Loan denials disproportionately impact minority-owned businesses

A recent LendingTree analysis highlights persistent disparities in small business financing. Black-owned businesses experienced the highest rejection rates for loans, lines of credit, and merchant cash advances in 2024, while Hispanic-owned businesses also faced significantly higher denial rates compared to white-owned businesses.

Financing Rejection Rates by Business Ownership

The LendingTree analysis found that 39% of Black-owned businesses were denied financing in 2024, followed by 29% of Hispanic-owned businesses. In contrast, 18% of white-owned businesses experienced rejection. Overall, 21% of businesses were denied financing last year, a figure consistent with 2023.

Impact of Business Size and Age

Smaller businesses faced greater difficulty securing funding. Firms with one to four employees were denied financing 26% of the time, a rate significantly higher than larger companies. Startups and businesses with three to five years of operation also encountered elevated denial rates, at 29%.

Challenges in Obtaining Specific Loan Types

SBA loans and lines of credit proved particularly challenging to obtain, with 45% of applicants being rejected. Community development financial institutions denied 34% of applicants, while large banks rejected 31%.

Economic Factors Influencing Lending Decisions

Current economic conditions, including high interest rates, inflation, and an unstable job market, are contributing to lenders’ caution. Matt Schulz, LendingTree’s chief consumer finance analyst, noted that banks often tighten lending standards during times of economic uncertainty. He anticipates that these tight standards will likely persist in the near future.