OAKLAND, Calif.–Women of color start businesses at a faster rate than anyone, yet they remain underserved by lenders, according to new research conducted by CNote, a women-led community investment platform that says it has a mission of closing the wealth gap.
The report, “Redesigning Lending: Improving Access to Capital for Women of Color Entrepreneurs,” is based on research conducted by Impact Experience and funded by the Tarsadia Foundation under the umbrella of CNote’s Wisdom Fund.
“The fund funnels accredited investor capital into small business loans for women of color and aims to help lenders modernize lending programs using a human-centered design approach,” CNote stated.
The research findings reflect insights from BIPOC women entrepreneurs collected through survey responses from over 75 women, more than 40 hours of individual interviews, and a two-day convening of 20 women, according to the organization.
The Barriers
According to CNote, racially diverse women business owners—66% Black, 28% Latina and 5% Asian or Pacific Islander—identified widespread barriers to capital access, including these key issues:
- 87.5% of respondents felt that race or gender bias contributed to how they were treated during the lending process
- 69% of respondents needed working capital but were not able to find this type of loan product
- A majority found the lending process convoluted and labor-intensive, and experienced drastic differences between lenders, significant application processing delays and high denial rates with no explanations
The Way Forward
The researchers’ in-depth discussions with women about their lending experiences yielded recommendations in four areas for improving the process and enabling women entrepreneurs of color to build their businesses, CNote reported.
The four areas include:
- Offer larger loans and more flexible loan terms, including credit lines for working capital
- Revamp credit scoring to more accurately reflect creditworthiness—by considering rent and utility payments, lack of delinquencies and revenue under contract, for example
- Standardize loan applications across lenders to reduce the time and administrative burden of applying
- Provide transparency in decision-making as well as post-lending resources, such as financial and leadership coaching, to increase the likelihood of business success.
Opportunity for Lenders
“This research highlights lenders’ opportunity to better meet the needs of these potential customers and contribute to thriving communities,” said Danielle Burns, vice president and head of business development at CNote. “If we can fund businesses led by women of color with the type of loans they actually need, that will jump-start wealth creation in places where it’s most needed.”