setting fees at zero effectively makes these loans cheaper for borrowers, encourages lending to small businesses that face the most constraints on credit access and creates lending opportunities important for underserved communities,” he said.

“Clearly, we are seeing positive results in the recent surge in loan approvals to African-American businesses in parts of the state, but we will strive to do even more to assist these businesses in preparing, and getting, conventional loans for their businesses.”