A new study reveals ongoing discrimination in lending practices, with businesses owned by people of color and women facing higher interest rates and collateral requirements compared to their white and male counterparts. Despite progress in lending to Black-owned businesses, disparities persist for Hispanic and Asian-owned firms.
A study by the University of Washington Foster School of Business showed significant discrimination in lending practices. One surprising finding was the breadth of the interest rate differential, with businesses owned by people of color and women facing interest rates two to three percentage points higher than their white and male counterparts.
Additionally, while large banks have made progress in lending to Black-owned businesses, there is still a lack of progress in lending to Hispanic and Asian-owned businesses. The study also revealed that Hispanic-owned firms continue to face significant differentials across all types of lenders, and Asian-owned firms pay higher interest rates than their white counterparts at large banks. The study, the first of its kind in 20 years, reveals two critical points: “Race, ethnicity, and gender still play a factor in interest rate and collateral differences, but we also see progress made by large and small banks in reducing these differentials across certain sectors of the business community.”The study, which collected nearly 2,800 responses from 44 states, found that financial institutions are potentially missing out on untapped markets. “Profit-seeking institutions with the correct information will compete for business,” Verchot explained
Lending Discrimination Minority-Owned Businesses Interest Rates Collateral Requirements Financial Institutions
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