Gerrymandering Could Be Hurting Your Chances of Getting a Business Loan

Gerrymandering Could Be Hurting Your Chances of Getting a Business Loan

Gerrymandering Could Be Hurting Your Chances of Getting a Business Loan

In this day and age, it can be difficult to make sense or even care about political news. If you’re occupied in the many facets of running your own business, it could be the least of your concerns. Recently, however, a new study has emerged regarding gerrymandering, a hot topic in Washington, and the unexpected economic consequence it could have for small business owners.

What Is Gerrymandering?

Gerrymandering has been practiced since the early 19th century, when Massachusetts governor Elbridge Gerry redistricted the state in an effort to help his party and keep his job. While it didn’t work out for him (he lost the next election), it has been an effective tool for incumbents to keep party control over their states since then.

Recently, the Supreme Court has revisited the subject to discuss whether or not a standard can be set to determine when gerrymandering has been taken too far by politicians. To this point, the justices seem to be divided and the arguments are continuing, and they are expected to reach a decision by June. This has caused many within and without the political sphere to consider the significance of gerrymandering on individuals both as voters and as consumers.

The Study

To highlight the effects of gerrymandering on consumers, NPR’s Shankar Vedantam discussed a study done by Boston College professor Rawley Heimer and his colleagues: “They found (gerrymandering) had a big impact on access to credit. When you try to buy a house or a car or start a new business, you often need to apply for credit…It turns out as states become more heavily gerrymandered; and this is true of both Democratic gerrymandering and Republican gerrymandering; it becomes harder and harder for consumers to get access to credit.”

Heimer himself added: “In a heavily gerrymandered district, you would need to have $3,400 more in personal income to have a lender approve your loan.”

The practice generally leads to very odd-shaped district boundaries, which the experts in this case sought out to analyze and produce their data. The $3,400 figure comes from comparing the approval data from a relatively normally drawn district to that of an irregularly drawn district. The more irregular you district, the more difficult it could be to get financing. This could mean that other important approval factors like business credit scores, personal credit scores or business cash flow are even more vital than you thought to your ability to obtain financing. (You can check your personal and business credit data for free with Nav.)

How Could Gerrymandering Affect Your Business?

So how does this have anything to do with your business? It all revolves around accountability. According to Vedantam’s take on the study, when politicians have no threat of losing their position, they become less and less accountable to their constituents, and do less to serve their needs. Lenders are sensitive to politics; Vedantam added the following: “Lenders are attuned to political pressure, to regulation, to oversight, to legislation. As politicians become less accountable to voters, there’s less pressure on lenders to do the right thing by consumers.”

This article was originally written on May 2, 2018 and updated on January 27, 2021.

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