Revised City of South Bend Disparity Study Report

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City of South Bend Disparity Study 2020 Minority-owned firms are less likely to receive loans than non -minority- owned firms regardless of firm size. According to an analysis of data from the Survey of Small Business Finances, for firms with gross receipts over $500,000, 52 percent of non -minority-owned firms received loans compared to 41 percent of minority-owned firms. When minority-owned firms do receive financing, it is for less money and at a higher interest rate than non -minority-owned firms regardless of the size of the firm. Minority-owned firms paid an average of 7.8 percent in interest rates for loans compared to 6.4 percent for non -minority-owned firms. Among firms with gross receipts under $500,000, minority-owned firms paid an average of 9.1 percent in interest rates compared to 6.9 percent for non -minority-owned firms. • Minority owned firms are more likely to be denied loans. Among firms with gross receipts under $500,000, loan denial rates for minority firms were about three times higher, at 42 percent, compared to those of non - minority -owned firm, at 16 percent. For high sales firms, the rates of loan denial were almost twice as high for MBEs as for non -MBEs. MBEs pay higher interest rates for business loans. For all firms, MBEs paid 7.8 percent on average for loans compared with 6.4 percent for non - MBEs. The difference was smaller, but still high, between MBEs and non - MBEs with high sales volumes. Minority-owned firms receive smaller equity investments than non - minority -owned firms even when controlling for detailed business and owner characteristics. The differences are large and statistically significant. The average amount of new equity investments in minority- owned firms receiving equity is 43 percent of the average of new equity investments in non -minority-owned firms. The differences were even larger for loans received by firms with high sales volumes. Yet, venture capital funds focusing on investing in minority firms provide returns that are comparable to mainstream venture capital firms. 156 Disparities in total investments in minority-owned firms compared to those in non -minority-owned firms grew after the first year of business operations. According to the analysis of the data from the Kauffman Firm Survey, minority-owned firms' investments into their firms were about 18 percent lower in the first year of operations compared to those of non - minority -owned firms. This disparity grew in the subsequent three years of operations, where minorities' investments into their firms were about 36 percent lower compared to those of non -minority -awned firms. 156. See Bates, T., "Venture Capital Investment In Minority Business," Journal of Money Credit and Banking 40, 2-3 (2008). O 2020 Colette Holt & Associates, All Rights Reserved. 83