SBA Shuts Out Black, Hispanic Businesses From Stimulus Loans
By Aaron Glantz
New America Media (www.newamericamedia.org)
(December 17, 2009) Loans handed out to struggling small businesses as part of President Barack Obama’s stimulus package have largely shut out minority businesses – especially those owned by Blacks and Latinos – according to data provided by the federal government’s Small Business Administration (SBA) to New America Media.
On June 15, the SBA, using money from the $787 billion American Recovery and Reinvestment Act, launched the ARC program, America’s Recovery Capital, giving banks and credit unions 100 percent guarantees so they’re taking no risk when they make loans of up to $35,000 to previously successful, currently struggling small businesses to help them ride out the recession.
Under the program, the borrower pays no interest and makes no payments for 12 months, then has five years to repay the loan. SBA charges no fees and pays interest to the lender at prime – the rate of interest at which banks lend to favored customers – plus 2 percent.
The Obama Administration does not report the racial breakdown of who’s benefiting from these loans at Recovery.gov, but data obtained by NAM from the SBA found that of the 4,497 ARC loans where the race of the borrower was reported, 4,104 (over 91 percent) went to white-owned firms, 140, (3 percent) went to Hispanic-owned businesses, and 151 (3 percent) went to Asian- or Pacific Islander-owned businesses. Only 65, (1.5 percent) went to black-owned firms.
Overall, white-owned businesses received over $130 million in loans through the program, while Hispanic-owned businesses got $4 million and black-owned businesses less than $2 million.
In five states – Alabama, Arkansas, New Hampshire, South Dakota, and Wyoming – every single firm that received an ARC loan was white-owned. In eight other states, including Louisiana and Nevada, all but one loan went to a white-owned firm.
Civil rights groups and representatives of the minority business communities reacted with anger when told of NAM’s findings.
“It’s just horrendous,” said Anthony Robinson, director of the Washington, D.C.-based Minority Business Legal Defense and Education Fund (MBELDEF). “During this economic recession, there is no recognition or sensitivity to the need to support and benefit people of color.”
“The data raises troubling questions” and should trigger an investigation,” says Oren Sellstrom of San Francisco’s Lawyers Committee for Civil Rights. “This should be a red flag for the SBA and the banks. It gives us the indication that something may be amiss and further explanation is warranted.”
Census figures put black business ownership at 5 percent and Hispanic business ownership at about 7 percent – more than double the numbers getting these SBA-backed loans.
At the SBA in Washington, spokesman Jonathan Swain argued racial disparities in the ARC loan program don’t paint the full picture of the agency’s lending practices. Many of the SBA’s other loan products, he says, have large minority business participation. For example, he says, minority-owned businesses receive 29 percent of loans given through the SBA’s regular lending program and 37 percent of Microloans doled out by the agency.
“It’s hard to look at the ARC program by itself,” he told NAM. “It’s just one tool in the tool box, just one tool in the array to help small business in these tough economic times.”
One reason for the extremely low level of minority participation in the ARC loan program, he maintains, is that the Recovery Act specifically prohibits the agency from allowing an ARC loan to be used to refinance a regular SBA loan, which minority firms are more likely to have.
That explanation isn’t enough for minority business and civil rights groups, however.
Sellstrom of the Lawyers Committee for Civil Rights isn’t convinced by that argument. “You would think that minority owned firms could use $35,000 for a lot of uses other than paying down SBA loans.”
Sellstom said SBA’s response only underscores the need for further investigation. “It’s often the case that the first explanation leads to further questions,” he said.
Javier Palomarez, the president and chief executive officer of the United States Hispanic Chamber of Commerce, says the ARC loan program was poorly designed and “destined to fail.”
When Congress was drafting the stimulus package, Palomarez said, his agency and other minority business groups argued the severity of America’s recession should have led to the government handing out loans to struggling small businesses directly – rather than simply backing up loans from the very banks that caused the country’s economic recession.
But the SBA and the banks lobbied against direct government financing of small business, he said, and so Congress devised a $35,000 loan program that requires a small business to wade through nearly the same paperwork needed to obtain one of SBA’s regular $2 million loans.
Because of the paperwork and the small sums involved, “most banks don’t want to participate in the loan program, and many of those that are participating are restricting applications only to long-term clients.”
And those long-term clients often exclude small, minority businesses, which banks see as “risky.”
“There’s been a dramatic rise in the risk profile of small businesses,” Palomarez said “and that is even more pronounced among minority entrepreneurs.
“African American and Hispanic entrepreneurs often self-financed their start-ups or expansions, meaning, that they tapped into their own net worth … taking out home equity loans or second mortgages to invest in their communities and create jobs.”
“These businesses did not get a bailout and, while the Administration has been generous with tax credits for struggling businesses, the banks that caused this problem are nowhere to be seen,” he said.
