The success of black-owned businesses in the United States is a major concern for policymakers. Unfortunately, statistics show that eight out of ten black-owned businesses fail within the first 18 months. This is a stark contrast to white-owned businesses, which have higher incomes, more employees, and are more likely to stay open. To understand the challenges faced by black business owners, we first looked at the rate of new business formation and revenue growth for businesses owned by black and white American residents.
It's clear that black business owners, like black consumers, often struggle to access traditional lines of credit and capital, forcing them to seek funding outside of these institutional structures. This lack of access to resources has been a major factor in the relative lack of success of black-owned businesses. The unique experience of black business owners has been further complicated by the economic downturn caused by the pandemic. One article estimated that only 23 to 34 percent of Paycheck Protection Program (PPP) dollars went directly to workers who would otherwise have lost their jobs, while “the balance flowed to business owners and shareholders, including creditors and suppliers of PPP receiving companies.” The Small Business Credit Survey (SBCS) also found that 79% of Asian-American owned companies and 77% of black-owned companies reported that their financial situation was poor or fair, while only 54% of white-owned companies reported similar conditions.
Black small business owners were also the most likely to experience difficulties accessing credit (53%). These disparities are further compounded by institutional barriers such as location and lack of access to networks and role models. Corporate and government procurement programs targeting black-owned businesses tend to be underutilized due to these barriers. Lower levels of education among black business owners and higher levels of education among Asian business owners also contribute to disparities in business results.
To address these issues, leaders should formalize relationships with black companies that create wealth for these communities. Local economic development institutions, community development financial institutions, chambers of commerce and other government agencies such as the Small Business Administration or MBDA should open their professional communities to more black communities where business owners can seek guidance. Finally, it's important to note that even when factors such as “company characteristics and performance” are controlled, black-owned businesses are still 20 percent less likely than white-owned companies to get a loan from a large bank. This highlights the need for more equitable access to resources for all minority-owned businesses.
