The life blood of many small businesses is access to capital. Since 2017, the Small Business Administration (SBA) has distributed $658.8 million in SBA 7(A) loans in Arkansas, with few of those going to women and minorities.
According to a study by the Winthrop Rockefeller Foundation and Winrock International, most of the loans were provided to businesses owned by whites and men, and nearly 77% of the loans were given to businesses owned by whites. Only 8% were given to businesses owned by primarily women.
At least $505 million (76.6%) was loaned to whites, while asian and pacific islander owners received $122 million (18.6%). Native American owners received $11.2 million (1.7%), Hispanic owners received $10.3 million (1.6%) while blacks received $9.9 million (1.5%), the study revealed.
Arvest, First Financial, Bank OZK, Southern Bancorp, Regions, Simmons, Legacy National, Stone, BancorpSouth, First Service and Citizens Bank were the top lending banks in Arkansas. Arvest led all institutions with $79.55 million loaned from the program. Southern Bancorp handled $40.4 million in loans, and led among all banks in the percentage of loans given to black owners at 9.7% ($3.93 million).
“Within Arkansas, small businesses account for 99% of all establishments and hire 48% of the total workforce. Thus, the health of Arkansas small businesses is vital to the health of the economy. An economy risks collapse and higher unemployment without the presence of thriving small businesses. A flourishing small business environment depends on the ability of entrepreneurs to access funds to start their business, maintain their operations, and scale-up. Unfortunately, an entrepreneur’s race and ethnicity can impact their access to funds, when compared to others with similar business performance and credit risk,” according to the study.
The problem is not unique to Arkansas. Similar lending trends were found nationwide. It also extended to federal contracts that were given.
“The federal government spends nearly $105 billion a year in contract dollars, awarding 23% to small businesses. In 2016, minority-owned small businesses received only 5% of Prime Contracts, and 10% were awarded to women-owned small businesses,” according to the SBA.
More than half of Arkansas small businesses owners are not aware they can compete for government contracts, and many more do not know the process.
A deep dive into the study reveals that 75% of minority-owned businesses rely on personal funds to prop their businesses, while only 55% of their white counterparts do so. During the last three years minorities applied for these types of loans far-less, but were rejected at a higher rate. Reasons given include a lack of collateral or low credit scores.
As of 2018, Arkansas had approximately 247,000 small businesses. Minority business owners, which include people who identify with all races and color other than white, own about 15% (36,000) of small businesses. Almost one third of small businesses are owned by women (32%, or 79,000), the report found.
Nationally, the number of small businesses is projected to continue increasing, gaining a greater share of total businesses. A small business’s ability to provide jobs is an indicator of its growth and sustainability. However, in Arkansas, minority small businesses employ an average of seven employees, whereas white-owned small businesses employ an average of 10, according to U.S. Census Bureau’s American Community Survey.