Despite familiar social, financial roadblocks
Black businesses start-ups have been largely thriving for the past four years. However, the typical barriers to these intrepid entrepreneurs remain in place despite steady inroads.
Black-owned businesses serve as a major example of independence and financial revenue for the African-American community. A 2023 Pew Research Center survey found that more than one-in-five Black adults say owning a business is essential to financial success. And while Black-owned businesses have grown significantly in recent years, they still make up a small share of overall firms. For instance, the latest estimates from the Annual Business Survey (conducted by the U.S. Census Bureau and National Science Foundation) found that there were 161,031 U.S. firms with majority Black ownership, up from 124,004 in 2017. Black-owned firms’ gross revenue has soared by 43% during that timespan, from an estimated $127.9 billion in 2017 to an impressive $183.3 billion in 2021.
Black-owned businesses are known for their individuality, creating jobs, driving innovation, and contributing to the community. Black businesses make up about an 11.3% share of all U.S. businesses. However, only 2.7% of Black-owned businesses are “employer firms” (those operations composed of employees and/or staff members). Taken together, California, Florida, Georgia, New York, and Texas host the largest share of Black-owned businesses, with Florida in the lead at 461,149. Percentage-wise, the District of Columbia has the highest share of these companies (35%) as well as employer firms at 15.7%. This finding relies heavily on the large population of African-Ameridans in the District of Columbia. Florida has the nation’s largest total number of Black-owned businesses (461,149) and employer firms (18,502).
“Black businesses are helping to power a nationwide small business boom that is creating jobs, advancing equity in communities across America, and uplifting our economy,” said Isabella Casillas Guzman, head of the U.S. Small Business Administration (SBA). “Today’s benchmark loan numbers show our work under President Biden’s Investing in America agenda making inroads to support more of America’s Black small business owners.”
During the pandemic, Black-owned businesses encountered a myriad of issues due to the economic shutdown. Social distancing and public health guidelines made it challenging for many businesses to operate successfully. In 2020, a Brookings Institute report “Black-Owned Businesses in U.S. Cities: The Challenges, Solutions, and Opportunities for Prosperity,” suggested that 92% of Black business owners reported experiencing hardship during the pandemic. During the first few months of 2020, Black ownership decreased by 40%. Businesses with limited financial assets were at a higher risk due to not having financial relief and or resources. Nearly 75% of Black-owned businesses reported difficulties paying operating expenses and 53% of business owners were more likely to experience a hard time accessing credit.
In March 2020, Congress passed the CARES ACT, to address the economic fallout of the pandemic. The Treasury Department was authorized to disperse $659 billion in forgivable loans to small businesses through the Paycheck Protection Program (PPP). Businesses were able to use these loans to assist in paying for mortgages, rent, utilities, and payroll. Unfortunately, there were large holes in the PPP program, including the first round going to employer firms, while 95% of Black-owned businesses are non-employer firms. Other statistics indicated that only 43% of Black-owned businesses received the funding that they requested. Additionally, when businesses were given the PPP loan, the loans arrived later than expected and largely less than what White firms received. The first-come first-serve nature of the PPP program put many Black business owners at a deficit as many prospective borrowers were underserved by mainstream banks and the financial services sector in general.
Additionally, statistics show that when Black Americans start a business, 57% are denied a bank loan at least once compared to 37% of non-Black business owners. The cost for a Black entrepreneur when starting a business is reportedly $5,000 more than their White counterparts. Many business owners have run into issues while attempting to finance their business such as accessing capital. Problems include misinformation or lack of information when applying for capital (39%), having no relationship with lenders (38%), and not knowing where to apply for capital (21%).
Intuit QuickBooks released a report two years ago, “Black Entrepreneurial Experience in America,” in which despite the pressures of operating a business, Black persons “must navigate racism and biases that threaten their success.” According to the report, Black business owners say they’ve experienced racism from a customer–with 48% reporting they had a racist customer at least one in the past year. Most (86%) of the Black business owners surveyed believed their businesses are “judged more critically than non-Black businesses.” The report also showed that 57% of Black business owners were denied a bank loan at least once when they started, compared to 37% of non-black business owners.
Since 2020, Black-owned businesses have increased by 14%. Healthcare and social services are the most common fields for businesses, followed by administrative/waste management/remediation services. The Pew study suggested that 40% of Black adults feel that having Black businesses is the equivalent of establishing a Black national political party. Black Americans have high hopes for the future of their businesses with 85% being able to pay themselves, and 79% saying their companies are successful.
In 2021, the U.S. Census Bureau released the Annual Business Survey demonstrating that there were an estimated 140,198 Black-owned businesses, that had employed 1.3 million workers. Three million Black businesses are run without employees, while Black-owned businesses in general bring in about $206 billion in annual revenues.
“Economic mobility and success are vital to achieving the American dream, but for too long small businesses owned by Black Americans have faced roadblock after roadblock on that path,” said Rep. Steven Horsford (D-Nev.). “I applaud the efforts of the Biden administration and the SBA to help Black small business owners succeed and grow. The growth in lending to the black community and other underserved groups is promising news and is the result of direct efforts to reach more communities.”
Through fiscal year 2023, the SBA had provided more than 4,300 SBA loans (totaling $1.3 billion) to Black-owned businesses through the 7(a) and 504 programs. Overall, SBA-approved loans to Black-owned businesses have more than doubled since 2020 (7.5%). Under the Biden-Harris Administration, the U.S. has experienced a historically large small business boom, with women and people of color, and 13.1 million new business applications filed since President Biden took office.
The Los Angeles Urban League is partnering with the Minority Business Development Agency to launch the Capital Readiness Program which will help promote the success of entrepreneurs in the Los Angeles area. The program runs from April 17 through June 5. The program is a nationwide program worth $125 million to provide technical assistance programs designed to help underserved entrepreneurs grow and scale their businesses.
The Los Angeles Urban League is looking to enroll two different types of businesses in their program, such as the creative and food and beverage industries. Creative industries include music, film, TV, animation, software, artificial intelligence, fashion, and design-focused firms.
“The Los Angeles Urban League and its Entrepreneurship Center are excited to have the opportunity to work with the MBDA to provide these vitally needed resources to community business owners in the food and beverage space as well as in the creative industries,” said Jon C. Walls, co-director of the Los Angeles Urban League Entrepreneurship Center. “Los Angeles is a mecca and is world-renowned for its excellence and leadership in these arenas. We can’t wait to identify our first cohort of community businesses and begin connecting them to the capital they’ll need to fuel their growth and realize their potential to scale.”
