We Must Expand Access to Capital and Credit in Underserved Communities

Published November 22nd, 2021 at 3:45 pm, Last Updated November 23rd, 2021 at 11:15 am

*This editorial was submitted by Chad Cooper, Vice President of the African American Chamber of Commerce of NM

The COVID-19 pandemic generated a public health and economic crisis that laid bare the racial disparities here in New Mexico. Underserved communities in our state are struggling. Poverty disproportionately affects about one-third of African-Americans and Native Americans living in poverty, compared with less than a fifth of whites and roughly a tenth of Asians. Likewise, New Mexico ranks 49th among states for education equality by race and 32nd for its racial gap in income. 

COVID-19 further devastated our economy; more than 45% of New Mexico’s small businesses have closed and will not reopen, with minority-owned businesses, which are often more susceptible to disruption, taking the biggest hit. 

For our state to spur much-needed growth, it’s crucial that minority families and businesses across our state are equipped to rebuild stronger. Stakeholders and policymakers in New Mexico have the opportunity to address these racial and economic disparities as part of New Mexico’s broader social justice effort. To do so, legislators must commit to providing greater access to the financial resources needed to succeed.

For minority entrepreneurs, who own more than half (nearly 85,000 or 54%) of New Mexico’s small businesses, this means ensuring access to capital to buy new equipment, invest in updated technologies, hire new employees, or even open a new location. The resulting growth gets more money circulating back into the local economy, creates jobs, spurs innovation and competition, and otherwise contributes to the community. 

The $349 billion CARES Act fund was depleted by April 16 due to the high demand driven by worsening economic conditions. It’s estimated that 95% of New Mexico’s small businesses did not receive a federal loan. Preliminary estimates suggest businesses that did receive loans only received enough funds to cover 49% of the state’s eligible payroll. As our businesses work to rebuild, the legislature should act to provide funding and ensure small businesses have access to capital and are well-positioned to succeed.

The governor, working with the majority of legislators, is actively pushing reforms to mitigate – if not reverse – decades-old policies aimed at hindering economic access for communities generally restricted from legitimate financial opportunities. Specifically, the legislature and the governor have fought for and passed laws that promote access to loans for New Mexicans who have been adversely affected by policies correlated to the war on drugs and systematic racism.    

Minority consumers also need access to the same financial services other New Mexicans access, especially credit. Credit is crucial to addressing the financial challenges that are simply a part of life, from replacing appliances, covering an unexpected car repair or medical bills. Families across the state are struggling to make ends meet and every dollar matters, this will be especially true with increased inflation and reduced spending power.  

But not all New Mexicans have access to credit cards or even savings accounts, so traditional installment loans may be their only option to cover those unexpected expenses or even high gas prices to commute to work. Providing safe and secure access to credit is also crucial as consumers work to rebuild their personal finances and re-establish their credit scores. 

It’s been reported that interest groups are pushing the legislature to again take up legislation to cap interest rates on small-dollar loans. Small-dollar loans need reforms to lower rates and enhance consumer protections, but in the last legislative session, policymakers went too far by supporting a drastic measure that failed to account for the real need and demand for small-dollar loans. If that bill had passed reputable lenders would have left the state with no legitimate lenders to meet the demand for loan. This would have forced consumers toward predatory lenders. Reform is needed, but we need a fresh approach to this issue. 

Legislators now have an opportunity to work together to craft a proposal that provides new protections for consumers, greater transparency and lower rates, while ensuring reputable lenders continue to operate and offer small-dollar loans. New Mexico consumers need access to credit. A win-win policy approach would cap interest rates and fees at sensible levels, enhance consumer protections, and standardize lending terms. We can and must ensure New Mexico families and consumers have access to small-dollar loans within a fair and transparent system. 

New Mexico is a state with rich cultural diversity that engenders creativity and enriches every area of our society. To sustain this, we must achieve economic equity, ensuring all citizens have access to the financial services that fuel such economic opportunities as buying a new car or a home. On the day we equip all New Mexican consumers and businesses with the financial tools to succeed, we will ensure our state succeeds as well.