Community Development Innovation Review
May 19, 2021
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Minority-Owned Enterprises and Access to Capital from Community Development Financial Institutions
Small businesses are pivotal to local economic development in the United States. Among small businesses, minority-owned enterprises (MOEs) are noteworthy because they create a significant share of the jobs in majority-minority neighborhoods nationwide. MOEs are relatively more likely to encounter constraints in obtaining access to capital from financial institutions. Community Development Financial Institutions (CDFIs) provide a means to bridge limited access to capital between financial institutions and MOEs. The purpose of this study is to examine the likelihood of MOEs applying for CDFI loans. We also aim to investigate whether MOEs are more likely to have their application for a loan or line of credit accepted from CDFIs. Overall, we found no significant difference in application rates between Asian-, and White-owned businesses. However, in line with our expectations, the odds of Black- and Hispanic-owned firms applying to CDFIs were about 1.6 and 1.7 times greater, respectively, than that of similar White-owned businesses. We also found some weak evidence that the odds of Black-owned firms getting approved for financing at a CDFI are about half those of White-owned firms.
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