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What Minority Business Owners Need to Know About Getting Bank Loans

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As high street businesses continue to make a comeback post-pandemic, they face the triple threat of supply chain headwinds, labor constraints and historic inflation. For some, borrowing to invest, grow or simply stay afloat is a priority.

Data from Goldman Sachs’ 10,000 Small Business Voices “Small Businesses on the Brink” survey reveals that 86% of owners find that broader economic trends are negatively impacting businesses. Nearly 30% of owners expect to take out a line of credit or loan for their business this year, and 31% say they are very confident in their business’s ability to access capital. But black-owned small businesses said they expected to borrow at a higher rate of 48%, with less confidence in their ability to access capital, at 19%. The survey was released in late January, with responses from more than 1,400 small business owners, including 225 black-owned businesses.

Company owner Letha Pugh has experience funding pre-pandemic inequality. Pugh owns Bake Me Happy, a wholesale and retail gluten-free bakery and cafe. When she initially sought capital for the Columbus, Ohio-based company in 2013, Pugh said she was weak.

“Just having an account with a bank is not a relationship with a bank. We were offered an SBA 7(a) loan for equipment, and it was specifically for that equipment,” Pugh said. . “There was no discussion about working capital and things like that, I think it’s the disconnect.”

Letha Pugh and his wife Wendy own Bake Me Happy in Columbus, Ohio. Pugh worked for years to establish banking relationships and a network to continue to grow the business.

Courtesy: Letha Pugh

Pugh and his wife Wendy have looked to their savings to get started, and in recent years, Pugh said the focus has been on building a network to support small business. She drew on local resources in the city, attending webinars and participating in the Goldman Sachs 10,000 Small Business Voices program, as well as courses from the National Minority Supplier Development Council and the National Restaurant Association. As the business grew, Banks sought to work with the bakery. A relationship with State Bank in Dublin, Ohio helped the bakery access Paycheck Protection Program loans early on when other small businesses were locked out.

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“I’m thinking of establishing a banking relationship as soon as possible, even if it’s a $5,000 line of credit, or access to credit, just so you can pick up the phone and reach out. … I think being able to reach someone at the bank who knows you and understands you makes a huge difference,” she said.

The pandemic has highlighted inequities in lending, with minority-owned businesses securing funding from programs like PPP at lower rates than their white counterparts. The Federal Reserve’s 2021 Small Business Credit Survey report on businesses owned by people of color showed that even among businesses with good credit ratings, Black-owned businesses were half as likely that white-owned businesses will receive all the funding they seek at 24% vs. 48% of borrowers.

Community banks have ended up being a lifeline for small businesses during the pandemic. Winnie Sun, managing director of Sun Group Wealth Partners, said it was critical for companies looking to build banking relationships to prioritize quality of service over size of bank. Start with a personal or professional banker and hold several meetings to make sure this person is a good match for your business and your goals.

“It’s really important to remember that the relationship you have with your bank is a two-way street. They want to do business with you. But you also have the ability to decide whether you want to do business with them. is the key,” says Sun.

Through her perseverance, Pugh continued to grow the bakery, even in the face of the many challenges of the pandemic. Sales were up 40% from 2019 levels, but supply costs were also up 25%. Pugh just closed a building last month with an SBA 504 loan after the bakery lost its lease and the rent doubled. The new location should open in June or July.

“We sat down and decided that we weren’t going to lose money building a space and renovating that space for the business owner or the building owner, and paying their property taxes. … Let’s enjoy ownership of the building,” she said.

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Disclosure: NBCUniversal and Comcast Ventures are investors in tassels.