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President Joe Biden and his administration recently made strides in supporting Black-owned small businesses with meaningful action like the $10 billion State Small Business Credit Initiative. Despite the progress being made, there is still significant room to grow.
The Pew Research Center recently found that "businesses majority-owned by Black or African American people accounted for only 3% of all U.S. firms." Part of the issue is that there are still huge discrepancies in Black-owned businesses' access to funding. According to a recent report from the National Federation of Independent Business, small business owners as a whole are reporting difficulty in accessing credit at the highest level since 2012. Meanwhile, a staggering 57 percent of Black business owners were denied a bank loan at least once when they started their businesses, compared to 37 percent of non-Black business owners. On average, it also costs Black entrepreneurs $5,000 more to start a business than their non-Black peers ($21,000 versus $16,000).
With barriers to credit still firmly in place, it's no wonder that 45 percent of Black small business owners said they've had to dip into their personal savings over the past three months in order to keep their businesses afloat. That's 12 percent more than the overall small business population recently surveyed by Goldman Sachs.
Now is certainly not the time to impose further financial obstacles on the Black small business community. That's why we need to rethink the Consumer Federal Protection Bureau's (CFPB) recent proposal to cap credit card late fees, a rule that the Small Business Administration (SBA) Office of Advocacy advised against. In a recently submitted comment letter, SBA Advocacy strongly suggested the CFPB "maintain the status quo for small entities until the CFPB has sufficient data to perform a more thorough analysis of the economic impact that the proposed rulemaking may have on small entities."
A rule like this could trigger unintended consequences that could prove detrimental to many in our community. Capping these fees threatens to change the calculus for small community banks and Black-owned financial institutions that Black and brown-owned businesses count on every day. Instead of exclusively charging fees to those who pay late, all of a bank's cardholders might see higher fees or increased interest rates. Annual fees may be increased, and other free or low-cost bank services like free checking accounts or rewards points could be at risk of going away. Many small banks and credit unions might just stop offering credit cards entirely.
Banks could also make consequential changes that affect whom they lend to and how much they lend. Small businesses may need to meet different criteria when applying—like a higher credit score or longer time in business—or be offered more limited services, like a lower credit limit. Ramifications like this can drastically impact how the small business community operates.
With limited access to credit from reputable banks, many Black-owned small businesses may find themselves enticed by predatory lenders offering debt traps like payday loans. Despite its exploitative nature, payday lending is still legal in 31 states and is largely concentrated in the banking deserts communities of color live in. In fact, data showed that Black consumers are about twice as likely as white consumers to live a mile from small-dollar lenders. We can't let Black-owned businesses fall victim to cash advance loans that could bankrupt them instead of bankrolling them.
The Biden administration should be applauded for all the work they've done to further Black-owned businesses and the small business community. Enacting a rule like the credit card late fee cap currently being proposed by the CFPB threatens to undo these advancements.
Nathaniel Sena Amenyo, aka Alinco, is the founder and host of The Progressive Minds Show in Chicago.
The views expressed in this article are the writer's own.
