Black Business Ownership: Challenges and Opportunities

The path to Black business ownership has always been filled with obstacles often coated in racism. After the abolishment of slavery, Black codes were created as restrictive laws to ensure the availability of Black Americans as cheap labor. During the Reconstruction years, many features of Black codes were reestablished as Jim Crow laws in the South. These restrictions made it extremely hard for Black Americans to own property, receive bank financing, and gain equal access to markets.

Entrepreneurship is a continuous struggle for Black Americans, and the recent COVID-19 outbreak has exacerbated that fact. According to a recent study from the National Bureau of Economic Research, the economic shutdown has hurt Black-owned businesses the most out of all racial and ethnic groups, with a 41 percent drop in Black owners from February to April 2020. And even though the government created the Paycheck Protection Program (PPP) to assist small businesses, Black business owners were largely shut out. A survey conducted by the Small Business Majority, a small business advocacy organization, revealed that 63 percent of Black and Latino small business owners applied for and received funding. Still, three in ten did not receive the amount they requested. In addition, Black-owned businesses tend to have fewer employees than other small businesses and are more likely to be in industries like restaurants or retail. These industries have been hit especially hard by COVID restrictions, said Ken Harris, president of the National Business League. “Most lack the capacity, scale, and technical assistance needed to survive a pandemic,” Mr. Harris said. “Black businesses often don’t have a traditional banking partner,” Mr. Harris said. Without such a partner, many had trouble applying for assistance.

Between a global pandemic, systemic racism, and the current recession, the Black community is hurting. That’s why people need to use their collective voices and power to lift Black Americans.

Challenges faced by minority-owned businesses

U.S. Commerce Department’s Minority Business Development Agency has released data that pinpoint some of the challenges minority owners face when securing financing:

  • Minority-owned businesses, especially those with less than $500,000 in annual receipts, are less likely to be approved for financing than white owners.
  • Minority-owned businesses receive smaller loan amounts, higher interest rates, and shorter pay-back durations.
  • Non-whites have a lower net worth, meaning less reliance on savings and less collateral to put towards a loan.

The Kauffmann Foundation, which partnered with the Census Bureau on the business surveys, detailed the impact of the financing gap on business profitability. Other challenges minority businesses face include:

  • Lack of capital and cash flow is the biggest challenge for African American small business owners, according to Guidant. That’s not a surprise since those are the same problems most small business owners face.
  • According to the Guidant report, more African American small business owners (44%) use cash to fund their businesses than the average small business owner (37%). Only 15% get help from friends and family, which was the second most popular source of capital for African American business owners.

Call to Action – Support Black-Owned Businesses.

Below are some ideas of how you can help support Black-owned businesses in your community:

1. Shop Online – There are many online marketplaces to shop in the internet age. Whether you find the stores through Google, some other search engine, or Etsy, Black-owned stores cover everything from hair products to clothing. 

2. Black Business Directories and Online Groups – Several Black-business apps and online directories will help consumers locate Black businesses. They provide real-time information on businesses ranked by referrals and reviews. Several Facebook and LinkedIn Groups are dedicated to promoting Black-owned businesses and providing a platform for entrepreneurs to network. Technology has made that process exceptionally easy. Many sources make finding Black-owned businesses that sell specific products and services simple, including local newspapers publishing Black-owned business lists. Here’s a small list of places to start looking:

a. Support Black Owned

b. WeBuyBlack

c. Official Black Wall Street

d. EatOkra

e. WhereU Came From

f. I Am Black Business

g. Black Nation

3. Social Media – Social media not only gives us access to many opportunities that might go missing in a standard online search, but it allows us to spread the word to like-minded individuals with literally the push of a button. Facebook, Twitter, and Instagram alone account for at least two hours out of most of the population’s time every day. This is free marketing, a reliable review from a trusted source (yourself) to people in your circle, and all it takes is a tweet or repost. Popular hashtags are being promoted to show support of Black-owned enterprises. More people are likely to give Black-owned businesses a chance if they see you’ve had a good experience with them. According to Brookings, for every ten reviews a business receives, it experiences an average of 2 percentage points of revenue growth.

4. Chamber of Commerce – This step will take a little bit of effort, but it’s worth it in the end, especially if you happen to be a business owner. Consider using your city’s Chamber of Commerce or The National Black Chamber of Commerce to find local businesses and who owns them. Most Chambers’ membership lists can be searched for free. However, there is usually a fee if you’d like to join. The Chamber usually holds meetings and networking events where business owners network and build relationships. Additionally, members share partnerships, business relationships, and referrals.

5. Find a business you like – No one says buy everything Black and only Black. As ideal as that would be, it’s highly impractical. However, if you could find a few items that you could regularly buy from one or more local shops or online, you could save money on gas for one, and you’d be making a difference. But keep in mind, it’s never a bad idea to go out of your way to support Black-owned businesses, even if it means taking a long drive.

6. Consider Specialty Shops – Think about some things that may be more specific to a Black business. Whether seasonal or regular, there are usually some things that may be more difficult to find if you’re an African American. For example, hair products, foods, cultural items, and even services aren’t effortless to come by.

7. We all go to the doctor – By taking a little time to research or ask for a referral for an African American doctor, you can make one decision that will support not only a Black business but the community as a whole.

8. “It takes a village”– For many households, there usually comes a time when a babysitter, pet sitter, or caregiver for our elders is needed. There are plenty of neighborhood daycares starting up as small businesses. You can also find reputable caregivers and senior homes owned by minorities. Young college students are in dire need of part-time work on weekends and nights. Many have gone into business for themselves as sitters. Passing off your children or pet for a few hours to a responsible young adult would make both of your lives easier

9. Think Maintenance – How many times have you gone to Midas, called a tow truck, or needed repairs around the house? According to the U.S. Census Bureau, 20% of Black-owned businesses are in the repair and maintenance industry.

10. Order from restaurants directly – Did you know that for restaurants to be available on food-delivery apps like GrubHub, UberEats, and Seamless, they have to pay anywhere between 20 and 40 percent of their profits in fees? So, call the restaurant directly instead of immediately turning to your phone to scroll for that third-party delivery app. This small change can make all the difference.

Reference: Correspondence with banking colleague who chose not to be identified.

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