Study Finds Black Entrepreneurs Continue to Face Bias in Lending Decisions

A new study led by Maura L. Scott, the Dr. Persis E. and Dr. Charles E. Rockwood Eminent Scholar in Marketing in the College of Business at Florida State University, finds that Black entrepreneurs are still severely discriminated against by banks, even when they are more qualified than their White peers.

The study found that potential Black borrowers received lower-quality service than their White peers when applying for financing. This included being offered fewer loan options. The study also found that Black borrowers were treated less warmly by bank personnel than White customers.

The researchers found that when Black customers signal higher socioeconomic status, or a Black customer’s company (for which they seek the loan) has a more complex and sophisticated legal structure they are more likely to receive funding than Blacks who are sole proprietors. The results show that a more sophisticated business structure increases the employee’s trust toward Black customers, which reduces the perceived default likelihood and increases the likelihood to offer a loan. However, this difference is not the case for White applicants.

Professor Scott is the joint editor-in-chief of the Journal of Public Policy & Marketing. She holds bachelor’s and master’s degrees from Purdue University in West Lafayette, Indiana, and a Ph.D. from Arizona State University.

The full study, “Revealing and Mitigating Racial Bias and Discrimination in Financial Services,” was published on the website of the Journal of Marketing Research. It may be accessed here.

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