supersizer/ Getty Images; Illustration by Austin Courregé/Bankrate

Key takeaways

  • Black-owned businesses in the U.S. employ more than 1 million Americans.
  • 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, overshadowing the previous impact of the COVID-19 pandemic.

Despite these challenges, the number of Black-owned businesses in the U.S. has continued to grow. Today, they employ over 1 million Americans nationwide.

Black-owned business statistics

Key statistics

  • There are over 161,000 Black-owned businesses in the U.S., according to the Census Bureau.
  • Black-owned businesses employed 1.4 million employees in 2021.
  • Black-owned businesses made up about 3% of U.S. firms that can be classified by the owners’ race or ethnicity in 2021.
  • Nearly one-third of Black-owned businesses in the U.S. are in the healthcare and social assistance fields.
  • 39% of Black-owned businesses were owned by Black women in 2021, while men owned 53%.
  • In the 2023 fiscal year, the SBA backed 4,781 loans to Black-owned businesses, totaling $1.45 billion.
  • Over 3.4 million (12.7 percent) of nonemployer firms are Black-owned.

The importance of Black-owned businesses

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

  • Historically, 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.

  • Despite 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 77 percent less wealth than white households. This equates to Black households having about $958,000 less wealth than white households and owning 24 cents for every dollar of white family wealth.

    Promoting Black-owned businesses is important in reducing the racial wealth gap and creating job opportunities for people of color.

  • Many 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.”

Common challenges among black entrepreneurs

Key insights

  • Only 5 percent of Black Americans hold some business equity, compared to 15 percent of white Americans.
  • Even with a strong credit profile, Black entrepreneurs are about half less likely than their white counterparts to secure full financing.
  • Black entrepreneurs start their businesses with an average of $35,000 of capital. White entrepreneurs start their businesses with an average of $107,000 of capital.
  • While 46 percent of Black business owners opted not to seek financing over lender approval concerns, only 36 percent of white business owners expressed the same reservations.
  • Although Black businesses make up 41 percent of all MBEs, they only accounted for 19 percent of revenue in 2021.

Black entrepreneurs face more challenges in qualifying for business loans. This is largely due to the generational racial wealth gap and institutional racism. Data by the Federal Reserve shows that Black business owners have a harder time securing funds for their businesses than white business owners. On average, 35 percent of white business owners received all the financing they applied for, compared to 16 percent of Black business owners.

“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 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, 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’ 2022 Small Business Credit Survey found that 50 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 2023 Women and Minority Business Owner Spotlight survey revealed that 64 percent of Black business owners cite social and racial inequality as a primary economic concern, with one-third of Black entrepreneurs expressing skepticism about ever attaining equal access to capital. When asked about achieving equal access, 32 percent believe such equality will be achieved by 2040 on average — up five years from 2022. 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. Microloans and business lines of credit 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 and get into debt.
  • Coalition to Back Black Businesses: This organization provides grants and other financial resources for Black-owned businesses. Its Enhancement Grant grants $25,000 to 20 Black-owned small businesses each year.
  • 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 government-backed loans to businesses in low-income communities.
  • 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 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 improve rural communities.
  • U.S. Small Business Administration (SBA): The SBA is a U.S. government agency that provides financial support for small U.S.-based businesses. In addition to the 8(a) program, which assists small businesses with securing government contracts, their lender match program can help find the right SBA loan or investment capital to meet your business needs. 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 often easier to obtain and are good options if you have a new business, need smaller funding amounts or have a lower personal credit score. When looking for microloans, consider these lenders:

How to choose the right funding for your business

When seeking funding for your business, consider several factors. Begin by determining the amount needed to narrow your search. If urgency is a concern, you could opt for a fast business loan or line of credit, but be mindful of associated interest rates and fees.  Partnering with investors or seeking alternative financing is another option.

If you decide a business loan is best, make sure to research multiple lenders before choosing one. 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. Using a business loan calculator can also ensure you know how much you can afford to borrow and repay.

Bankrate insight

There are other resources available to Black business owners. Some guides we’ve put together to help Black-owned businesses find the business funding they need include:

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 is a great way to support a Black-owned business you love. 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 offering programs are steps in the right direction, and government agencies and corporations must prioritize investments in these businesses and communities to foster inclusive economic growth.

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