In response to recent protests calling attention to racial discrimination and economic inequality in the wake of George Floyd’s death, the local business community, like communities around the country, has pledged to do more to close the gap and help minority-owned businesses get access to capital.
In the past week alone, the Baton Rouge Area Chamber, NexusLA and Mayor Sharon Weston Broome’s office have all issued statements outlining programs and initiatives they hope to pursue.
But is that what it will take to address a problem that has been decades in the making?
Partly, says Denage Piper, a black woman and 15-year veteran of the banking industry, who currently serves as a commercial relationship manager at Citizens Bank and has spent her career working on the issue.
But it’s also a lot more complicated than just helping upstart businesses in underserved neighborhoods get a loan or line of credit.
“It’s such a deep and complex issue,” Piper says. “It’s so much more than just, ‘Why aren’t banks lending to people of color?’ There are layers upon layers of issues.”
Piper, who also has worked at Hancock Whitney and Capital One, says she has never seen or experienced racial discrimination at a bank and notes that lenders are not allowed to deny a loan to a borrower based on skin color, though she acknowledges such discrimination went on in the past and that the perception—and distrust in the black community—lingers today.
But she says that often when minority business owners are denied a loan it’s for the same types of reasons that other small, first-time borrowers are turned down: They haven’t established credit, don’t have enough collateral, don’t have a steady cash flow, may have incorrectly filled out the loan application or simply lack financial literacy skills.
“If you’re seeking a bank loan you have to be able to put 20 percent down,” Piper says. “You need to strengthen your credit score prior to starting the business and have an income stream. If you look at it from the bank’s perspective, how do you plan on repaying the debt if you quit your 9-to-5 job?”
Unfortunately, she says, once an inexperienced borrower is turned down, they may shy away from trying again, especially if they believe race is a factor
“Just because one bank says no, doesn’t mean you should give up,” she says. “I always tell people to keep trying.”
Minority and other small, first-time borrowers also may not realize that a traditional lending institution is not necessarily the best place to start when seeking financing. Credit unions and private lenders may be a better option.
“The cost of doing business with a private lender may be higher but that may be where you need to start,” she says.
Baton Rouge has several organizations that offer educational tools and provide assistance to first-time and minority business owners, particularly the LSU and Southern University chapters of the Louisiana Small Business Development Center. Unfortunately, too few people know about them, Piper says.
“Nonprofits in this city are doing great work to get small businesses and entrepreneurs ready to be bankable and borrowers,” she says. “But they need support from the whole community.”
Piper says it’s incumbent upon the banking community to help educate minority business owners about the resources available to them and to explain what it will take to make them bankable clients, which, in turn, will help create generational wealth, which is another key piece of the puzzle.
“It’s so much more than just starting a business,” Piper says. “It’s about how we as black people are able to create generational wealth.”
