Liberty Bank, SBA and US Black Chamber Loan Guarantee Program by Kari Nelson, Impact Investing Intern, University of Virginia
On Wednesday June 14, New Orleans-based Liberty Bank, a black-owned bank, announced that it is partnering with the Small Business Administration (SBA) and the U.S. Black Chambers (USBC) to guarantee loans for black business owners.
The groups hope this partnership effort will boost access to capital by solving one problem many black business owners experience – they cannot get capital when they need it. According to the U.S. Census Bureau, in 2014 only 47% of black business owners who requested funding from banks got the full amount requested, compared with 76% of whites. Statistics such as this are discouraging, and black business owners feel disheartened by the situation – with 57% of black business owners who don’t seek capital citing fear of being rejected as their reason. The credit gap is obviously a huge issue for black business owners and there is a lot of room for improvement in how banks and the Government address the issue. This new initiative by Liberty Bank with the SBA is an attempt to address this issue more effectively.
On June 14, I attended USBC’s School of Chamber & Business Management and heard the Senior Vice President of Liberty Bank & Trust Company, Ann Duplessis, discuss this new initiative. It was obvious that she and Liberty Bank are excited about the venture and confident that it will make a difference, and from the positive response she was got from the audience, you could tell that many of the business owners in the room had either experienced or were familiar with the capital-access problem black-owned businesses face and felt that this might be the answer they’d been waiting for.
Some basics (according to Biz New Orleans):
• In order to apply, a business owner must be a member of their local black chamber of commerce.
• Loans can range from $5,000 to $100,000.
• Loans can be used for equipment financing, business debt refinance, leasehold improvements, and working capital.
• The program will be piloted in 11 cities nationwide.
This program seems promising. SBA-backed lending shields banks from riskier loans – a label given if the bank has low capital or if the business owner has a low credit score or business revenues – so banks can lend to small-business owners who may not quality for more traditional business loans.
SBA-backed lending makes perfect sense as a means to address the credit gap between white and black business owners because statistically black-owned banks and black business owners are more likely to have the characteristics that would lead a loan to be labeled as riskier. This leads to a significant disadvantage for African-American businesses trying to access capital and thus leads to the credit gap.
It seems to me that the solution, SBA-backed lending, perfectly fits the problem: the loan risk factors present in black-owned banks and businesses and the resulting credit gap. I’m optimistic that this pilot program by Liberty Bank, the SBA, and the USBC may help close the credit gap by giving more black business owners the confidence and the means to request and receive funding.