Greater Access to Capital Is Needed to Unleash the Local Economic Development Potential of Minority-Owned Businesses

Abstract

Limited access to financing restricts the ability of minority business enterprises (MBEs) to achieve viability, to generate new jobs, and, generally, to reach their full potential to contribute to the economic development of the communities and regions in which they operate. Although MBEs rely more heavily on financial institutions for loans than all other borrowing sources combined, they experience higher costs than White firms when they borrow, receive smaller loans, and have their loan applications rejected more often. For MBEs in minority neighborhoods, these borrowing problems are compounded. Action is needed. The federal government needs to prosecute financial institutions that discriminate against MBEs on the basis of borrower race. Local governments can assist by weighing bank-lending activity in local minority communities when choosing the local banks with which they do business. Prompt payment of MBE vendor invoices by public-sector clients is needed.