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Three men walk into a bank to get a loan—an African American, a Hispanic and a Caucasian. No, this isn’t a joke—and the punchline definitely isn’t funny. A recent study conducted by two Utah universities has shown minorities are less likely to receive a small business loan than similarly qualified white applicants. Thanks to this new research from professors at Brigham Young University and Utah State University, there is also data to show just how deeply this discrimination affects minorities.
The premise of the study was simple. Nine businessmen—three white, three black and three Hispanic—visited dozens of banks in a major metropolitan area on the West Coast. These “secret shoppers” were all of similar height and build, wore the same type of clothes, and had identical education and financial status. Though they were all seeking the same amount of funding to expand the same type of business, how they were treated was very different. The black and Hispanic applicants were less likely to receive loan advice, a business card, or even a smile.
“It was sort of a personal awakening that there really are disparate experiences in America,” says Glenn Christensen, a marketing professor at BYU and a coauthor of the study, which was first published in the Journal of Consumer Research in mid-2014.
An Uphill Battle
Instead of unearthing blatant racism, the study revealed what the authors call microaggressions. “These are small inequalities and disparate treatments,” Christensen explains. “They’re cumulative and deleterious if you’re black or Hispanic. In fact, there is some evidence that Hispanic respondents were treated even more poorly than their black counterparts.”
The minority applicants experienced a number of microaggressions. When it came to getting help from lenders, minorities were only half as likely as whites to receive product information or loan terms. The minority “secret shoppers” were also asked more frequently to provide financial state-ments, tax returns and bank account information. Also noteworthy was how little assistance or encouragement was given to the minority applicants. In fact, whites were more than twice as likely to be offered help in completing the loan application or given a business card.
While Christensen and his team’s research focused specifically on small business lending, the results cast a dark cloud over the American dream, he says. “Everybody faces obstacles and nobody gets it for free, but minorities face even more challenges,” he says.
To get a clearer view of those challenges, and to understand how they are perceived and internalized by entrepreneurs, Christensen’s team also asked 39 entrepreneurs—16 white, 13 Hispanic and 10 black—to share their experiences of seeking financing for their businesses.
These entrepreneurs were asked in advance to collect eight to 10 pictures that represented their thoughts and feelings about getting a loan. Not surprisingly, entrepreneurs of all races used images to describe the funding process as a journey. When explaining the pictures, they said things like “Getting loans is like a meandering path,” “It’s like being stuck in traffic,” and “It’s a road race.”
As the researchers took a closer at the images and how the entrepreneurs described them, a much different pattern emerged. Though the white respondents saw funding as a tough road, it was one that stayed on level ground. One white business owner said, “Seeking financing is like a long triathlon … it is like swimming in a cold lake. [It] sucks all the energy out of your body … but you can see the other side.”
Minorities, however, saw the same path from a much different angle, Christensen says. “So many of our minority respondents brought in pictures to represent their feelings of seeking financing for their business that were oriented from the bottom looking up,” he says. “We didn’t see it one at a time, but as you looked back over the collection of images, we saw they were framing the whole thing subconsciously as a big uphill battle.”
A black respondent described his uphill battle like this: “It’s like climbing Mount Everest—close to impossible. Only a few people have done it. And only people who do it [are those that] have help from people who have done it before. And I don’t know those people. I don’t know any people who have actually gotten loans, and no one wants to help me or can show me the process they went about to get the loan. I can’t get to the top of Mount Everest.”
One Hispanic entrepreneur brought a picture of a businessman scaling a wall. “The door’s not open to us,” he said. “They don’t say, ‘Hey, come in, the door’s open.” Not to the Latino community. If you can’t go through the door, [you’ve] got to scale the building.”