Interest Rate and Collateral Differences for Minority- and Women-Owned Businesses

In recent years, considerable attention has been dedicated to understanding the disparities and discrimination faced by minority- and women-owned businesses in accessing capital. While this work has been vital in identifying and addressing systemic barriers, it has largely focused on application and approval stages of the lending process. Missing from the conversation is data on actual loan outcomes, such as interest rates and collateral requirements. With the most recent analysis of disparities in loan terms dating back more than two decades, we saw an opportunity to address this critical gap. Partnering with the University of Washington’s Foster School of Business, we supported the Interest Rate and Collateral Differences study to collect data in an unseen area of the capital access continuum and to investigate variations in loan terms for minority- and women-owned businesses.

Key findings include: 

• Minority and women-owned businesses face higher interest rates, stricter collateral requirements, and significant economic burdens when compared to their white-owned and male-owned peers. 
• The financial repercussions of these inequities are estimated to cost minority owned businesses an additional $8 billion in interest costs annually. 

Thanks to our investment and the hard work of the University of Washington’s Foster School of Business team, this work has revealed stark inequities in small business lending practices at a point in the process where many controls for bias were previously thought to be in place. In turn, it will provide advocates, academics and others with powerful new data and tools to demand attention from lenders, regulators, and policymakers alike. 

Read the full report.