^{Images of owners of businesses that Self-Help has worked with}

Happy Black-owned Business Month! At Self-Help, we are honored to celebrate and support Black entrepreneurs.

In 2021, only 2.8% of businesses in the U.S. were Black-owned, even though Black people make up roughly 14% of the country’s population.¹ This discrepancy is why it’s important to make conscious efforts to champion Black-owned businesses. At Self-Help, we believe that entrepreneurs of all backgrounds should have the opportunity to succeed, but there are many barriers to racially equitable business ownership.

In this post, we will discuss the potential reasons for why there are so few Black-owned businesses and why community banks and community development financial institutions (CDFIs) can serve as an important resource.

Bias and Other Barriers for Black Business Owners

One of the biggest challenges for Black business owners is navigating the realities of bias and racism in their business interactions, both with lenders and society at large. When it comes to their banking interactions, a 2023 survey by Intuit Quickbooks showed that:

• Black business owners have a harder time getting loans: 57% of Black business owners reported being denied a bank loan at least once when starting their business, compared to 37% of non-Black business owners.
• Black business owners have to spend more at startup: It costs Black business owners $21,000 to start their business, compared to $16,000 for non-Black peers.
  • This gap in cost is due to a number of factors, including higher interest rates on products, a lack of access to financial resources and education, the absence of generational wealth, and an inability to draw on relational and social resources that may help with necessary expenses (i.e., a startup accelerator that covers certain costs for legal services or software).^{2, 3}

These findings are consistent with a large body of academic research into the impact of race in financial lending. These studies have repeatedly shown that Black business owners—especially those with small businesses or who have lower-wealth—are offered less favorable products, receive worse service, and have fewer approvals and lower funding amounts than similarly situated White borrowers.^{4, 5}

Even after securing funding, Black business owners still must contend with the impact of race in their interactions with customers and social expectations. Let’s explore some additional statistics from the Intuit Quickbooks survey:

• Racism from customers: 79% of Black business owners say they have experienced racism from a customer. 48% say it’s happened at least once in the last year.
• Higher expectations: 86% of Black business owners say Black businesses are judged more critically than non-Black businesses.
• Code-switching: 82% of Black business owners say they behave differently in customer and vendor interactions to avoid negative racial stereotypes.
  • Code-switching is the (often exhausting) process of shifting how you use language or behavior in a given situation in order to fit in.
• The pressure to disprove stereotypes: 94% of Black business owners say they are motivated to succeed by a desire to disprove racial stereotypes.

While these issues can result in major setbacks in the success of Black-owned businesses, community banks and CDFIs are uniquely structured to support Black business owners through many of these challenges

How Community Banks and CDFIs Can Support Black-owned Businesses

Community banks and credit unions, particularly CDFIs, are built with their communities in mind; this makes them uniquely equipped to support the specific needs of the individuals in their communities.

If you are a Black entrepreneur, here are a few ways that you may find more support with a community bank or credit union:

1. Personalized loan application assistance: CDFIs and other types of community banks are often dedicated to providing a more personalized experience for members. This means working closely with you to understand your needs and help you achieve your goals, which could come in the form of:
• Helping you prepare financial documents · Providing guidance on credit scores – Self-Help offers free credit coaching to members!
• Explaining the different loan options and finding one that will best support your business needs
2. No credit? No problem: Because of the way that traditional credit is built and evaluated in our systems, many communities of color are often at a disadvantage when it comes to credit scores. CDFIs recognize this disadvantage and are often willing to accept alternative credit (like showing a history of bills you've paid).
3. Financial education and resources: Financial literacy is a key value of CDFIs, so free resources are often provided to help support members and business owners, including services like personalized financial coaching and workshops to empower entrepreneurs and members.
4. Building trust: Because CDFIs are built to serve their communities and have community members as employees, there is often a great amount of care that goes into building trust with members. CDFIs also work to:
   • Address historical mistrust in financial institutions – Part of supporting underrepresented communities means validating the mistrust that many of these communities have developed. In addressing this mistrust, we are working to develop a renewed sense of trust with our members.
   • Create a welcoming environment for Black entrepreneurs – CDFIs are here to provide underrepresented communities with financial opportunities that aren’t available in traditional banking systems. This means actively working to leave stereotypes and biases behind and finding ways to celebrate and support Black entrepreneurs.
5. Understanding the unique challenges and opportunities of Black communities: CDFIs understand historical inequities and present-day biases that create challenges for Black entrepreneurs and are working to correct them. We also know the value in having a diverse economy and the importance of successful Black businesses. This means we will work creatively to support you.

CDFIs place tremendous value in the opportunities and experiences of Black communities and have unparalleled focus on supporting underrepresented people. If you have a business and are having a challenging time getting a loan, consider the advantages of working with a CDFI.

At Self-Help, we are here for you. Contact us to learn about our commercial loan options or learn more about our financial coaching.

Sources: 

¹ Leppert, Rebecca. "A Look at Black-Owned Businesses in the U.S." Pew Research Center, February 21, 2023.

² Fairlie, Rob. "Financing Black-Owned Businesses." SIEPR Policy Brief. May, 2017. Stanford Institute for Economic Policy Research.

³ Mathews, Jessica. “How we got here and how we get out: A Q&A with venture capitalist Melissa Bradley on the Black funding gap." 12ft.io. Accessed August 7, 2024.

⁴ Scott, M. L., Bone, S. A., Christensen, G. L., Lederer, A., Mende, M., Christensen, B. G., & Cozac, M. "Revealing and Mitigating Racial Bias and Discrimination in Financial Services." Journal of Marketing Research, vol. 61, no. 4, 2024. American Marketing Association.

⁵ Bates, T., & Robb, A. "Impacts of Owner Race and Geographic Context on Access to Small-Business Financing." Economic Development Quarterly, vol. 30, no. 2, 2016.