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Small businesses are vital to the American economy, enriching local communities and diversifying the marketplace. Unfortunately, the racial wealth gap and systemic racism in the U.S. have long made it more difficult for Black entrepreneurs to thrive. The COVID-19 pandemic has also disproportionately impacted Black-owned businesses.
Despite these challenges, the number of Black-owned businesses in the U.S. has continued to rise. In 2020, there were about 141,000 Black-owned businesses nationwide — a 5 percent increase from the previous year.
The continued growth of Black-owned businesses is vital to economic growth and the overall well-being of their communities. It is important for Black entrepreneurs to be aware of the resources available to them and that consumers understand the importance of shopping local and supporting Black-owned businesses.
Black-owned business statistics
Black- and African American-owned businesses fall under the minority-owned business umbrella. The National Minority Supplier Development Council (NMSDC), defines minority-owned business as any business that is at least 51 percent minority-owned, operated and controlled. The business owners must be U.S. citizens, and the business must be located in the U.S.
Some local state governments and corporations around the U.S. set a percentage of their contract budgets to work specifically with minority-owned businesses. This is to take steps toward racial equity and ensure that the businesses they work with represent the whole community.
- There were 140,918 Black-owned businesses in the U.S. in 2020 — a 5 percent increase from 134,567 in 2019.
- Black-owned businesses employed 1.3 million employees in 2020.
- Over 1.2 million African Americans were self-employed in February of 2022, compared to 1.1 million in 2020.
- Black owners have accounted for 26 percent of all new business websites since the pandemic began, compared to 15 percent before the pandemic.
- Black-owned businesses currently bring in an average total revenue of $1,031,021, compared to $6,485,334 for non-Black businesses.
- Nearly one-third of Black-owned businesses in the U.S. are in the healthcare and social assistance fields. Black women own 54 percent of those businesses.
- Black-owned businesses are much more likely to hire Black workers.
- Health care and social assistance are the top industries for Black-owned business, with close to 40,000 companies nationwide.
- St. Louis, Fayetteville and Albany are the top metro areas for Black businesses, accounting for 10.8 percent, 7.8 percent and 6.8 percent of all Black-owned businesses in the U.S., respectively.
- Port St. Lucie, Florida has the highest employee pay for Black businesses in the country, with an average salary of $49,371 per employee.
Importance of Black-owned businesses in the community
Black-owned businesses are incredibly important to the communities they serve. Historically, businesses owned by people of color in the U.S. are much more likely to serve a local market and prioritize their communities regardless of profit.
According to a study by Brookings, minority-owned businesses — including those that are Black-owned, are more likely to report that their neighborhood is the site of most of their transactions. They’re also more likely to hire people of color compared to non-minority owned businesses, which helps communities flourish in different ways.
“The cultural impact is that you find less crime, greater synergy and all the good things that come when businesses are growing and giving back to their communities,” says Larry Ivory, president and CEO of the Illinois State Black Chamber of Commerce. “Unfortunately, there’s too many communities, especially Black communities, where everybody owns a business except Black people,” he adds. This, in turn, contributes to the widening of the existing disparities between white communities and communities of color.
Despite the overall growth of Black-owned businesses after the pandemic, the racial wealth gap in the U.S. remains staggering. On average, Black households have about $957,000 less wealth than white households, according to the Federal Reserve.
Promoting Black-owned businesses is important in reducing the racial wealth gap and creating job opportunities for people of color. While many large corporations have committed funds to support Black communities and businesses, the problem is often that they are not well connected to the needs of the people and communities they want to help.
“You cannot have a thriving community without thriving businesses and it needs to be people that look like you. If everybody else looks like somebody else, how are you going to inspire the youth and others to become entrepreneurs and do things when they have no signs of success?” Ivory says. “We have to be very intentional to shift that. And to really scale up Black businesses and other minority businesses to make sure we’re not creating a greater trade deficit in our home communities, as this makes America less competitive globally,” he adds.
That’s why investing and partnering with Black-led financial firms would be ideal for these large corporations to have a meaningful impact. Taking these initiatives can make a positive change as the racial wealth gap is growing and hurting the economy. It is projected that the racial wealth gap will cost the U.S. economy up to $1.5 trillion per year by 2028.
Why it may be more difficult for African Americans to get business loans
Black entrepreneurs have always faced more difficulties taking out business loans than white entrepreneurs. This is largely due to the generational racial wealth gap and institutional racism. Repairing the damage done by decades of institutional barriers and racism will not be easy. Research suggests that it could take more than 200 years for Black families to acquire the same level of wealth as white families due to the impact of structural racism in the housing market alone.
Ways systemic racism and the racial wealth gap impact Black-owned businesses
- 8 out of 10 Black-owned businesses fail within the first 18 months.
- 58 percent of Black-owned businesses were at risk of financial hardship before the pandemic, compared to 27 percent of white-owned businesses.
- Only 4 percent of Black American businesses survive the startup stage, even though 20 percent of Black Americans start businesses.
- Only 5 percent of Black Americans hold some business equity, compared to 15 percent of white Americans.
- Even with a strong credit profile, Black entrepreneurs are about half less likely than their white counterparts to secure full financing.
- Black entrepreneurs start their businesses with an average of $35,000 of capital. White entrepreneurs start their businesses with an average of $107,000 of capital.
- In 2019, about 30 percent of Black-owned businesses spent over 50 percent of their revenue paying off debt.
- 22 percent of Black-owned small businesses reported receiving financial assistance in the form of cash grants or government loans in 2022, compared to 27 percent of non-minority-owned small businesses.
