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Black-Owned Businesses Could Face Hurdles in Federal Aid Progra

  • Minority business owners have always struggled to secure bank loans.   Now, many banks want to deal only with existing customers when making   loans through the government'’'s $349 billion aid package.

    Four years ago, Yasmine Young walked down the street from Diaspora Salon, the business she owns in Baltimore, to the Bank of America branch where she has a business checking account. She was thinking of getting a credit card, but when a banker there described the requirements she would have to meet to qualify for one, Ms. Young says she left feeling too discouraged to apply.

    She eventually got a card from Capital One, never thinking that the decision would one day bring her to the brink of disaster.

    After she was forced to temporarily close Diaspora because of the coronavirus pandemic, Ms. Young tried to get an emergency loan under the federal government’s $349 billion relief program for small businesses. But Bank of America, one of the biggest banks participating in the program, refused to consider her application. Because Ms. Young had a credit card from Capital One, Bank of America said, Capital One was her primary bank. And Capital One was not yet accepting emergency relief loan applications. As of Friday, a week after the program was started, Capital One’s website still advised borrowers to keep checking back for updates and said its online application would be available “shortly.”

    Ms. Young is among the thousands of small-business owners at risk of being shut out of the government effort, known as the Paycheck Protection Program, because of limits set by lenders grappling with overwhelming demand. These loans, which do not have to be repaid if the money is used for payroll, rent or mortgage expenses, could be a lifeline for struggling businesses — if they can get them.

    And for small-business owners like Ms. Young, who is black, the hurdles could be much higher. That’s because minority-owned businesses often have weaker banking relationships than their white-owned counterparts — one legacy of the practice of redlining, or refusing to lend to people in communities of color. Research shows that black and Latino business owners are denied loans at higher rates.

    Anticipating that minority business owners could struggle to tap federal aid, some lawmakers are proposing ways to earmark additional funds specifically for minority-owned businesses. And on Wednesday, a group of prominent black investors, including John W. Rogers Jr., the billionaire co-chief executive of Ariel Investments, a mutual fund manager, sent a letter to lawmakers expressing concern that the emergency loan program was already leaving black borrowers behind.