Black-owned Businesses and Inequality
Only 2.2% of businesses are minority owned in America and Black women receive just 0.0006% of all venture capital funding in tech
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Subrina Heyink is a Black female business owner who sees many challenges before her. She has struggled against racist comments from others in the fashion industry; she has fought to find mentors to support her work; and she is often not given the funding or opportunity she needs to thrive. In her opinion, for Black businesses to survive, she says “structural support” is critical, particularly for Black female entrepreneurs.
Business ownership as a path to the American Dream
There are 124,000 Black-owned employer firms in the US, representing only 2.2% of all employer businesses. Another nearly 3 million black owned businesses exist, but have no employees. While US businesses tend to consistently fail at a rate of 20% in their first year, this is disproportionately higher for Black owned businesses. 80% of Black owned businesses fail in their 12-18 months, and only 4% of Black-owned businesses make it past the start-up stage.
Only 131 counties have more than 50% of businesses that are minority owned. The median income across these counties is $39,884. The remaining 3,000+ counties with predominantly White-owned businesses have a median income of $50,180 which is 26% higher.
From Tulsa to Today
Black owned businesses have fought hard to gain footing in America. Black Wall Street in Tulsa, Oklahoma is probably one of the most infamous examples of Black success and systemic failure. Black Wall Street was the wealthiest place in the US for Black Americans — Black investors and entrepreneurs thrived — in 1917, rioters burned down all 40 square blocks. Scores of Black Americans died and thousands were injured.
In the following year, the Great Migration (the movement of about 6 million Blacks from the South to the North) began. Blacks migrated North in search of better economic opportunities and jobs with improved wages and treatment. While this migration was happening, the concentration of Black businesses in the South and Southeast, even today, remained the highest. This is at once because of the demographics of the South and because, historically, White business owners refused to operate in Black neighborhoods, creating unique opportunities for Black entrepreneurs to cater to local needs.
Low funding, low pay, and low access
Black owned businesses with employees have only 10 employees on average, compared to 23 employees for all other owner demographics. This often makes it much harder for these businesses to scale their work and also to become stronger staples in their communities.
Further, the average Black owned business pays their employees $36,372 compared to $53,338 for all other owner demographics. Lastly, Black men are paid $0.87 cents for every $1 White men get paid. This is a classic example of inequality negative feedback loops.
Black-owned businesses get only 66% of the funding that they request from banks, compared to 80% that White-owned businesses get for their same requests. Additionally, the average loan size for small white-owned firms was over $30,000 higher than for small BIPOC-owned firms. As previously discussed on this Substack, Black Americans are turned down for loans at a rate more than double that of their White counterparts.
This is even worse in the venture capital industry, particularly if you are a Black woman. Since 2009, Black women have received just 0.0006% of the total $424.7B in venture capital funds invested in tech companies. Overall, Black women receive 0.34% each year of all VC funding.
Daniel Maloney, the owner of a chocolate store in Brooklyn, offers insight into this challenge of meeting local needs: “I got into chocolate because I’m trying to produce the best chocolate in the world. I’m not trying to make chocolate from a Black perspective.” He also acknowledges how events like “Blackout Tuesday” have been beneficial for Black business owners and that there is a different history for us to acknowledge. Daniel wants honesty from his customers, especially because he knows he has the best chocolate in the world.
When we combine a lack of funding, a lack of resources, and a persistent racial-pay gap - it is no wonder that Black businesses struggle and that employees struggle to make a living wage.
Boston has some of the lowest Black business ownership in America
Boston has one of the lowest percentages of Black-owned businesses in America, which trickles through to the region’s wealth metrics. A 2015 study by the Federal Reserve of Boston found that, in Boston, the median net worth of a White household was $250,000. The median net-worth of a Black household in Boston was $8.
Business ownership can provide an opportunity to wealth creation because employment and savings creation lead to improved credit and then less chance of loan refusal, making it easier to both reinvest in business and purchase a home.
Low government support during COVID-19
At the beginning of the pandemic, Congress passed the CARES Act which authorized the Treasury Department to disperse up to $659 billion in forgivable loans to small businesses through the Paycheck Protection Program (“PPP”). However, these loans rarely made their way to Black businesses.
Black owned businesses received PPP loans that were 50% lower than comparable White owned businesses. Only 43% of Black owned businesses received all the PPP funding that they applied for, compared to 79% for White owned businesses.
The Associated Press analyzed PPP loan data across all US Zip Codes and found that zip codes with high percentages of White Americans saw 6 out of every 1,000 loans was approved. However, zip codes with high percentages of non-White Americans saw only 3 out of 1,000 loans approved.
The number of Black business owners declined 41% during the pandemic. As the pandemic showed, most Black businesses do not have enough cash to pay for 2 weeks worth of bills. Economic shocks are harder for Black businesses to weathers since they have lower cash liquidity, lower profits, less success in majority-White neighborhoods, and the skew towards service (‘essential’) industries.
Even in the harshest of times, Black business owners often do not get the support they need.
The Path forward
The Minority Business Development Agency (“MBDA”) in the Chamber of Commerce is the only federal agency tasked with promoting the growth of minority-owned businesses. The MBDA operates 50+ regional offices around the country and has outlined several paths to help minority owned businesses thrive in America:
Conscious efforts to invest more capital - Black business owners get loans that are 60% smaller than their White counterparts yet have to pay much higher interest rates on those loans. Organizations like Harlem Capital, Blck VC, Visible Hands, and Base10 are doing tremendous work to help invest in minority owned businesses and recognize the adverse challenges that minority founders may face. Harlem Capital’s $174M fund and Base 10’s $1B in AUM have helped black founders attain the capital to start their businesses.
Federal contracting as a source of funding - In 2020, the federal government awarded $145B in federal contracts, however, 96% of that was distributed to large White-owned businesses. This number has barely changed from 5 years earlier. The 1997 Small Business Reauthorization Act mandates that the federal government award 23% of its federal contracts to small businesses, but nothing similar exists for how funding should be distributed to minority-owned businesses. As part of the MBDA mandate, the agency can ensure that percent-targets are set for federal contracting awards for minority-owned businesses
Bookmark this list - New York Magazine created a list of 198 Black-owned businesses that you can support by buying their products. Your dollars make a difference and our choices are one of the strongest tools we have. In many cases, these lists have proven to 8x the revenue of these listed businesses. While the problems of supporting Black businesses are deeply endemic and require structural federal, state, local, and private sector changes - that change can start with your choices and consumer spending choices.
A large part of the American Dream is based on the idea that opportunity abounds. If we work hard, we will be rewarded for that hard work. Black business owners have consistently not had that opportunity, and different pockets of America have hidden that opportunity more than others. Let’s ensure that entrepreneuring Americans can be rewarded for their hard work.
Special thanks to Elizabeth Kostina for her research, insights, and thoughtful guidance on this piece.