12/14/98 WANTED: BLACK ENTREPRENEURS

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WANTED: BLACK ENTREPRENEURS
Poor access to credit is a big hurdle
Why have so many blacks been left far behind in the struggle to achieve the American Dream of economic success? One possible answer is the low rate of self-employment among African Americans. Experts note that going into business for one's self has long been a major route of economic advancement for disadvantaged groups in the U.S.--from Jewish, Chinese, and Japanese immigrants earlier in the century to many Asian immigrants today.
By comparison, African-American entrepreneurs are few and far between. Census Bureau data indicate that the black self-employment rate is a third of the rate for whites. Moreover, economist Robert W. Fairlie of the University of California at Santa Cruz has found that black men are only half as likely to become self-employed as white men, and they are twice as likely to leave such employment if they do take the plunge.
The challenge, say many policymakers, is to turn these trends around and encourage entrepreneurship among blacks. Raising the rate of black self-employment, it has been argued, could potentially provide a way out of poverty for millions of African Americans. Indeed, several state and federal programs are fostering this strategy as a way for blacks and whites to leave welfare rolls.
A new National Bureau of Economic Research study, however, highlights an apparently serious hurdle: significant discrimination against black-owned small businesses in the credit markets.
In the study, economists David G. Blanchflower, Phillip B. Levine, and David J. Zimmerman analyze data from the 1993 National Survey of Small Business Finances, a canvas of more than 4,600 small businesses. Conducted by the Federal Reserve Board and the Small Business Administration, the survey provided detailed information about the companies', and their owners', financial conditions and other matters.
The researchers' analysis is telling, to say the least. Asked about problems they had faced in the past year, business owners were pretty much alike in grousing about things like regulations, taxes, and workmen's comp costs. The big exception was that blacks were twice as likely as whites to complain about credit availability, and three times as likely to see this as a future problem.
Indeed, the study revealed that blacks were almost three times as likely to have had a loan application denied in recent years (chart)--a result that seemed partly attributable to the fact that black-owned companies were generally less creditworthy than other groups as measured by past instances of bankruptcy, overdue loans, and court judgments. Black concerns were also younger, smaller, and more likely to be located in central cities and owned by someone with less experience than their white counterparts.
After adjusting for all of these factors, however, the researchers still found that black-owned businesses were twice as likely to be denied a loan from a bank or other financial institution as similar white concerns. And they found that black companies pay interest rates that average one percentage point higher. In contrast, the study turned up no significant differences in borrowing via credit cards, whose issuers are often unaware of applicants' race.
In sum, says Blanchflower, ''it's hard to avoid the conclusion that blacks face serious discrimination in credit markets--a fact that may say a lot about their lack of economic progress.''
BY GENE KORETZ

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CHART: Discrimination in the Credit Markets?

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