Funding Black-owned businesses: Facts and statistics

Key takeaways

• Black-owned businesses in the U.S. employ around 1.6 million Americans, according to the U.S. Census Bureau.
• Studies show that Black entrepreneurs face more challenges than their white counterparts to secure the capital they need. This is true, even if they have a stronger credit profile.
• Black-owned businesses play an essential role in reducing the racial wealth gap.

Minority-owned businesses are those that are at least 51 percent owned, operated and controlled by a minority group. Black- and African-American-owned businesses fall under this umbrella.

Unfortunately, the racial wealth gap and systemic racism in the U.S. have long made it more difficult for Black entrepreneurs to thrive. More recently, inflation and increasing interest rates have also emerged as challenges for small business owners.

Despite these challenges, the number of Black-owned businesses in the U.S. has continued to grow. Today, they employ over 1.6 million Americans nationwide.

Black-owned business statistics

Key statistics

• There were over 194,000 Black-owned businesses in the U.S. in 2022, up from 161,000 in 2021, according to the U.S. Census Bureau.
• Black-owned businesses employed 1.6 million employees in 2022 (U.S. Census Bureau).
• Black-owned businesses made up about 3% of U.S. firms that can be classified by the owners' race or ethnicity (U.S. Census Bureau data).
• 25.6% of Black-owned businesses in the U.S. are in the healthcare and social assistance fields (U.S. Census Bureau).
• 39% of Black-owned businesses were owned by Black women in 2021, while men owned 53% (Pew Research Center).
• 4.1 million (14.5%) of nonemployer firms are Black-owned (U.S. Census Bureau).
• When asked their greatest motivations for starting a business, 9 in 10 Black business owners cited greater income, desire to work for themselves and wanting an avenue to produce their ideas and products (Pew Research Center).

The importance of Black-owned businesses

Black-owned businesses are essential to our nation for a number of reasons.

• They give back to the communityHistorically, 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. Notably, 46 percent of Black business owners cited community support as a primary motivation, compared to 24 percent of white business owners and 35 percent of all minority business owners. According to a study by Brookings, minority-owned businesses -- including Black-owned -- are also more likely to report that their neighborhood is the site of most of their transactions.
  
  "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," Larry Ivory, president and CEO of the Illinois State Black Chamber of Commerce, says.
  
• They're essential in reducing the racial wealth gapDespite the overall growth of Black-owned businesses, the racial wealth gap in the U.S. remains staggering. Data by the Federal Reserve shows that, on average, Black households have $240,000 less than white households. Median wealth for Black households stood at $44,890 compared to $285,000 for white households.
  
  This equates to Black households owning $15 for every $100 of white family wealth. Promoting Black-owned businesses is important in reducing the racial wealth gap and creating job opportunities for people of color.
  
• They inspire change in the communities they serveMany large corporations have committed funds to support Black communities and businesses. The problem, however, is that they often lack diversity. This creates a disconnect between their business and the communities they're trying to help.
  
  "You cannot have a thriving community without thriving businesses, and it needs to be people that look like you," Ivory says. "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?"
  
  "We have to be very intentional to shift that," he adds. "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."
  

Funding challenges among Black entrepreneurs

Key insights

• Black entrepreneurs were almost half as likely to be fully approved for financing compared to white entrepreneurs (32% vs. 56% for white-owned businesses) (2024 Firms in Focus chartbooks)
• Black sole proprietors are half as likely than white sole proprietors to secure financing, though the script flipped when Black-owned businesses were an LLC or corporation (Brigham Young Univeristy).
• In the 2024 fiscal year, the SBA backed 5,054 loans to Black-owned businesses, totaling $1.4 billion, accounting for 7.2 percent of total loans approved. By comparison, white business owners received $12 billion, making up 45.5 percent of loans approved. (U.S. Small Business Administration).
• On average, Black-owned startups received $500 in outside funding from investors, while white-owned startups received $18,500 (Washington Employers for Racial Equity).
• When Black business owners received funding from lenders, they also received 22 percent higher interest rates than white business owners (Washington Employers for Racial Equity).
• While 31 percent of Black business owners who opted not to seek financing did so because they were discouraged, only 5 percent of white business owners expressed the same reservations (2024 Firms in Focus chartbooks).
• Although Black businesses make up 40 percent of all MBEs, they only accounted for 18 percent of revenue (2023 Minority Businesses Economic Impact).
• While both Black household and white households owned about the same business equity (21 percent and 22 percent respectively), investment stock equity made up 30 percent of white wealth and only 4 percent of Black wealth (Federal Reserve).