James Ballentine, senior vice president of the American Bankers Association, told New America Media the banks have nothing to do with the racial disparities apparent in the stimulus’ small business loans.
“When somebody comes to us, we don’t look at their race,” he said. “The can be red, white, brown, or green. The only thing we look at is their credit worthiness.”
The main problem, Balletine, said, is “there’s been a real lack of marketing and as a result, very few lenders have participated.” He noted that in the six months since the ARC Loan program was first announced, the SBA has been able to underwrite fewer than 5,000 loans.
But Sellstrom of the Lawyers Committee says the bankers’ analysis doesn’t address the question of the racial inequities. The fact that there’s been little marketing doesn’t mean that nobody is being told about the opportunities. It just means that it’s going on in less formal ways, and those informal channels are the ones that minority businesses are not privy to.”
“The breakdown is that people of color are not present at the banks,” added Anthony Robinson of MBELDEF.” And the government that’s pushing these benefits through are not sensitive to the fact that we are not involved in this distribution network.
“So to solve this problem we need to incorporate people of color into the distribution chain of banks, business, and government. Otherwise, the flaws of the system will only magnify the inequality that’s at the center of our recession.”
Black Construction Companies Shorted on Stimulus Contracts
By Aaron Glantz
New America Media (www.newamericamedia.org)
New statistics released this week by the Transportation Equity Network (TEN) show that from that pot of money not a single dollar had been allocated to any African-American owned business.
“Stunning,” is how TEN’s media director Stephen Boykewich described his organizations’ findings.
“What we’re seeing all over the country is that in spite of stated language in the stimulus bill that this was supposed to go to disadvantaged communities hit hardest by the recession, those communities are having incredible difficulty gaining access to those funds.”
TEN, a 22-state network of more than 300 community organizations fighting for an equity-based national transportation system, crunched numbers publicly available on-line at the Web site of the government’s federal Procurement Data System (www.fpds.gov) in making their findings.
The federal Department of Transportation had so far given out $163.8 million in direct contracts, they found and of that only $16.8 million, or about 10 percent, had gone to all minority-owned businesses; $4.7 million, or about 3 percent, had gone Hispanic-owned businesses. Not a single black-owned firm had received a contract from the DOT.
In Washington, a DOT spokesman refused to comment for attribution for this story and wasn’t able to offer an explanation of the statistics assembled by the Transportation Equity Network.
He added that the DOT’s Disadvantaged Business Enterprise (DBE) program doubled in size over the last year. and he forwarded a press release stating the agency “has participated in many national events” and organized “workshops, presentations, and DBE Days” to increase the amount of minority contracting.
Transportation Secretary Roy LaHood also sent a letter to every governor in the country December 7 urging them to “take advantage of existing equal opportunity programs and resources and to create innovative strategies to provide opportunities for the under-represented” with transportation infrastructure dollars they administer under the $787 billion American Recovery and Reinvestment Act.
Richard Copeland, the African-American owner of Thorn Construction in Minneapolis, says those efforts haven’t been successful because LaHood is only offering suggestions and not enforcement.
“You’ve got to put teeth in it and be willing to withhold the stimulus money if it’s not being enforced,” he said. “Unless you mandate and enforce it, it’s not going to work.
“It’s asking for voluntary participation and voluntary cooperation, and power is not conceded using those types of methods,” he said. “You’ve got to mandate that money goes into communities of color and then follow up.”
Copeland, who is the immediate past president of the Minority Contractors Association in Washington, DC, said the small number of minority firms receiving stimulus contracts is a partial cause of the Depression-like unemployment levels that now plague the African-American and Latino communities.
In November, the Labor Department reported the seasonally adjusted unemployment rate of 15.6 percent for blacks and 12.7 for Hispanics. It is 9.3 percent for whites.
“We know that 60 percent of the employees of minority firms are people of color,” Copeland said, “so if none of us get contracts, people in our communities won’t get jobs.”
The Transportation Equity Network believes the best way to solve this problem is to create a 30 percent set-aside of work hours for disadvantaged workers as part of any new jobs bill that passes the House in the coming month, as well as stronger accountability and transparency in tracking the use of all federal funds for economic stimulus and job creation.
In the meantime, the Boykewich, pointed to Missouri as a state where significant progress is being made.
Missouri’s Department of Transportation recently agreed that low-income construction apprentices would make up 30 percent of the work force on a $500 million highway project that was just completed. Working with trade unions and community groups, the department also agreed to use $2.5 million of the project’s federal funding to train low-income residents in construction work.
“And the best part was the project came in on time and under budget,” Boykewich said.
Boykewich said he’s cautiously optimistic after seeing LaHood’s letter’s to the governors. The Obama administration is moving in the right direction, he said, even if communities of color have yet to see any results.
Aaron Glantz is NAM’s Stimulus Editor