Social and Financial Capital: The Ingredients Black Women Business Owners Are Missing

According to the Center for American Progress, Black women are driving America’s entrepreneurship boom—starting six times more businesses than average and creating 1.4 million jobs. Latina women are also making a significant contribution, with 944,000 firms and $65.5 billion in annual receipts. This increase in entrepreneurship indicates that women are seeking alternatives to the traditional workforce for establishing economic self-sufficiency, pursuing business ownership as a wealth-building tool instead.

Although Black women are starting businesses at a rapid rate, they are usually in retail or service industries; their businesses earn less revenue, remain smaller, and have a higher failure rate.

A report published by the US Small Business Administration (SBA) states that most women-owned businesses are smaller operations with lower growth rates than those owned by men. According to a report by the Georgia Budget and Policy Institute (Laying the Foundation: A Wealth-Building Agenda for Georgia Women), on average, Black women’s businesses earn just 11% of the revenue earned by white women-owned businesses. Hispanic women’s companies make just 28%.

Access to capital is still a significant obstacle, preventing women-owned businesses from leveraging valuable opportunities, or in some cases, from even getting off the ground.

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

Data from the Federal Reserve’s 2016 Small Business Credit Survey (SBCS) confirmed that Black-owned businesses are less likely than white-owned firms to receive approval for financing and are more likely to be discouraged from applying for financing. The report also found that businesses operated by people of color are more likely than white-owned firms to seek financing at nonbank online lenders such as OnDeck Capital, CAN Capital, and Kabbage.

The SBA’s Office of Advocacy confirmed that women and minority business owners usually pay higher interest rates and are often denied loans from traditional banks.

I recently attended Racism and the Economy: Focus on Entrepreneurship, a great online event conducted by the Federal Home Loan Bank (FHLBank). I was personally touched by a story from Carmen Tapio, founder of North End Teleservices, LLC. Carmen operates her business in an Enterprise Zone (an impoverished area that offers incentives like tax concessions to encourage business investment and create jobs) in a predominately Black community in Nebraska. She employs 425 people. Despite a thirty-year business relationship with her bank and stellar credit history, Carmen could not get her PPP loan processed. She was also denied a $10,000 line of credit without being provided any reasoning. In the year 2021, we should not still be hearing these stories.

Women of color are also cut off from investment opportunities. A report from PitchBook found that women of color were only awarded 2% of venture capital funding. The venture capital world itself is still predominately white and male.

The message is loud and clear: businesses operated by women and minority communities are less valued.

Statistics continue to confirm the problem, so we need to discuss actionable strategies to reach a solution. Let’s face it: a business cannot grow or scale without a variety of credit resources—especially if the business owner plans to pursue contracting opportunities. Entrepreneurs need a steady cash flow to keep their businesses operational and support the business through times of crisis.

The lack of access to capital emphasizes the critical role of Community Development Financial Institutions (CDFIs). CDFI’s are nonprofit organizations strategically serving distressed communities by providing business owners with loans, training, and technical support using funding provided by the federal government, commercial banks, and nonprofit foundations. Through CDFI, entrepreneurs can obtain low-interest loans that provide critical working capital to start and grow their business enterprises. Small business owners interested in finding a CDFI can use the locator at ofn.org.

One of the key problems women entrepreneurs face is access to networks. If you don’t have a wealth network, it will be difficult for you to expand your reach, visibility, and notoriety, resulting in missed opportunities. In his report, Black Women Startups, Dell Gines collected information from 34 Black women entrepreneurs. Participants said they wished for or would recommend four things be available for black women startups: access to general and specific business knowledge, mentoring, peer engagement, and financial resources.

Hindering access to capital impedes the success of women- and minority-owned businesses. The result is a snowballing effect of inequality. 

Despite the challenges, minority women are still succeeding in business, which in some cases, is necessary for economic survival due to the lack of employment opportunities. The COVID-19 pandemic has created yet another shock of uncertainty for women- and minority-owned businesses, creating a critical need for support, preferably provided through a coordinated system of services that address the unique challenges faced by underserved entrepreneurs.

In the meantime, women themselves are stepping up to the challenge. Black Girl Ventures provides Black/Brown woman-identifying founders with access to community, capital, and capacity to help them meet business milestones that lead to economic advancement through entrepreneurship. Backstage Capital, founded by Arlan Hamilton, invests in companies led by underrepresented founders of color. Since its founding in 1999, the Women’s Entrepreneurial Opportunity Project(WEOP) has been dedicated to promoting the economic advancement of minority women with innovative programming and model projects that connect women to new opportunities for business expansion and growth globally. Women are changing the narrative with a movement by “Starting Their Own.”