Black-Owned Businesses Face Significant Obstacles. Anti-Racial Justice Efforts Are Making Them Worse
“Recent legal challenges have targeted programs aimed at alleviating the obstacles faced by marginalized communities, particularly those designed to promote equity in entrepreneurship … With this analysis, we can create and implement strategies that catalyze informed policymaking, advocacy efforts, and targeted interventions aimed at reversing systemic barriers and fostering a more equitable entrepreneurial ecosystem.” -- Alliance for Entrepreneurial Equity, The State of Black Business 2024
The good news: Black-owned businesses are more likely than other businesses to have a low level of debt, or no debt at all. The bad news: that’s because Black-owned businesses are far less likely to be approved for loans in the first place, and Black business owners are more likely to pull from their personal savings for business expenses.
The Alliance for Entrepreneurial Equity, a partnership of the National Urban League and Third Way, embarked on an “analytical journey” to understand the nuanced dynamics of racial inequality in the business landscape and underscore the urgency of advancing equal opportunities for Black communities and other communities of color.
The result, the State of Black Business report, finds that Black Americans are drastically underrepresented among business owners relative to their share of the population. They are more likely than other businesses to be shut out of traditional financing opportunities. They are starved for venture capital investment. And they are less likely to be awarded government contracts.
Yet efforts to correct these disparities are under attack by extremist activists determined to preserve – if not widen – the racial gaps in the entrepreneurial ecosystem. Earlier this year, a federal court shut down a pathway to opportunity for historically disadvantaged business owners and forced the Minority Business Development Agency to offer its services to non-marginalized communities. The same right-wing activist who successfully challenged affirmative action in college admissions has sued to end a grant program for Black women entrepreneurs. Lawmakers in more than 30 states have introduced or passed more than 100 bills to shut down diversity, equity and inclusion initiatives.
Despite growing at a rate of 30% between 2018 and 2021, Black-owned businesses with at least two employees represent only 2.5% of all businesses in the United States. These businesses are smaller – only 3% have more than 20 employees, with the vast majority having fewer than five employees.
They’re also younger. Nearly half are less than two years old, compared to 19% of white-owned businesses.
Black-owned businesses face the greatest obstacles to financing, by far, more than any other demographic. Only 32% -- compared with 56% of white-owned businesses – are fully approved for the financing they seek, while 40% -- compared with 18% of white-owned businesses -- are completely denied loans, lines of credit, and cash advances.
Even when financing is approved, Black-owned businesses are more likely to be offered high interest rates. As a result, these businesses are more likely to delay plans to expand and have a harder time refinancing their existing debt.
The racial gap in venture capital investment is even more startling. Only 0.5% of venture capital funding went to Black founders in 2023.
As the fourth anniversary of George Floyd’s murder approaches, the demand for racial justice that arose in its wake is being stifled, along with the nation’s history of discriminatory hiring and lending practices, voter suppression and gerrymandering.
The same activists who are trying to stifle discussions of historical racism in America’s classrooms likely would prefer to stifle AEE’s report.
But we won’t be silenced. We’re developing a national policy platform that encourages and supports entrepreneurs of color, gives them greater access to new markets and capital, streamlines regulatory procedures, provides more technical assistance, and more.
Systemic inequality robbed the U.S. economy of an astounding $16 trillion over 20 years. Fear and resentment aren’t just harming communities of color, but the resiliency and prosperity of the nation as a whole.
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