Social and financial capital: the ingredients that black women entrepreneurs lack

The business of an average black woman earns only 11% of the revenue generated by businesses owned by white women. (WOCinTech Chat / Flickr)

Black women are driving America’s entrepreneurial boom by creating six times as many businesses as the average and creating 1.4 million jobs, according to the Center for American Progress. Latin women also make a significant contribution, with 944,000 businesses and $ 65.5 billion in annual revenue. This increase in entrepreneurship indicates that women are seeking alternatives to the traditional workforce to establish their economic self-sufficiency, instead seeking business ownership as a tool for wealth creation.

But even though black women are starting businesses at a rapid pace, their businesses generate less income, stay smaller, and have a higher failure rate.

Most women-owned businesses are smaller operations with lower growth rates than those owned by men, according to a report published by the US Small Business Administration (SBA). Plus, the business of an average black woman earns only 11% of turnover earned by businesses owned by white women. Hispanic women’s businesses earn just 28 percent.

Access to capital remains a significant barrier, preventing women-owned businesses from taking advantage of attractive opportunities and, in some cases, even starting up.

A history of social and racial inequalities means that women of color often operate at a disadvantage. For example, they have less access to capital due to wealth disparities and credit discrimination. Women of color also have fewer mentoring and training opportunities, which also means they tend to have less social capital (think: friends, colleagues, and strategic allies who can help them close deals).

Data from 2016 Federal Reserve Small Business Credit Survey (SBCS) confirmed that black-owned businesses are less likely than white-owned businesses to obtain funding approval and are more likely to be discouraged from applying for funding. The report also found that businesses operated by people of color are more likely than white-owned businesses to seek funding from non-bank online lenders, such as OnDeck Capital, CAN Capital and Kabbage. Women and minority business owners typically pay higher interest rates and are often denied loans from traditional banks, the SBA’s advocacy office has confirmed.

During Racism and the economy: focus on entrepreneurship, an online event hosted by the Atlanta Fed, I was touched by a story from Carmen Tapio, founder of North End Teleservices, LLC. Tapio operates his business in a corporate zone – an impoverished area that offers incentives like tax breaks to encourage business investment and create jobs – in a predominantly black community in Nebraska. It employs 425 people. Despite a 30-year business relationship with his bank and a stellar credit history, Tapio was unable to get his PPP loan processed. She was also refused a $ 10,000 line of credit without any reason being given.

Women of color are also cut off from investment opportunities. According to a 2020 PitchBook report, women of color receive only 2% of venture capital funding. The venture capital world itself is still predominantly white and male.

Let’s face it: a business cannot grow or develop without a variety of credit resources, especially if the business owner is considering pursuing procurement opportunities. Entrepreneurs need a constant cash flow to keep their business operational and support the business in times of crisis.

Lack of access to capital underscores the essential role of community development finance institutions (CDFIs). CDFIs are non-profit organizations strategically serving struggling communities by providing business owners with loans, training, and technical support through funds provided by the federal government, commercial banks, and for-profit foundations. non-profit. Through CDFIs, entrepreneurs can obtain low-interest loans that provide essential working capital to start and grow their businesses. (Small business owners interested in finding a CDFI can use this locator.)

Access to networks is one of the main problems facing women entrepreneurs. Without a legacy network, it is difficult to expand the reach, visibility and brand awareness of a business, resulting in missed opportunities.

In his report, Black Women’s Startups, Dell Gines collected information from 34 black women entrepreneurs. The participants said they wanted or would recommend four things be available for black women startups:

  1. access to general and specific knowledge of the company,
  2. mentoring,
  3. peer engagement, and
  4. financial ressources.

Impediments to access to capital hamper the success of women and minority-owned businesses. The result is a snowball effect of inequality.

Despite the challenges, minority women still succeed in business, which in some cases is necessary for economic survival due to the lack of employment opportunities. The COVID-19 pandemic has created a new shock of uncertainty for women-owned and minority-owned businesses, creating a critical need for support, preferably delivered through a coordinated system of services that respond to challenges unique challenges facing underserved entrepreneurs.

In the meantime, the women themselves are rising to the challenge. Black Girl Ventures provides founders who identify black and brunette women with access to the community, capital and capacity to help them reach business milestones that lead to economic advancement through entrepreneurship. Backstage Capital, founded by Arlan Hamilton, invests in companies led by under-represented founders of color.

Since its creation in 1999, the Entrepreneurial Opportunity Project for Women (WEOP) has been dedicated to promoting the economic advancement of minority women with innovative programs and model projects that connect women to new opportunities for business expansion and growth globally. The women change the narrative with a movement by “starting theirs”.


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