Ross: Increasing Black-owned businesses might take some collateral
A lot of the drama over racial disparity would end if there were some way to close the wealth gap between business owners who are mostly white and owners who are not.
We talked to Lee Henderson, who is black and also a successful investor and member of the Forbes Finance Council. He loans money to growing businesses, and he’s seen the data that only 1% of all venture capital goes to businesses owned by Black people. He knows that Black entrepreneurs might have to go to five, six, or seven banks before they get a loan.
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But he does not believe in imposing government quotas.
Instead, he says it’s up to capitalists like him to change the lending culture.
“When you go to a bank to get a loan, what’s the most important thing: collateral,” Henderson said. “In often cases with Black and Hispanics, because of that cycle of wealth that did not exist for many, many years, there’s just less collateral. Part of that less collateral has to do with the history of disparity that existed with those underserved communities.”
At some point, then somebody’s going to have to have some collateral dropped in their lap.
“I wish it were that easy, but it’s not, which is why we’re dealing with what we’re dealing with,” Henderson responded. “So you asked how we get it? I think how we get it is, should that bank because of the known issues that I’ve just described, rethink the way that they lend. Not saying that we’re now going to lend to everyone just because of color, but should we adjust? Should we understand that ‘hey, Lee coming into the bank, just because of where he grew up, sort of the challenges that he had may have less collateral,’ so perhaps, we just consider that?”
He’s saying that banks need to realize that when they see a hard-charging but low-collateral Black person like Lee Henderson, it is smart to look beyond the traditional rules.
“By no means am I telling the bank to just start throwing out money to everyone. That’s not what I’m suggesting,” Henderson explained. “What I’m suggesting is that perhaps that person is qualified to actually pay back a loan. But perhaps if you look at some of the historical measures and go down the checklist and say, ‘does he have X amount of collateral, perhaps is the fact that he’s got a great scalable business that we will take a risk on this because it looks like he’s gonna make a ton of money.'”
And if he’s right about that, it would mean you don’t need the government to force equitable lending practices. The market itself should sort this out.
He is predicting that bankers who insist on the traditional measure of collateral and who don’t account for the energy of the entrepreneur … will be left in the dust by those who do.
Because taking a chance on people like Lee Henderson could bring in — what did he say?
“He’s going to make a ton of money,” Henderson said.
Yes — a ton of money. A concept that I think people of any background can understand.
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