The Small Business Administration recently announced two new programs that will increase lending to businesses in disadvantaged areas and to those headed by minorities and women. Beginning in mid-March, Small Business Advantage and Community Advantage will allow mission-based financial institutions to issue SBA-guaranteed loans of up to $250,000. "These new 'Advantage' initiatives are aimed directly at getting more loans into these markets so these small business owners can get the capital they need …," SBA Administrator Karen Mills explained in a press release. While I agree with Mills that a lack of capital deters many minority business owners from starting businesses, I don't think further loan programs are the answer.
Far fewer blacks and Hispanics start businesses than whites, with combined incorporated and unincorporated self-employment rates at 11.6 percent for whites, vs. a mere 6 percent for blacks and 8 percent for Hispanics, according to analysis by Steve Hipple of the Bureau of Labor Statistics. Explanations for this gap include differences in interest in entrepreneurship, family background, and work experience, but I agree with the many economists who believe that the low net worth of minority households is one of the primary culprits. (The median net worth of minority households is $28,000, vs. $170,000 for white households, according to the most recent Federal Reserve Survey of Consumer Finances.) Here's where I differ from my peers: I say the solution to improving startup rates lies in improved access to equity investment—not debt.
To read the full, original article click on this link: Minorities Need Equity Access, not SBA Loans - BusinessWeek
Author: Scott Shane
