Economic inequality is a pervasive issue in the United States. Small businesses don’t get the same tax breaks and government bailouts that massive corporations do, but inequality isn’t predicated solely on business size. Black-owned businesses are at a distinct disadvantage when compared to their white-owned counterparts.
On top of the normal challenges of running a business, Black business owners must also navigate a considerable funding gap between white- and Black-owned businesses. As political movements like Black Lives Matter gain steam across the country, it’s important to remember that injustice goes far beyond the justice system. The financial system has also historically discriminated against and oppressed Black business owners. That’s why many activists have encouraged people to support Black-owned businesses as a way to create positive change in this country.
As people become more aware of economic and social injustice, it’s important to know the facts about Black-owned businesses. These Black business statistics show just how deep the inequality goes, while also illuminating how much hope there is in the Black business community.
According to the most recent available Census data, there are more than two million Black-owned businesses in America. Of this number, 124,000 are defined as “employer firms,” which means that they have employees in addition to the proprietor(s).
Global tech consulting firm World Wide Technology is the largest Black-owned business, posting revenues of more than $2 billion in 2016.
The most common type of Black-owned business is health care, as 32% of Black-owned businesses are in the health care category. Other popular categories include repair and maintenance, personal and laundry services, advertising firms, and auto dealerships.
In a study that measured black-owned business numbers in all 50 states and the District of Columbia, New York had 204,093 Black-owned businesses, which was most in the country. On that list, Georgia is second, Florida is third, and Texas is fourth.
While New York had the highest number of Black-owned businesses, the study showed that 28% of Washington, D.C.’s businesses are Black-owned, giving it the highest percentage of Black-owned businesses in the country. Georgia is second again with 20%, while Maryland was third with 19%.
According to research by Guidant Financial, a strong majority of Black business owners, at 70%, are pleased with their business’s success and impact on their lives.
According to digitalundivided’s Project Diane 2018 report, The State of Black Women Founders, the number of startups founded by Black women more than doubled between 2016 and 2018. However, it doubled from less than 2% to less than 4%. That’s progress, but not much. Nearly half of all Black women-led startups were in California or New York.
Although the number of startups launched by Black women is very small, Black women are far more prominent in the small business world. Women represent 35% of Black-owned businesses, compared to just 27% of female-business owners of other racial identities.
Although Black women are well-represented among business owners, they earn disturbingly less money than other business owners. One study found that Black women-owned businesses earned an average of $24,000 in net revenue, compared to $142,900 among all women-owned businesses. That is an enormous and problematic gap.
Thirty-four percent of Black business owners say being “ready to be my own boss” was the primary reason they started a business. Other top answers were a “desire to pursue my own passion” (29%), “dissatisfaction with corporate America” (13%), and “the opportunity presented itself” (10%).
More Black small business owners use their own money to fund their businesses than the average small business owner. Only 37% of all small business owners use their own cash to start their venture.
Of the two million Black-owned businesses in America, fewer than 125,000 have employees. Those employer firms employ more than 920,000 people with a total annual payroll of $23.9 billion.
Black-owned employer firms also tend to have fewer employees than the national business average. According to American Express research, 38% have two to five employees, while just 7% have six to 10 employees. The overall averages? Forty-one percent employ two to five people and 12% employ six to 10 people.
The racial funding gap is very real. Federal Reserve numbers show that 80.2% of white business owners receive at least a percentage of the funding they request from a bank. Only 66.4% of BIPOC (Black, indigenous, or people of color) business owners can say the same. When BIPOC-owned firms do get funding, the amounts tend to be about $30,000 less than comparable white-owned businesses, while their interest rates are about 1.4% higher.
The primary reason many Black business owners don’t apply for loans is because they believe they would be turned down even if they applied. Just 12.7% of white business owners feel the same way.
On the other hand, white entrepreneurs report an average of $106,720 of startup capital. The margin for failure is razor-thin for Black entrepreneurs.
Comparatively, 7% of white-owned firms get business loans in their first year. Other first-year financing stats:
Black business owners are far more likely to rely on their family and community for financial help in their first year than they are to trust a financial institution.
Starting a business and getting the capital you need to sustain or grow that business is complicated. Therefore, it’s an issue that 59% of white business owners report receiving help from loan officers, while less than one-fifth of Black business owners do.
In reviewing these statistics on Black-owned businesses, we can see that such businesses are at a distinct disadvantage when compared to white-owned counterparts in the United States. Financial institutions grant them loans less frequently and, when they do, they’re often for lower amounts and higher interest rates. This may be one contributing factor to why Black-owned businesses tend to be smaller and employ fewer people than those owned by white people.
Despite the grim tidings of the racial funding gap, however, there are encouraging signs for the growth of the Black business community, particularly when surveying the success of Black women business owners.
Nick Perry is a freelance writer based out of Boston. After working in Hollywood and Silicon Beach, he launched his own small business and frequently referenced Fundera’s resources. Now, he’s a contributing writer at Fundera. Nick has written extensively about small businesses, ecommerce, the restaurant industry, and entertainment. His work has appeared on Entrepreneur, Digital Trends, Toast’s On The Line, and more.