ARCC News – The Impacts of Racism on Black Entrepreneurs

This month, we are excited to share “ARCC News” and an original article as a companion to Season 2, Episode 7 where Donzel interviews Taylor Hubbard and John Hayes on “How Small Businesses Can Drive Change”.

September 2022

The Impacts of Racism on Black Entrepreneurs

In recent years, many forms of racial injustice—including economic disadvantages—long endured by Black Americans have reemerged in the national spotlight. Throughout the Black Lives Matter (BLM) movement and the pandemic, there have been calls to support Black-owned businesses and learn about the human and financial losses in events like the Tulsa massacre. Yet little attention has been given to the current barriers that Black entrepreneurs (especially Black women entrepreneurs) face in launching and maintaining a successful business.

Thriving Black business ownership is an important key to bringing about greater material equity for Black individuals and communities nationwide, and yet many factors continue to hinder progress in this regard. Here are some of the major obstacles Black Americans encounter in launching and running a business.

Barriers to Black Entrepreneurial Success

Just a few of the barriers that Black business owners face in starting a company and keeping its doors open include:

  • Less startup wealth. The average Black business owner has only about $35,000 in startup capital, compared with the $107,000 a white counterpart typically has. This is largely due to the racial wealth gap, which has a long history of distinct causes and is most severe for Black households. How much capital a business owner can invest in their company has a direct impact on that company’s growth rate and overall success.
  • Systemic racism in procuring small business loans. Less startup wealth creates a greater need for financing support. A 2017 study found that banks were twice as likely to approve business loans for white entrepreneurs compared with Black ones, preferring to serve this group even over their more qualified Black counterparts. Black loan applicants were also subjected to greater scrutiny, including questions about their marital status and spouse employment status.
  • Underinvested geographic communities. One reason Black entrepreneurs are denied business loans is the underinvested status of the communities they plan to serve. These are often low-income urban areas with lower home ownership rates and property values. Although more successful businesses would boost community economic health in such communities, banks frequently won’t invest in them because they are ultimately less profitable. It can also be more expensive to insure businesses in underinvested areas.

Effects of Racism on Black Entrepreneurs, Communities, and Economies

Systemic failure to invest in Black-owned businesses harms not only entrepreneurs, but their families, children, communities, and even the national economy. Some of the effects of institutional racism on Black entrepreneurship include:

  • Greater hardship during the pandemic. In the early stages of the COVID-19 pandemic, Black business ownership decreased by over 40%, the greatest decline in any ethnic group. Black-owned small businesses were less likely to have access to financial relief during the pandemic, had greater difficulty pivoting their businesses online, were more likely to receive late payments, and consequently were less able to survive mandatory closures.
  • Worsened racial wealth gap. Because the ability to open and successfully run a business is directly impacted by personal wealth, failure to remove racial barriers to company success will significantly worsen the racial wealth gap.
  • Perpetuated generational poverty. It’s no coincidence that, as of 2021, 1 in 5 Black Americans who are experiencing poverty are the 3rd generation to do so compared with only 1 in 100 white Americans. Generational poverty keeps Black Americans from building more successful futures in part because of the enormous strain that merely surviving places on them. Barriers to Black entrepreneurship will only perpetuate this cycle.
  • Fewer local jobs and less community-level economic growth. In 2020, Black-owned businesses accounted for over 1 million jobs and over $165 billion in revenue. If these were proportional to the size of Black communities nationwide, there would be an exponential increase in job creation and economic growth. This projection tool shows how much more prosperous various cities in the US would become if Black businesses reached parity with all US businesses.
  • Less national economic growth. As of 2020, Black Americans accounted for 14.2% of the US population, but only 2.2% of employer business owners nationwide. This indicates that the lack of proportional Black entrepreneur representation is costing the US economy millions of jobs and billions of dollars in revenue. 

Americans of all races can help to build a stronger economic future for Black communities and the US as a whole by supporting anti-racist legislation, Black-owned businesses, and organizations that work to eliminate racist institutional policies.

Support Black Entrepreneurship With ARCC

The Anti-Racism Commitment Coalition (ARCC) is an inclusive coalition of dedicated people committed to eradicating racism and spreading anti-racism throughout our communities, countries, and the world. We work to help and educate people on their transformative journey to anti-racism by providing access to related support and resources.

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