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For several years, Juan Mejia drove a dilapidated box truck from central Minnesota to Chicago every eight days to pick up inventory for his Mexican grocery store. Mejia’s father stuck his head out of the passenger window to make sure no cars were nearby before Mejia changed lanes.
Today, Mejia drives an Isuzu NPR box truck he purchased four years ago with a loan—something banks constantly denied him during most of his first two decades operating grocery stores in central and southwestern Minnesota.
“It would say, ‘Thank you for applying, but you need to contact the credit bureau,’” Mejia said of the rejection letters he received from banks. “I would get upset and ignore it. I thought, ‘Why do I need to call? They still won’t give me a loan anyway.’”
Mejia’s difficulties getting credit to run his business are not unusual for people of color. A recent survey from the Federal Reserve Bank of Minneapolis shows that entrepreneurs of color disproportionately face challenges obtaining credit. The survey looked at zip code data in the Twin Cities metropolitan area and found that, regardless of how much money they make, people of color have less access to credit than their white counterparts.
“It’s pretty intuitive for people to think, ‘The higher the income, the higher the credit score,’” said Kim-Eng Ky, one of the lead researchers who worked on the report. “What we are showing is that even after adjusting for income, neighborhoods of color still have poorer access to credit.”
On a recent weekday morning, Mejia took a break manning the cash register at his grocery store in Willmar, Minnesota–Los 3 Michoacanos–and sat in an unfinished room full of hopes and plans. He recounted his journey as an entrepreneur who struggled to obtain loans from banks as he pioneered to bring a taste of home to fellow Latinos in central and southern Minnesota.
Mejia, 51, and his two brothers, who are all Mexican American, opened their first grocery store in 2000 using cash saved up from years of working in meatpacking plants. As his entrepreneurial career took off, Mejia found himself saddled in debt from bad deals with vendors serving his grocery store.
Jessica Aliaga-Froelke, a credit specialist who helped Mejia fix his credit score to obtain the loans, said much of Mejia’s debt came from bad actors taking advantage of the fact that he didn’t speak proficient English and had no financial education. It’s a common problem for Latino entrepreneurs across the country, she said.
“Minority entrepreneurs, they suffer a lot of scams from vendors,” Aliaga-Froelke said.
That leads to a cycle where, no matter how successful their business becomes, entrepreneurs can’t easily access credit to pay for things like a better work truck, a new deli inside their store, or personal items like a home or a car, said Aliaga-Froelke.
According to the Federal Reserve research, credit scores are limiting access to credit. Credit allows consumers to borrow money to purchase goods and pay it back at a later date. Credit agencies assign points to an individual’s credit score based on many factors, including how much they currently owe debtors, how many accounts they have, and whether they’re making their regular debt payments on time. Banks give out loans based on whether someone’s credit is in good standing.
The report found that neighborhoods with a white population of 75 percent or greater had a median credit score of 787 points, which the credit reporting agency Equifax defines as “very good.” In neighborhoods where people of color make up 75 percent or more of the population, the median credit score dropped to 679 points, just barely making Equifax’s “good” rating. The next rating–the lowest–is defined as “fair,” which is defined as 580 to 669 points.
Access to credit a ‘human rights issue’
Damon Jenkins, senior vice president of First Independence Bank in Minneapolis, views easy access to credit as a human rights issue.
“If you don’t have easy access to credit, you’re really stunting growth,” Jenkins said. “Ultimately, what it’s doing is locking folks out of building assets, out of building generational wealth.”
Like all banks, First Independence, the first Black-owned bank in Minnesota, must operate within federal regulations when it gives out loans. Businesses must be in operation for at least two years and be in good financial standing to qualify for a loan, among other criteria. But one unique thing First Independence does is connect people who don’t qualify for loans to nonprofits and resources that can help them improve their credit score, a practice that sets it apart from traditional lenders, Jenkins said.
“One of the things that I’ve commonly heard from communities of color is that they were not aware of the various resources out there,” Jenkins said.
Aliaga-Froelke started the financial consulting agency Hispanic Solutions Group in 2016 to help Latino immigrants improve their credit scores. Before then, she worked as a debt collector for 14 years for credit card and student loan companies.
