Banks Urged to Form Minority Business Lending Subsidiaries

Charging that minority-owned small businesses cannot get loans, a community group urged banks to massively expand their outreach efforts.

"Capital is the mother's milk of business growth," said Rev. Charles R. Stith, president of the Organization for a New Equality. "If we want minority businesses to grow, someone has to show them the money."

Banks should create subsidiaries dedicated solely to providing equity capital to minority-owned small businesses, he said, and they should evaluate their product offerings to ensure that they have services these small businesses need.

To support his call, Rev. Stith released a survey showing that nearly 40% of 200 minority business owners in 20 states who had applied for bank loans or lines of credit had been turned down every time. Of those who had received a loan, 40% had been turned down at least once previously.

The survey also found that over half the minority businesses polled turned to nontraditional credit sources, such as credit cards. As a result, these business owners paid 28% more on average for credit, the group said.

Also, 44% of minority businesses with annual revenues of less than $100,000 never applied for a loan or line of credit. Only 9% of business with more than $100,000 in revenue never applied for a loan.

The group did not poll similar white-owned businesses.

Rev. Stith said he shared the results Sunday with Comptroller of the Currency Eugene A. Ludwig. He also is setting up meetings with Andrew C. Hove Jr., acting chairman of the Federal Deposit Insurance Corp.

The report "is an important study and deserves serious review," Mr. Ludwig said Tuesday. "It is critical that we explore the primary issues that bar minority businesses full access to credit."

Minority small-business owners and bankers must work together to develop new credit products, he said. "Innovation is the key," Mr. Ludwig said. "We can have a real win-win here."

Rev. Stith also called for the development of a secondary market for small business loans.

"Just as creating a secondary market for home mortgages has led to a great increase in the number of mortgages available," the report said. "It could do the same for small business loans."

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