New Study Shows Financing for Minorities on the Rise, Still Lags Behind Average

By Henry Thomas on 5th October 2015

P2P/Marketplace LendingInvoice Funding

Biz2Credit has released its latest study into unequal distribution of financing in the US. The study has found that Latinos lag behind the rest of the population in many criteria required for funding. AltFi spoke to CEO Rohit Arora to delve deeper into the findings.

New Study Shows Financing for Minorities on the Rise, Still Lags Behind Average

Key findings in the study included:

  • Average annual revenue for Latino-owned businesses was $68,540, trailing slightly behind the average annual revenue of $70,641 for non-Latino-owned businesses.
  • Average operating expenses were also significantly lower at $18,334, contrasted with $24,857 for non-Latino businesses.
  • The average age of Latino businesses was younger at 22 months vs. 25 months for non-Latino businesses.
  • The average credit score for Latino-owned businesses applying for loans was 603, compared to 614 for all others.

Reflecting on the data, Rohit commented:

Our data shows that the criteria Latinos need for small business funding - such as annual revenue, credit scores, age of business and operating expenses - have improved since last year, but still lags behind non-Latino groups, which means that Latinos and other minority groups with similar numbers have a harder time securing traditional financing.

The data only tells part of the story so we asked Rohit what was behind this disparity. The Chief Exec explained about the barriers for minorities obtaining financing:

“Immigrants, in particular, do not have the traditional networks that non-immigrants have. For example, they usually have not leased their space for long or do not have a longstanding relationship with their bank, which are both important factors for securing traditional funding.”

“They sometimes do not present their businesses well – banks require a rigid presentation of documents and even consider an owner’s mannerisms and appearance when they consider a loan. Sometimes there is a language barrier. Other times, the owner is not familiar with the American process.”

“The basics – As discussed above, having a lower credit score or revenue means less traditional options are available.”

One of the most celebrated aspects of disruptive finance is the democratizing effect. Rohit is a proponent of such democratisation and, in light of this new study, remarked:

“Tech-driven alternative lenders level the playing field and allow a neutral environment for business owners. There is no in-person meeting and no formal presentation of documents. Instead, it’s a simple and quick application form and sending a few documents over the web.”

The good news from this study is that the disparity – for Latinos at least – is lessening. In fact, this evidence is backed up in another of Biz2Credit’s studies, with a recent report showing that woman-owned businesses were on the rise. Minority groups appear to stand out as an important bastion of support for the alternative finance space, and vice versa. 

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Companies in this Article:

Biz2Credit