How Black Entrepreneurs are Finally Getting Access to Capital
Being an entrepreneur has never been easy. The long hours, stress, uncertainty, and challenges with employees and customers can all take their toll. That's partly why almost twenty percent of small businesses fail within the first year. However, for Black entrepreneurs, the odds are far worse. Eight out of ten close shop within the first 18 months. Much of the reason for that disparity has to do with the access, or lack thereof, of capital. 56% of black business owners report obstacles obtaining credit restrict their ability to grow. And black entrepreneurs are almost three times more likely than whites to have profits negatively impacted by access to capital. This lack of a safety net in terms of capital reserves means that black business owners often can’t weather negative impacts like COVID the way that their white counterparts can. For example, a study found between February and April 2020, Black-owned businesses declined by 41% compared with a 17% decline for white companies. Fortunately, there are some reasons to be optimistic. Government agencies, private organizations, and an increased number of Black investment firms are starting to make a difference. BCT Partners highlights three trends that illustrate how some of the inequities that affect black businesses can be reversed.
Black VC Firms
Venture-capital funding to Black startup founders smashed records last year — it increased 281% from 2020, according to Crunchbase. And while that is significant, the overall amount of capital going to Black startups is still a tiny fraction of what goes to white startups. Many Black VCs want to change that balance by starting their own firms. In partnership with Silicon Valley Bank, a new report by the non-profit BlckVC.org found there are more Black VCs launching than ever before. According to the report, more than 50% of Black partners who were part of the study launched new firms, and half of those were founded within the past two years. Their intent is to try to level the playing field. This Business Insider report profiles some of the founders that are leading the way.
The Biden-Harris Administration recently took new steps to narrow the racial financial divide by focusing on two key wealth-creators: small business ownership and home ownership. The first step is to utilize the federal government's significant purchasing power to increase the contracts that go to small and disadvantaged businesses by 50%, which equates to $100 billion in five years. The government will also invest $31 billion into small business programs to increase access to capital and technical assistance to help minority-owned businesses be more competitive.
The second step is to address racial discrimination in the housing market by launching a first-of-its-kind interagency effort to address inequity in-home appraisals and creating new laws to combat housing discrimination aggressively. A new Neighborhood Homes Tax Credit is also being put into place to attract private investment in developing and rehabilitating affordable homes for low- and moderate-income homebuyers and homeowners. And $5 billion is being allocated to a new and innovative program called Unlocking Possibilities, which awards flexible funding to jurisdictions that take steps to reduce barriers to producing affordable housing and expand choices for people with low or moderate incomes.
After the murder of George Floyd and the escalation of the Black Lives Matter movement, corporations started to finally do more than just pay lip service to many of the inequities facing Black Americans. From offering funding directly to businesses and working with non-profits that support them, Corporate America is putting tangible resources and dollars behind its rhetoric. Two examples are Goldman Sachs and Microsoft. In the case of Goldman, they launched the One Million Black Women Initiative. Working together with Black women-led organizations, financial institutions, and other partners, they have committed $10 billion in direct investment capital and $100 million in philanthropic capital over the next decade. The goal is to positively impact the lives of at least one million black women by 2020.
Microsoft has launched the Black Partner Growth Initiative consisting of two programs to provide access to capital: a $20 million payment solutions program and a $50 million partner fund. The $50 million partner fund provides loans to support eligible partners through their startup phase, with the loan repaid over time as their business grows. Microsoft is also helping create other initiatives that provide access to resources, skill-building, and opportunities for Black-owned companies to overcome growth barriers such as the Black Channel Partner Alliance (BCPA) and their Microsoft Accelerator (BCT’s chairman and CEO, Dr. Randal Pinkett, delivered the keynote address for BCPAs inaugural event). Their commitment is to increase black partner representation by 20% within three years and scale up existing programs along with new initiatives to diversify their workforce.
So, while the efforts described above will not solve the problem completely, there is a reason to be hopeful. The first hurdle to solving any issue is to acknowledge it. While Black people have lived with the reality of an unequal playing field for centuries, the broad awareness and commitment to reversing past inequities are just beginning. But at least it’s a start.
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