Freddie Lee James Jr. has long been a sauce man.
His home-whisked Ghetto Sauce made him the king of cookouts. Family and coworkers would clamour for the zesty, sweet and spicy barbecue sauce. After years of their encouragement and five years before he was to retire from his construction job, he decided to take it to the next level.
He founded Freddie Lee’s Gourmet Sauces with his wife, Deborah, in 2010. After ironing out the branding and labels, the couple struck deals for spots on the shelves at Schnucks, Dierbergs, Straub’s, Hy-Vee and Home Goods. Their sauce is now sold in over 1,000 stores in the U.S. and Jamaica.
Despite those retail successes, the couple still can’t secure a business loan from a bank, even though their enterprise brought in about $200,000 in annual profits for years, they said.
“We have 750-760 credit score,” Freddie Lee James said. “We pay all our debts. We don’t have no problems with that. But they were saying that the sauce business is not generating enough capital to their standards.”
Banks deny loan applications from black business owners more often than any other racial group, according to U.S. Federal Reserve data. More than half of the applications of black-owned businesses were denied in 2014, the most recent nationwide data available. Only about 25% of loan applications by white business owners were turned down during that same period.
Deborah James said that without financial backing from a bank, it’s difficult to expand their business and meet the bank’s expectations for volume. She said it’s unrealistic to meet the sales quota that big-name brands have while working off a shoestring, small-business budget.
Most of the money that the couple has poured into the business has come from their own pockets, including $100,000 from Freddie Lee James’ 401(k) account. But once the money started dwindling, the couple turned to St. Louis microlender Justine Petersen for help. The nonprofit helps small-business owners build up their credit, while giving them access to safe and affordable loans.
Galen Gondolfi, a senior loan counselor and spokesman at the nonprofit, said the Jameses’ frustrations are not unwarranted.
“St. Louis’ seemingly provincial lending struggles not only with entrepreneurs that don’t historically ‘look like them,’ but [also] the types of businesses that are unique to these populations,” Gondolfi said in an email.
He added that the current bank lending culture in St. Louis is risk averse and never fully bounced back after the Great Recession. As a result, banks’ tightened reins have never loosened here.
“More businesses continue to be told no instead of yes,” Gondolfi said.
Banks are heavily regulated and often have good reason to avoid risk, said Dell Gines, senior community development advisor with the Federal Reserve Bank of Kansas City.