“Your order supports this Black-owned business”… Black Americans are more likely to start businesses than any other ethnic group, with women of color starting businesses at 4.5X the rate of the overall population. In recent years, consumers have increasingly sought to support Black-owned brands. Companies from DoorDash to Airbnb have spotlighted Black businesses on their platforms — so have influencers and celebs. But despite this traction, many Black brands are finding it difficult to grow.
- Just 4% of Black businesses are still open after 3.5 years — dramatically less than the national average of 55%.
- Fewer than half of Black-owned businesses were considered healthy before the pandemic began, compared with 73% for white-owned businesses.
Mind the gap… Loans and venture capital are critical to business growth, but Black businesses tend to have less access to funding.
- Limited loan $$$: A recent McKinsey study found that 47% of Black biz owners’ loan requests were approved, compared with 75% for white owners.
- Lower starting capital: Black entrepreneurs start off with $35K, on average, compared with $107K for white entrepreneurs.
- Less venture capital: Fewer than 2% of $1B+ startups over the past decade have had Black founders.
Why… Several factors contribute to the funding discrepancies, including discrimination and the widening racial wealth gap. Also: Majority-Black neighborhoods have fewer bank branches and higher interest rates on biz loans compared with the national average. While three-fourths of the US uses digital banking, brick-and-mortar branches are still vital, especially in low-income urban neighborhoods and rural communities.
Equitable funding is essential for growth… Black communities have traditionally been the most likely to be denied access to capital, and Black families are still more likely to be denied mortgages. The traditional banking process can be riddled with discrimination, and lenders sometimes make decisions based on factors other than creditworthiness. In fact, Black-owned businesses were 12% more likely to obtain PPP loans from fintech lenders as opposed to small brick-and-mortar banks, where humans make decisions rather than algorithms. Moves by financial companies to address inequalities could help shrink funding gaps.