Interest rates

Interest rates and price hikes are expected to have an outsized effect on black consumers, businesses

Black Americans — who already earn less money, find it harder to get loans for their businesses and have less financial security — are likely to be hit harder than other demographic groups in this uncertain economy.

Black Americans “generally experience higher levels of economic insecurity than Americans overall,” according to the Pew Research Center. Higher interest rates, rising food and gas prices and an increase in the cost of rents are likely to make this insecurity even more precarious.

“It’s not good, that’s for sure,” Stephen Washington, director of community engagement, business partnerships and outreach at Central State University, an HBCU, told the Grio. “If you are already experiencing income gap realities, inflation has an outsized effect.”

George Owusu-Antwi teaches finance at Wilberforce and Central State Universities (Photo submitted by Wilberforce University)

Income disparities remain significant. Black households earn about $0.62 for every dollar earned by a white household, according to the Report of the Joint Economic Committee released by House Democrats earlier this year. The disparity in wages follows the disparities in net worth, as white households have nearly eight times the average wealth of black households, according to the Brookings Institute.

Washington noted that rising rental costs pose another problem. real estate website, red finreported that rent rose 15% year-over-year in May and that, for the first time, the median rent in the United States exceeded $2,000.

“In this particular cycle, rent inflation has been quite brutal,” said Washington, a former assistant professor of finance. “African Americans are overindexed in rent relative to their property, on a relative basis.”

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According to National Association of Realtors. There is a direct correlation between owning a home and net worth, noted the Association of Realtors. Real estate wealth has increased $2.1 trillion in middle-income housing from 2010 to 2020, but with lower homeownership, black Americans have been left out of much of those gains.

“So there was undersized participation in the housing valuation boom right now, coupled with some sort of near-term historic increase in rental rates,” Washington noted.

The economy is also impacting black businesses, increasing their costs and making it harder for people to buy their products.

Most countries 3.12 million black-owned businesses are sole proprietorships. They pay on average 1.4% more interest than comparable white-owned businesses. As interest rates rise, their cost of borrowing also rises. This increase is passed on to their customers, who often live in poorer communities and already struggle to afford basic necessities.

This leaves businesses and consumers in a difficult situation. Raise the price of goods and it’s harder for people to buy what they need. Keep the same price and you might not make enough money to stay open.

George Owusu-Antwi has a name for rising interest rates and the fact that black people often pay more than their white counterparts.

“I would consider it a racist interest rate” since black-owned businesses pay more, said Owusu-Antwi, who teaches finance at Wilberforce and Central State Universities, two colleges and universities historically black.

With inflation at its highest for 40 years, the Federal Reserve gradually started raising interest rates to make borrowing more expensive and calm an overheated economy. Analysts believe the higher rates will reduce spending, but Owusu-Antwi notes that this will come at a cost.

“These higher rates have the effect of impacting cash flow and earnings. If I have to borrow money (lenders), look at what I have in the bank. Most businesses owned by black people are considered a risk factor because their base is too small,” Owusu-Antwi said.

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The Brookings Institute noted that annual revenues of black-owned businesses are about six times lower than those of white-owned businesses. White-owned small businesses get loans that are, on average, $30,000 more than comparable Black-owned businesses, according to statistics compiled by Nerd Wallet. The seed capital market tells an even worse story. Black-owned businesses receive about $500 in outside capital, compared to $18,500 for white-owned businesses.

The commercial landscape remains stark and the community is just as bad. Lenders “don’t see an opportunity for growth for your business based on the community you live in,” Owusu-Antwi said. In other words, if you’re a black-owned business in a predominantly black neighborhood, you’re more likely to be denied a loan, not just because of your business, but also your location.

All of these factors – rising interest rates, rising gas costs, record rent increases and pressure on businesses – point to a bumpy economic trajectory for the black community.

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