While some entrepreneurs can rely on home equity or other personal assets to get their businesses off the ground or navigate through a rough spot, the housing crisis — and the resulting glut of underwater homeowners — cut off that path for many businesspeople, particularly in communities of color. That means that entrepreneurs are relying more heavily on traditional bank financing, such as business loans, credit cards and lines of credit, in order to stay afloat or expand.
Disturbingly, our new research shows that not all businesses have equal access to credit. Businesses in low-income communities and communities of color in the six-county Chicago region received a disproportionately small share of loans (including loans, lines of credit and business credit cards) compared with businesses in wealthier, predominantly white communities.
Our report, titled “Dis-Credited,” found that businesses in lower-income census tracts were less likely to receive loans than businesses in higher-income areas. Businesses in low-income tracts were less than half as likely to have received loans as the average for all businesses.