Due to the obstacles Black entrepreneurs face in the financial world, it makes sense that Black businesses tend to have a harder time qualifying for business loans.
“One of the biggest and greatest challenges that African American business owners face is not getting access to the capital they need,” Ivory says. “Cisco data points out the fact that Black people get turned down at a much higher rate than Caucasians, even with the same credit scores and same factors being considered,” he adds.
In one study, researchers found that 73 percent of Black loan applicants were asked to provide financial statements for their businesses during the loan application process, compared to 50 percent of white applicants. While submitting financial statements is typically a standard part of the loan application process, it is telling that Black applicants were so much more likely to have to submit those documents.
Black entrepreneurs are three times more likely than white entrepreneurs to cite a lack of access to capital negatively impacting their business’s profitability. Black businesses are also more likely to struggle with debt. These problems can be traced back to the racial wealth gap and a lack of helpful relationships in the business community.
Funding for Black-owned businesses
Given Black entrepreneurs’ challenges when starting their businesses, business owners should know about available resources. Here are some popular funding options for Black-owned businesses:
- Business loans and lines of credit: Black business owners who need capital may consider taking out an installment loan or line of credit for business purposes. Microloans and business lines of credit are great options for new business owners just starting off. These loans allow you to take out a smaller amount to ensure you do not overborrow and get into debt.
- Coalition to Back Black Businesses: This organization provides grants and other financial resources for Black-owned businesses. Its Enhancement Grant grants $25,000 to 20 Black-owned small businesses each year.
- Community Development Financial Institutions Fund (CDFI): This fund is backed by the U.S. Treasury Department and consists of financial institutions like banks, credit unions, loan funds, microloan funds and venture capital providers. These institutions provide government-backed loans to businesses in low-income communities.
- Grants.gov: This is a database of all federal grant programs for businesses. It contains grants from every eligible U.S. agency.
- Minority Business Development Agency (MBDA): The MBDA is an agency backed by the U.S. Department of Commerce that promotes the growth of minority-owned businesses. This agency connects entrepreneurs with resources to find capital.
- Minority business certifications: If you get your business certified with the NMSDC, you will have access to networking opportunities and many other resources the organization provides.
- The National Association for the Self-Employed (NASE): This organization offers microgrants up to $4,000 for members of the association.
- Private equity firms: Private equity firms are investment management companies that invest in and support the growth of companies. Several private equity firms seek to specifically work with small minority-owned businesses. Backstage Capital, for example, works specifically with women, people of color and members of the LGBTQ+ community.
- The USDA Rural Business Development Grant Fund: This grant program is specifically for small businesses in rural areas. This program aims to bolster small businesses to improve rural communities.
- U.S. Small Business Administration (SBA): The SBA is a U.S. government agency that provides financial support for small U.S.-based businesses. Their lender match program can match you with a loan or investment capital to meet your business needs. Besides that, the agency has listed different resources available specifically to Black business owners in commemoration of Black History Month.
These are just some of the financial support options for Black-owned businesses. If you are a Black business owner or entrepreneur looking for capital, make sure to do some research and see if any loans or grants in your area fit your needs. The resources available can also vary depending on your business’s industry, so try some industry-specific searches.
How to choose the right funding for your business
If you need funding for your business and are trying to decide where to look, there are a couple of factors to consider.
First, you need to know how much money you need. This will allow you to narrow your search and focus on grants,potential investors or lenders that offer the amount you’re looking for.
If you need the funds quickly, taking out a loan or line of credit is likely your best option. That said, loans come with interest rates and fees and you must pay back what you borrow. Before taking out a loan, apply for grants to minimize debt. Partnering with an investor is another option you can explore, but this often comes with some strings attached, such as giving up a portion of business’ equity.
If after exhausting all other options, you still need to borrow money, make sure to research multiple lenders before choosing one. Comparing lenders is the best way to ensure you get the best terms and interest rates for your situation — even if you have less-than-stellar credit. It is also worth prequalifying with each lender before applying for a loan. This will give you an idea of what you may be eligible for, without hurting your credit score.
How to support Black-owned businesses
If you are looking for ways to support Black-owned businesses in your area, here are some things you can do as a consumer.
- Budget money with a purpose for spending on Black-owned businesses: If you want to consistently support Black-owned businesses, set aside a set amount of money each month specifically to spend at Black-owned stores and restaurants.
- Promote on social media: If there are Black-owned businesses that you enjoy doing business with, it is worth it to promote the business on social media. Word of mouth is a great way to bring in business, and supporting a business on social media is likely to help them bring in more profit.
- Shop local businesses: The best way to support Black-owned businesses is by patronizing those businesses. If you know of any Black-owned businesses in your community or online, try to shop there first. If you need help finding Black-owned businesses, Black Owned Everything is a centralized database of Black-owned businesses.
- Write reviews and online suggestions: Reviews mean a lot to small businesses, and writing positive reviews is a great way to support a Black-owned business you love. Consumers often rely on reviews when choosing a business, and more positive reviews can increase a business’s online visibility.
The bottom line
Black-owned businesses are important to their communities and the U.S. economy. There are structural barriers in place that make it harder for Black-owned businesses to thrive, but there are things these businesses can do to combat those obstacles.
Financial support for Black-owned businesses is a critical part of closing the racial wealth gap in the U.S. It is vital that government agencies and corporations invest in Black businesses and communities, not just for Black business owners but for the country at large.
In the words of Backstage Capital Founder Arlan Hamilton, “It’s not about ‘helping founders.’ It’s about fueling an untapped ecosystem so that you may be lucky enough to reap the rewards in years to come.”