Black entrepreneurs face more challenges in qualifying for business loans. This is largely due to the generational racial wealth gap and institutional racism.

"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 ( CSCO ) 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 on racial bias in lending, it was confirmed that persistent disparities are faced by minority entrepreneurs. Despite possessing stronger financial profiles than their white counterparts, 20 percent of Black business owners were fully approved for funding versus 58 percent for white business owners. Black business owners encounter greater difficulty in securing financing or receiving unfavorable loans, indicative of systemic racial bias at the service frontlines.

Similarly, the Federal Reserve Banks' 2023 Small Business Credit Survey found that 41 percent of Black business owners applying for a loan, line of credit or merchant cash advance were denied, compared to 18 percent of white business owners.

Bank of America's ( BAC ) 2024 Women and Minority Business Owner Spotlight survey revealed that 41 percent of minority business owners cite social and racial inequality as a primary economic concern, with 28 percent of Black entrepreneurs expressing skepticism about ever attaining equal access to capital.

Forty percent of Black business owners have experienced challenges with accessing credit, and 39 percent of those face fears of prejudice during the process. Repairing the damage done by decades of institutional barriers and racism will not be easy, but it's vital to ensure equal opportunity and support for Black-owned businesses.

Funding resources for Black-owned businesses

There are several financing options Black entrepreneurs can explore to help fund their ventures, including the following:

• Business loans and lines of credit: Black business owners who need capital may consider taking out a business loan or line of credit. If you do not qualify with traditional sources like banks, you could turn to online lenders which tend to relax eligibility requirements.
• Microloans: Microloans 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. Microlenders also tend to accept riskier borrowers and offer mentoring to support your business journey.
• 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 loans and financial services 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 can access networking opportunities, trainings and other resources the organization provides.
• The National Association for the Self-Employed (NASE): This organization offers microgrants of up to $4,000 for association members.
• 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 develop rural communities and support job creation.
• U.S. Small Business Administration (SBA): The SBA is a U.S. government agency that provides financial support and resources for small U.S.-based businesses. The SBA offers multiple programs, including the 8(a) program, which assists small businesses with securing government contracts. It can also help you find the right SBA loan or investment capital through its SBA loans. They also have Community Advantage Small Business Lending Companies (CA SBLCs), which seek to address the lack of accessible traditional small business loans in underserved communities. Besides that, the agency has listed different resources available specifically to Black business owners in commemoration of Black History Month.

Bankrate insight

Microloans are a good option if you don't qualify for traditional financing, They often relax eligibility requirements, accepting low to no credit and startups. When looking for microloans, consider these lenders:

• SBA
• Kiva
• Accion Opportunity Fund

How to choose the right funding for your business

1. Determine how much funding you need. Consider how much money you need to cover the business expense or project. Make sure that you can take on this amount of debt by estimating the monthly payment using a business loan calculator.
2. Check your personal and business credit score. You'll need to use this credit score to determine which lenders you are eligible for. If you have a personal credit score of 670 or higher, you may qualify for the lowest rates with traditional bank lenders. Anything lower and you may n need an SBA loan or go with an online lender.
3. Decide on the type of business loan you need. Business loans come in many forms. You may want a term loan if you have a specific purchase in mind for the funding, or a business line of credit if you would like to be able to access credit repeatedly as you need funds.
4. Research multiple lenders and prequalify if possible. Comparing lenders is the easiest 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. Be sure to compare rates and fees to understand the full cost of the loan.
5. Choose a lender and apply for the loan. Once you've researched multiple lenders, choose which one you'd like to apply for and fill out their application. Bank lenders may require you to go in person to apply, while online lenders may have a fully online experience.

Bankrate insight

To help Black-owned businesses find the business funding they need, we've put together the following guides:

• Best business loans for minorities
• Best business grants for Black women
• Best business grants for minorities

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 you enjoy doing business with, it is worth promoting 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 helps potential customers choose that business over competitors. Consumers often rely on reviews when choosing a business, and more positive reviews can increase a business's online visibility.
• Join a Black-owned bank: Whether you open a business checking account or a line of credit, joining a Black-owned bank supports economic empowerment in minority communities. These banks serve a diverse clientele and foster personalized banking relationships, aiding community development and wealth-building efforts.

Bottom line

Systemic racism and the racial wealth gap pose significant challenges for Black-owned businesses, but they are vital to communities and the economy. Supporting Black-owned businesses and helping them reach the funding and resources they need are steps in the right direction. Government agencies and corporations must prioritize investments in these businesses and communities to foster inclusive economic growth.