Research on African American Entrepreneurship

According to Prosperity Now’s 2019 Scorecard, 19.1% of white residents in the U.S. are business owners compared to 14.4% of black residents. Though that difference might not seem large, the data also shows that white-owned businesses are valued more than 8 times higher than black-owned businesses. These are just a couple of data points that indicate a wide racial disparity when it comes to business ownership in America.

For African American History Month, we’ve compiled a list of reports and research papers that shine a light on these issues:

The Partnership for Lending in Underserved Markets: Increasing Minority Entrepreneurs’ Access to Capital. Milken Institute, November 2018. In 2016, the Milken Institute and the U.S. Small Business Administration (SBA) formed the Partnership for Lending in Underserved Markets (PLUM) to develop actionable solutions to long-standing barriers that constrain minority entrepreneurs from accessing capital to start and grow businesses. The Institute committed to forming local programs in Baltimore and Los Angeles and to undertaking national research and policy efforts. The SBA provided seed funding and on-the-ground support.

Best Practices for Technical Assistance Programs Serving Black and Hispanic Entrepreneurs and Small-Business Owners. Milken Institute, September 2018. In conjunction with the Partnership for Lending in Underserved Markets (PLUM), a Milken Institute and U.S. Small Business Administration initiative to develop actionable solutions to long-standing barriers that constrain minority entrepreneurs from accessing capital, the PLUM Los Angeles Technical Assistance Working Group spent considerable time exploring what culturally competent technical assistance looks like and identifying best practices around program design, service delivery, curriculum, and marketing and outreach.

Mind the Gap: How Do Credit Market Experiences and Borrowing Patterns Differ for Minority-Owned Firms? Federal Reserve Banks of Atlanta and Cleveland, September 2018. Given the relationship between a small business’s access to financing and its outcomes, and given the growing share of minorities in the U.S. population, it is important that creditworthy firms and entrepreneurs, irrespective of race or ethnicity, are able to secure adequate financing to achieve growth and success. Data from the Federal Reserve System’s 2016 Small Business Credit Survey allow for a closer examination of the experiences of minority-owned small businesses in applying for and obtaining financing.

Running In Place: Why The Racial Wealth Divide Keeps Black And Latino Families From Achieving Economic Security. Prosperity Now, March 2018. In August 2016, Prosperity Now, in collaboration with the Institute for Policy Studies, published The Ever-Growing Gap: Without Change, African American and Latino Families Won’t Match White Wealth for Centuries. In the report, we examined data from the Federal Reserve Board’s Survey of Consumer Finances over a 30-year period (1983-2013) to understand the scope of the racial wealth divide facing Black and Latino households and to project the future of racial wealth inequality. In exploring wealth inequality facing these communities, we looked at average rather than median economic data.

Financing Patterns and Credit Market Experiences: A Comparison by Race and Ethnicity for U.S. Employer Firms. SBA Office of Advocacy, February 2018. This study examines racial and ethnic differences in financing patterns, access to capital, and credit market experiences among U.S. employer firms.  Using data from the U.S. Census Bureau’s 2014 Annual Survey of Entrepreneurs (ASE), this report sheds light on the ongoing financing challenges facing minority entrepreneurs nearly a decade after the financial crisis. In particular, it highlights differences in financing amounts, financing sources, attempted funding relationships, avoidance of financing, and the impact of financing on firm profitability and closure across ethnic and racial demographics. 

Patterns of Disparity: Small Business Lending in Fresno and Minneapolis-St. Paul Regions. Woodstock Institute, November 2017. This report examines bank lending to businesses in the Fresno County, California, and the Minneapolis-St. Paul, Minnesota, regions. The purpose is to determine the extent to which banks are meeting the credit needs of small businesses throughout those two regions. The focus of the report is on the smaller value loans under $100,000 that are most likely to support smaller, local businesses that provide employment and wealth-building opportunities for local residents.

Stuck from the Start: The Financial Challenges of Low- and Moderate-Income African-American Entrepreneurs in the South. Prosperity Now, July 2017. Black-owned businesses nationally average only $58,000 in annual revenue compared to $546,000 for white-owned businesses. New research conducted in three Southern states by Prosperity Now puts a human face on those numbers, illustrating the very real problems confronting African-American entrepreneurs when they try to start and run their own businesses.

The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success. Association for Enterprise Opportunity, February 2017. A strong entrepreneurial spirit among Black Americans has spurred the creation of untold numbers of Black-owned businesses going back centuries and, at certain times in history, has resulted in thriving communities of enterprise such as the “Black Wall Street” of Tulsa, Oklahoma, and the bustling Shaw neighborhood of Washington, D.C. However, today, Black-owned businesses on the whole lag behind the average U.S. firm in terms of size and revenue. Ownership rates trail those of non-minority groups, and the failure rate is high. While these facts have been well documented, this particular initiative aims to reframe and restart the conversation associated with support for Black businesses by highlighting the resilient spirit of these aspiring entrepreneurs, painting a vivid picture of the rich diversity of Black-owned businesses, modeling the impact of unleashing their potential economic power, and bringing a new understanding to the unique barriers that these businesses experience.

Bridging The Divide: How Business Ownership Can Help Close The Racial Wealth Gap.  FIELD at the Aspen Institute, January 2017. The white paper outlines short- and long-term recommendations to address the racial wealth gap through business ownership strategies. In the short-term, continuing and expanding efforts to increase access to capital, skills, networks, and markets will be needed to realize the promise that business ownership holds for addressing the racial wealth gap. In the long-term, universal policies to narrow the racial wealth gap — such as those aimed at raising the quality of education, building savings, and increasing financial inclusion — will be critical.

Black Women Entrepreneurs: Past and Present Conditions of Black Women Business Ownership. National Women’s Business Council and SBA Office of Advocacy, October 2016. Existing studies suggest numerous barriers that women face as they seek to start and maintain a successful business, including lack of start-up capital, resources, and loans; gender discrimination within male-dominated sectors; little access to strong networks; difficulty in obtaining government contracts; and children and family obligations. Similar barriers exist for Black women and are further compounded by the influence of race on social, human, and financial capital. In order to inform its analysis of Black women’s entrepreneurship, Walker’s Legacy hosted three events in Washington, DC; Houston, TX; and New York, NY. Each event was designed to illuminate the experiences of Black women entrepreneurs in the community. In addition to the Black women entrepreneurs, each event also included Black financial service representatives, government and policy officials, general and business community leaders, academics, and business service providers.

Prison to Proprietor: Entrepreneurship as a Re-Entry Strategy – Narrowing the Racial Wealth Gap. Asset Funders Network and FIELD at the Aspen Institute, June 2016. The report features several programs that use business ownership to build skills, connections, and attitudes that strengthen the ability of formerly-incarcerated individuals to succeed as they re-enter their communities. Such programs improve chances of employment, reduce recidivism and benefit both the individual and the community. The expansion of business ownership and entrepreneurship opportunities may particularly benefit people and communities of color who are disproportionately affected by incarceration.