An accountant Mejia worked with for his business referred him to Aliaga-Froelke. When Mejia came to Aliaga-Froelke a few years ago, he was $10,000 in debt and ready to apply for bankruptcy.
Aliaga-Froelke reviewed Mejia’s financials and found an array of issues. Among them: debt judgments against Mejia that were never properly served to him, meaning he didn’t know they existed and could not respond to them; collections judgements that had passed the statute of limitations; and personal debt from different people who shared his name. Judgements are findings by a court that someone owes money to another person or entity. They can result in wages being garnished or a lien being placed on a home in order to repay the debt.
At one point, Mejia said a lender would not sell him a mortgage because they mistakenly thought he had a $54,000 lien on a Colorado property when it really belonged to another man also named Juan Mejia.
Eventually, Aliaga-Froelke said she was able to clear much of this debt and help Mejia improve his credit score, which she now said ranks more than 800 points.
Mejia attributed his past financial troubles to a language barrier and his own lack of financial education. As he was getting started in his business, Mejia didn’t have an interpreter to go to the bank with him and apply for loans. He recalled bringing his identification, social security information, and income information to the bank. A banker would then fill out the rest of the loan application. His son and daughter, now 27 and 23, respectively, started interpreting for Mejia when they became adolescents. His daughter, Liz Mejia, translated for him for this story.
Successful businesses fueled by a junk truck
Mejia came to the United States from the western Mexican state of Michoacán in 1980 when he was 10. He moved to California to live with family, attending school during the day and picking fruit, vegetables, and flowers for work in the afternoon.
As an adult, Mejia moved to South Sioux City, Nebraska, in the 1990s to work in meatpacking.
A visit to his uncle in the central Minnesota town of Long Prairie in the late ‘90s sparked Mejia’s journey to opening his own business. The Latino immigrant community in town was beginning to blossom, and Mejia noticed they had no grocery store with the foods, spices, and drinks of their home countries.
“It was pretty hard to get Hispanic foods,” he said, “No tortillas, no jalapeños, no Mexican cheeses, no chilis, no cookies.”
So Mejia and his two brothers ventured to open one themselves. La Michoacan, Long Prairie’s first Mexican grocery store, opened in 2000. Four years later, Mejia opened another grocery store in the southwestern Minnesota city of Marshall, which was undergoing a similar demographic transformation. This time he added a bar, restaurant, and dance floor.
He sold off the Marshall business in 2008 and opened a third grocery store in Willmar, a central Minnesota city where people of color make up half of the population. The store, Los 3 Michoacanos, is the only store Mejia operates today, and it’s faring well.
Mejia employs eight people and works a full day at the store four days a week. Customers at Los 3 Michoacanos are greeted by shelves of colorful spices and bottled sodas from as far away as Peru, and a deli with prime cuts of beef, chicken, and pork. Mejia is converting an empty room into a restaurant, which he plans to open this fall, focusing on grilled meats.
When Mejia opened La Michoacan in 2000, banks would not issue him or his brothers a loan to start the business. So the brothers and their father bought supplies with cash from years of working in meatpacking plants. The only box truck they could afford was a 15-year-old Isuzu with a litany of issues. The truck had no air conditioning, so they made the weekly drive to Chicago for inventory with the windows rolled down. The heat didn’t function properly either, and caused the windows to fog up.
It required constant maintenance, which Mejia often performed himself. Cables and the signal lights, which persistently burned out, needed frequent replacement. He had to install a new motor five years after buying the truck.
Mejia was able to take out large financial loans for the first time four years ago after receiving help from Aliaga-Froelke. He bought a new truck, a work van, a personal car, and a home in St. Cloud for his family. Recently, he obtained a $300,000 loan for the restaurant expansion.
But Mejia still runs into problems. When he purchased a car loan two years ago for his personal vehicle, he was flabbergasted when the bill came. He called Aliaga-Froelke, wondering why it was so high.
She found that he was sold car insurance within the loan at a 10 percent interest rate–much higher than he should have received given his good credit score. The insurance also included services that Mejia said he never asked for. Aliaga-Froelke called the lender and straightened out the situation. She said Mejia was overcharged by $2,300.
While a lot has changed in Mejia’s life thanks to his ability to access credit, he still makes the 500-mile drive to Chicago every two weeks to pick up goods for his store. But no one has to stick their head out the window anymore when he changes lanes.