National Black Business Month, observed every August, provides an essential opportunity to honor and acknowledge the profound contributions of Black-owned businesses to the U.S. economy. This month calls us to support Black-owned businesses and remain committed to ensuring their enduring success.
Black-owned businesses are vital catalysts for innovation and community development. The healthcare and social assistance sector notably stands out as the most common area for these enterprises. With 3.7 million Black-owned enterprises in the U.S., they account for 11.3% of all businesses, closely aligning with the 13% of the Black population. However, only 2.7%, or 161,422, of U.S. employer firms are Black-owned. Since employer firms are generally more profitable and encounter fewer obstacles in securing credit, increasing the proportion of Black-owned employer firms is essential to bolstering the success of Black entrepreneurs.
Securing business funding is a significant hurdle for Black entrepreneurs. While 84% of businesses led by people of color rely on personal savings, friends, or family for initial funding, only 28% have successfully obtained business loans. In contrast, 48% of white-owned startups have managed to secure such loans, highlighting the financial challenges faced by Black business owners. Alarmingly, 47% of Black entrepreneurs who apply for a loan are denied.
What’s behind these hurdles?
According to Forbes, structural racism and power imbalances are driving discriminatory financial practices that hinder growth, particularly in early-stage financing. The venture capital (VC) ecosystem is notably biased towards startups led by white males.
A significant issue is the stark lack of representation, with less than 1% of US venture capital-backed firms being Black-owned. This underrepresentation extends to decision-making roles within VC firms, exacerbating the problem.
The wealth disparity continues because banks and institutional investors often have biased funding practices against Black founders. These investors usually require collateral assets, which many Black founders lack. Banks tend to favor applicants with plenty of collateral and cash, which often disadvantages Black business owners. According to the Pew Research Center, the financial inequality is stark. The median wealth of White households is 20 times greater than that of Black households. This racial wealth gap makes it difficult for many Black owners to secure loans.
Consequently, minority business owners are less likely to have the expensive assets or homes that banks prefer as collateral, placing non-minority founders at a distinct advantage with 16% more capital. Perfect credit scores, which often serve as proxies for business loans, are typically linked to wealth. The average minority owner’s credit score is around 707, roughly 15 points lower than comparable small business owners.
Tackling these challenges demands a well-rounded strategy that includes funding initiatives, mentorship programs, community support, and educational resources. How can we ensure government agencies, programs, corporations, and banks are held accountable for addressing funding disparities and creating opportunities for Black entrepreneurs? One way is through transparency and accountability measures. This can include regular reporting on diversity and inclusion efforts, as well as setting specific targets and goals for promoting Black entrepreneurship.
Additionally, working with these agencies to implement diversity and inclusion training programs can help these entities better understand the unique challenges faced by Black entrepreneurs and take steps to address them. Furthermore, incorporating equity into funding decision-making processes can help bridge the gap in funding disparities. This means considering factors such as systemic racism, historical discrimination, and access to resources when allocating funds.
While funding disparities exist, Black business owners must take charge of their success. Are you keeping your credit in good standing and ensuring your business is financially stable? Have you sought professional help for effective business growth? Have you explored mentorship programs, resources, or other supportive opportunities? In addition, work together with other Black-owned or non-minority businesses on projects and initiatives. Partnerships matter. Using your skills and expertise to collaborate and partner with other businesses, you can secure more contracts and opportunities, ultimately growing our economy.
Do your due diligence to make your business thrive. If you’ve taken all the necessary steps and still face challenges with agencies and financial institutions, it’s time to advocate for your business. Engage with policymakers to push for initiatives that support the growth and sustainability of Black businesses, also creating equal opportunities for future generations of Black entrepreneurs.
National Black Business Month is not just a celebration—it’s a call to action. By recognizing their achievements and addressing the obstacles they face, we can foster a more equitable and prosperous economy for everyone.
Source(s):
- United States Census Bureau
- Lendio.com
- SCORE
- National Business Capitol
- Pew Research Center
- FedSmallBusiness.org
- Forbes.com
- Brookings.edu
- NationalToday.com
Dawn Paul, also known as The Dr. Dawn®, is an award-winning media personality, public speaker, certified life coach, author, and entrepreneur. She has extensive experience in writing, reporting, and editing for the Black press. Dawn is a member of the Houston Association of Black Journalists (HABJ) and the National Association of Black Journalists (NABJ) and has received the Texas Southern University Bless the Mic honor and the President Joseph R. Biden Lifetime Achievement Award. Follow her on social media at @TheDrDawn.
