Capitalism Without Capital

Without permission or authorized approval I’m renaming February Black History Financial Literacy Month. In April 2020, Congress passed the CARES Act which included the Paycheck Protection Program (PPP) providing forgivable loans to businesses experiencing economic hardship due to COVID-19. As it turned out, those well connected businesses, those with banking relations, or who could afford accountants and lawyers, gained access to capital while black and minority businesses suffered.

A 2020 Service Corps of Retired Executives (SCORE) survey revealed 19.9 percent of White owned businesses applied for delays on their loan payments and 72.4 percent of the applicants were approved. Contrastingly, 39.9 percent of Black owned businesses requested delays on their loan payments, but only 33.6% of applicants were approved. Furthermore, only 12.1 percent of Black owned businesses that applied for lines of credit were approved, and only 22.3 percent of Black owned businesses that applied for new loans were approved.

Loans & Black Business

What about new money? Well, only 6.4 percent of Black businesses that applied for new investor loans or funding were approved. Is this a pattern that is beginning to take shape? In the event you think it’s just a private lending institution thing, the government PPP program didn’t provide equity either. Of the 47.8 percent of White owned businesses that applied for PPP funding 63.7 percent were approved, while of the 53.7 percent of Black owned businesses that applied only 20.3 percent received full funding.

What is a necessary note, is the success rate for minority business owners was not any better when it came to accessing other government funding such as Small Business Association Loans or Economic Injury Disaster Loans (EIDL) either. In other words, many Black business owners are seeking to participate in capitalism without capital!

A History of Financial Trauma

Let’s take a look at some history. On March 3, 1865 the Freedman’s Saving Bank and Trust Company was approved by Congress and signed into law by President Lincoln. The purpose of the bank was different from that of commercial banks since it was to hold money instead of growing it through lending. In a few years the bank handled more than $75 million in deposits made by more than 75,000 depositors, along with an amount that would be approximately 1.5 billion today.

But once again, people of color and Black businesses that had deposited all their resources into this bank were defrauded by the system. On June 29, 1874 the bank was permanently closed due to risky investments, fraud and embezzlement by white trustees, leaving 61,131 people without access to nearly $3 million dollars and the disappearance of over half of accumulated Black wealth. You see banks and other lending institutions have operated by different rules when it comes to Black businesses, people and communities. They continue to force Blacks to participate in capitalism without capital!

Systemic Financial Abuse

This is not just a business thing, as individuals are not exempt. In a lawsuit against one of the leading banking institutions today, the bank sent customer John Doe a notice that his account was overdrawn by $32.83, $4.35, $4.35, $6.05 and $39.46. The bank charged him $35.00 for each transaction for a total of $175.00 in fees. What’s the take away here? The fees charged corresponding to the amount his account was overdrawn, yielded an equivalent interest rate of 3,333 percent. Did you get that?

Said another way, he was charged 3000 percentage points higher than a payday loan! Additionally, today, the majority of banks, credit unions and thrifts use a data base called ChecSystems which allows them to deny those seeking to open bank accounts because of overdrafts on their accounts. Unlike your credit score, you have no access to this information and it remains in the data base against you for five years. How can you begin to make progress economically without a banking account and access to capital?

What Makes The Difference

Financial institutions, the government and private lenders all play a major role in whether or not people of color make economic advancement. But not knowing the rules of engagement and how the deck is stacked in this poker game, could leave you without a royal flush! Therefore, the excuse that “you don’t know much about finance”, “you don’t understand numbers”, “you’re not an accountant”, or “you’re not good with math”, is not really true or acceptable.

So you’re not good with math, but you know how to shop, you know what a discount is and how to compare prices, you know how to check your receipt or bank statement for fees, plus you have a credit card. Seems to me you know how to add, subtract, multiply and divide! That’s enough to begin changing your finances.

A introductory conversation on family financial literacy can address questions like, what is the annual percentage rate (APR) on your credit card? Or, will the bank allow your debit card transaction if you don’t have enough money in your account at the time of the transaction? If so how much are the fees for each transaction?

Why not begin today by having these conversations during Black History Month with your loved ones?

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