This piece is part of my 2016–2026 archive migration. Some original formatting, content, and external links may be missing, changed, or not be optimized.
Blacks meet resistance to wealth building
Just over 150 years ago, half of the dollars in circulation had pictures of enslaved people picking cotton on them. Slaves represented wealth in America and were worth over 3 billion dollars by 1863. Thankfully a lot of change has occurred since then, and many racial barriers have been broken, but many barriers are still present.
The racial wealth gap measures white household wealth and black household wealth.
The median white household wealth is $171,000. The median black household is $17,600. Furthermore, the gap between the two races continues to grow exponentially. – Source, Explained, 2018
Black Business Is Growing But Still Faces Resistance
Business is booming for African-Americans, but unfortunately, they face discrimination when it comes to obtaining financing.
“One of the many long-standing frustrations for minorities is that their vital role in the U.S. economy hasn’t made it much easier for them to obtain the means for success. Between 2007 and 2017, minority-owned small businesses grew by 79%, about 10 times faster than the overall growth rate for U.S. small businesses during the same time frame. This puts the number of minority-owned businesses at approximately 11.1 million, which isn’t much of a surprise, considering the U.S. is expected to become a minority-majority country sometime between 2040 and 2050.
But, despite leading a significant portion of the nation’s businesses, minority-owned firms are still having a much harder time accessing small business loans than their white counterparts. Minority-owned firms are much less likely to be approved for small business loans than white-owned firms. And, even if they do get approved, minority-owned firms are more likely to receive lower amounts and higher interest rates. According to findings from the U.S. Department of Commerce Minority Business Development Agency, these discrepancies have made minority business owners more likely to not apply for small business loans, usually out of fear of rejection.”
Source: Forbes
3 reasons why it’s difficult for minority business owners to obtain small business funding:
Low Net Worth: It’s no mystery that black families are at the bottom of the barrel on the wealth chart.
Location barriers: Many black people want business loans in areas that are low-income neighborhoods to help build and invest in their communities. However, many banks do not want to invest in these neighborhoods and aren’t as energetic.
Poor or little credit history: “The average minority small business owner has a credit score of about 707–15 points lower than the average small business owner in the U.S. A nearly perfect credit score is basically mandatory for the most advantageous bank loans, even though there are numerous plausible explanations as to why an otherwise responsible and dedicated business owner would have poor or very little credit history. Still, the credit score is arguably just as important as the business’s performance record when it comes to securing a bank loan. Thankfully in times like this, private funding companies have gained traction by mining data and looking not only at credit but also looking at time in business, industry, location, cash flow, both daily and monthly ending bank balances in the business accounts, number of staff, time left on the lease, etc. By looking at more than just credit, these models have allowed minority business owners to access capital.” (Source: Forbes)
Other Options: Alternative Financing
Traditional banks aren’t always the best option for black-owned businesses seeking funding. Thankfully, the business lending industry is evolving and more players are entering the market that happily caters to minorities without discrimination based on their creditworthiness, business stability, or income. Many alternative lenders are jumping in full steam ahead for even the businesses deemed risky.
“Small business loans are no longer strictly limited to wealthy white men with flawless credit.
Some alternative lenders now offer programs tailored for businesses with less cash on hand and lack the stringent, non-negotiable guidelines of traditional bank loans.
These funding companies have allowed business owners to build up their track record and help to fix their perceived problems so that they may one day qualify for the traditional financing they desire.”
Source: Forbes
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.