How the High Cost of Borrowing May Skew the Presidential Race

Kimberly Jolasun, a 32-year-old entrepreneur in Atlanta, has never voted for the Republican candidate for the presidency. That may be about to change.

Her company, Villie, is an online platform that lets new parents share photos and updates about their babies with friends and relatives and register for gifts like strollers and playpens. Not yet profitable, her company needs financing to grow. But venture capitalists struggle with her untraditional profile, she said. Technology is dominated by white men in places like Silicon Valley and Austin, Texas. She is a Black woman in Georgia.

Banks want to charge her interest as high as 14 percent for business loans. The interest rate on the credit card debt she used to start the company has spiked to 25 percent, tripling her monthly payments.

Ms. Jolasun knows that borrowing costs are driven by the Federal Reserve. She does not blame President Biden. But she assumes that his Republican opponent, former President Donald J. Trump, is more in tune with the needs of business owners. So she is seriously contemplating giving him her vote.

“For the first time in my life, the ball’s in the air,” she said. “I haven’t made my decision.”

Despite indications of vigor in the economy, higher borrowing costs are a source of financial anxiety that could prove pivotal in the 2024 presidential election — especially in Georgia, one of six battleground states expected to determine the outcome.

Black voters are a crucial bloc in Georgia; four years ago, they made up 27 percent of the electorate. By many indications, Black Americans are disproportionately affected by higher interest rates on mortgages, credit cards, student loans and business debts. Start-up companies owned by people of color — especially Black Americans — confront substantial barriers in raising funds, making them more vulnerable to increased borrowing costs, according to a survey of minority-owned small businesses by the Federal Reserve. Though their companies are typically smaller and less profitable, Black and Hispanic entrepreneurs tend to be rejected on applications for financing even after accounting for differences in credit ratings, suggesting that racial profiling is an issue.

“It’s hard for people like me to raise capital,” said Veronica Woodruff, the founder of Travelsist, a company in Atlanta that pairs travelers who need help navigating airports with support from companions. “I’m an African-Latina woman, and I’m in the South. It just makes it hard to get in front of people who are writing checks.”

Ms. Woodruff, 40, has already raised $1.1 million, including a $250,000 grant from the Fearless Fund, a nonprofit that seeks to address the shortage of capital for businesses owned by women of color. The organization has been hamstrung by a lawsuit from an activist group that says directing funds to minority women is racial discrimination.

Ms. Woodruff is seeking $8 million in additional investment to expand her business. Rising costs have forced her to increase wages to $20 an hour from $15. Venture capitalists are demanding sweeter terms for their investments.

Raised in California, she considers herself a liberal who values civil rights. But as the overseer of a business, she is struggling to decide how to vote.

“I’m taking a lot of risk here,” Ms. Woodruff said. “It’s for everyone, for all of my employees, for everyone who has equity in this company and the communities that we operate in.”

The significance of the Black vote in Georgia is hard to overstate. From 2000 to 2019, the number of eligible voters in the state increased by 1.9 million, with Black people making up nearly half that number, according to an analysis by the Pew Research Center.

Mr. Biden captured 88 percent of the Black vote in Georgia in 2020 and is expected to win over that bloc again by a whopping margin in this year’s election. Yet in a state decided by fewer than 12,000 votes four years ago, even a slight reduction of support could be decisive.

Vice President Kamala Harris visited Atlanta on Monday at the start of an economic tour of battleground states to underline the administration’s efforts to support Black business owners and entrepreneurs and narrow the racial wealth gap.

Mr. Trump was the chosen candidate for 16 percent of Black voters nationally in a recent poll by The New York Times and Siena College. The same poll found that 81 percent of Black voters rated the economy “fair” or “poor.”

By headline indicators, Georgia appears in robust economic shape. In March, the unemployment rate was 3.1 percent, below the national level, 3.8 percent. Inflation is down from its heights. Atlanta has gained jobs by turning itself into a venue for filming Hollywood movies and by attracting multinational companies that have established corporate headquarters there.

