Illinois Issues: Minority Companies Get Fewer Loans Than White Peers — Is That Racism?

Champaign entrepreneur Jemiyah Beard faced a pair of unattractive options to fulfill her largest contracts to date.

She had a choice: Give up the $100,000 in work — or deal with the embarrassment of asking her business community members for help to float her payroll.

“It came to a point where I was like, I'm not gonna get any money. And I literally wanted to terminate my contract,” said the 28-year-old owner of a commercial and residential cleaning business.

But after six months of trying with three different banks, she was able to get the $50,000 she needed to hire workers and buy equipment for the post-construction cleaning jobs.

She says getting the loan finally happened with the help of the Illinois Black Chamber of Commerce.

The African American woman says she believes the difficulty in getting capital for Mary’s Master Cleaning Services came down to her race.

“There needs to be some type of change in the system where it can help us —not build another barrier for us to not be able to prosper and move forward,” she said.

Beard is not alone. A recent report by the Woodstock Institute of Chicago found that banks in Illinois are much more likely to lend to white-owned small businesses as opposed to their minority peers. Woodstock is a nonprofit research and policy organization that works in the areas of fair lending, wealth creation and financial systems reform.

The report found if the disparity between white and non-white communities could be corrected in Illinois, predominantly minority census tracts would have gotten 19,000 more loans over a three-year period. That adds up to $460 million dollars.

Brent Adams, a vice president at Woodstock, is co-author of the report, which recommends that a federal investigation into racial disparity in small-business lending nationally be conducted to show whether the problem is racial discrimination.

“The problem is that the amount of small-business lending by banks in a given area is inversely proportional to the number of people of color in that area,” he said. “Put another way, the more people of color in an area, the less small business lending occurs in that area by banks.”

Adams says the way the American financial system is structured means having capital in the first place increases the ability to earn.

Photo Credit: Claire Strominger

Marcus Pickett, who is African-American, started his Temperature Doctors Heating and Cooling business in Rockford 13 years ago. He has 20 years of experience in HVAC work and says his credit and business records are excellent. Nonetheless, he has had so much trouble getting loans that he has had to use credit cards or share jobs with other contractors, which has limited his earning potential. 

“It was always some excuse. You know, even sometimes, before the application process started, they wouldn't even look at our application, they wouldn’t look at our ask,” he said.

He says one banker told him outright that they didn’t want to lend to him because they didn’t believe his company could make it.

That was Blackhawk Bank in Rockford. The bank’s President, Dave Adkins, said he could not talk specifically about one customer’s case.

“When I hear somebody suggesting that we perhaps did not approve a loan and that that decision was based in any way, shape or form on race or sex or any of those issues, it obviously concerns me,’’ he said.

Adkins also said diversity is encouraged: “It's something that we strive to do not only in our in our lending, but also in our hiring and and promotion and so on.”

Adams, the Woodstock executive, said the effects of denying loans goes beyond individuals. He said the shortage of businesses in minority-majority communites hurts those neighborhoods. They may not have access to fresh food or mainstream financial services, and instead turn to payday lenders.

“Folks are going to have a more difficult time obtaining jobs,” he said. “And if they are not able to secure an adequate income, that's going to lead to a whole host of problems; that’s going to have a ripple effect throughout an entire neighborhood.”

On the other hand, Ben Jackson, a vice president at the Illinois Bankers Association, said the banking industry takes matters related to fair lending and discrimination seriously and wants to contribute to independent research on disparities. “We're  also constantly seeking new methods to overcome disparities, working with a vast array of partners,’’ he said.

Jackson said he appreciates the research and the fact that it was funded primarily by banking institutions or their charitable arms.

“I would say that I think that report kind of understates the billions of dollars and voluminous resources that banks provide through nonprofit lending partners,’’ he said. “The industry is constantly seeking to innovate its approaches to reaching underserved consumers and small-business owners.”

It doesn’t feel that way to Pickett, who says he has a track record that proves he knows how to succeed. “You turn me down based on what — the fact that you don’t think I’m gonna make it?” he asked. “And I’m a risk to the bank because of my skin color? That’s not right."

“We have to be twice as good, you know, and that’s just to be in business, just to start a business. And that needs to change, not just for me,” Pickett said. “I’m not here to complain — I’m going to do what I gotta do to make it. But there’s a difference between thriving and struggling and surviving.”

Illinois Issues is in-depth reporting and analysis that takes you beyond the headlines to provide a deeper understanding of our state. Illinois Issues is produced by NPR Illinois in Springfield.