Northwest of the city, Hyundai, the South Korean auto giant, is joining forces with another company, SK On, to pour $5 billion into the construction of an electric vehicle battery plant. A $2.3 billion solar panel factory is going up nearby, the work of Hanwha Qcells, another South Korean business. And the state has seen a surge of food processing factories.

“We’ve been landing lots of new projects, setting new records,” said Jeffrey M. Humphreys, an economist at the Terry College of Business at the University of Georgia. “They all kind of build on each other.”

On the state’s coast in Savannah, expansion is underway at what is already one of the country’s largest container shipping ports. The docks are gaining cargo diverted from the port of Baltimore after a container vessel ran into a major bridge there, causing the bridge to collapse and halting cargo traffic.

But the effect of higher borrowing costs is not directly captured in official measures of inflation, and increased debt payments tend to erode the benefits of economic growth.

A recent paper by economists at Harvard and the International Monetary Fund concluded that larger payments for mortgages, credit cards and other forms of debt largely explained the gap between rosy economic assessments from experts and glum prognoses from ordinary people.

“Everybody feels like they are stagnant or struggling,” said John Lawson, who sells hip-hop-related shoelaces online and coaches small businesses in the Atlanta area. “The cost of living has skyrocketed. Everybody’s got jobs and still hustling at the same time.”

Black Americans typically suffer rates of unemployment twice those of white Americans. In Georgia, that gap has widened: Black unemployment reached 5.7 percent at the end of last year, while white unemployment was at 2.2 percent, according to an analysis of federal data by the Economic Policy Institute.

Part of this increase appears to reflect how Black-owned businesses have responded to higher borrowing costs: by slowing hiring, reducing hours and cutting jobs, according to a report by the Georgia Budget and Policy Institute.

Many Black entrepreneurs flock to Atlanta, a city where Black Americans are prominently represented in the ranks of business, government and culture. But start-ups in Atlanta typically struggle to secure adequate financing, local entrepreneurs said.

“Silicon Valley types, they have so much capital that they will throw money at any absurd idea,” said Charles Wright, the chief executive of Mechanized AI, a start-up that is building robots powered by artificial intelligence. Venture capitalists in the Southeast are more conservative, he added. “They don’t believe in fairy tales.”

Mr. Wright has abundant finance for his next venture, given the sale of his start-up data management company for $22 million in 2018. He drives a red electric Porsche, one of four cars parked in front of his home in Stone Mountain, a leafy, majority-Black suburb alongside a park that is an enduring monument to the Confederacy. He exudes certainty that Mechanized AI is on the verge of being worth billions.

“I’m sitting on what I know is going to be a unicorn,” he said. “There’s no precedent for what we’re doing.”

He is also confident that Black voters will turn out dutifully, if not enthusiastically, for Mr. Biden, whom he credits with returning stability to the economy after the tumult of the Trump administration.

That may prove so. Yet conversations with Black entrepreneurs in Atlanta revealed an overarching sense of uncertainty.

Right after pandemic restrictions were lifted, Omar Whilby saw a considerable surge of business at his nightclub in East Atlanta Village, a hive of bars and music venues.

“Everyone was tired of being at home,” Mr. Whilby said. People had money in their pockets, courtesy of the pandemic relief programs established under President Trump.

But last year, with interest rates spiking and prices for gas, groceries and rent climbing, Mr. Whilby’s club, iLounge Atlanta, saw business drop by one-third.

In response, he is slowing the development of his technology business, Sound Capsul, which streams music shows online and allows independent artists to upload and share their music.

“We’ve had to shrink our growth strategy,” Mr. Whilby said.

Ray Woods, 34, an Atlanta-area real estate entrepreneur, distills the electoral choice as one between a Republican Party that does not care about Black people and a Democratic Party that takes Black voters for granted.

He voted twice for Barack Obama as president and admires Denmark, where high taxes finance a comprehensive and generous social safety net. He supported the candidacy of Senator Bernie Sanders, the self-proclaimed democratic socialist, in the Democratic presidential primary in 2016. Then, he cast his ballot for Mr. Trump in the general election.

Mr. Woods is set to vote for Mr. Trump again this time, seeing him as the best way to advance the interests of business.

“America has been built on capitalism,” he said. “We need somebody who understands business.”