Small Business Trends trumpeted this headline in 2018, “Wow! African American Small Business Ownership Up 400% in a Year.”
At that time, 45 percent of small business owners were from minority ethnic categories. When compared to 2015, the growth was dramatically exponential.
The most dramatic business ownership, however, came from the African American market segment, where these small business owners saw a dramatic increase between 2017 and 2018. By comparison, the volume of non-minority firms grew by only six percent.
As we enter a new decade, what do the numbers look like for African American and other minority business owners in the United States? What are the challenges and opportunities for minority business owners over the next few years?
Statistics on Minority-Owned Businesses
Let’s lay some baselines, first, to settle on our definition of the minority-owned business. First, the U.S. Census Bureau defines the concept of minority-business ownership as having a 51 percent stake in an entrepreneurial venture and identifies as:
Of these categories, African Americans own the smallest businesses of all the minorities today. The New Pittsburgh Courier reports the following breakout by service category:
The article said the three highest states with minority-owned businesses include: Washington, DC; Georgia; and Maryland. In DC, minorities own 28 percent of all the businesses in the city.
In all of these categories, the growth of these businesses lags behind the number of employees they hire, which Inc. says is suggestive of many minority-owned business owners entering entrepreneurship as a solo venture and then failing to scale by adding employees.
Minorities own roughly 30 percent of American businesses, which employ more than seven million Americans and generate $1 trillion in revenues annually. These numbers have been steadily increasing over the last decade. Inc. suggests this growth has been fueled by “generally positive economic trends and to advances in the realms of education and access to capital.” With that said, the number of businesses owned by African Americans and other legal minority groups is on the rise. What is fueling the growth of these businesses today?
Factors Increasing Growth of Minority Businesses
Inc. reported on some of the favorable factors influencing the growth of minority businesses generally and Black-owned businesses in particular. They cited factors such as affirmative action programs and general economic growth. They also found:
While the outlook for minority-owned businesses looks favorable in the years ahead, there are challenges both unique to being an entrepreneur and also specific to being a minority-business owner of which potential minority business owners should take note.
Top Challenges of Minority Business Ownership in 2020
While the growth and outcomes of minority-owned companies have improved, we still have a long way to go. U.S. News & World Report says that the majority of American small businesses are still owned by Caucasian males. The same holds true for women-owned businesses that make up more than one-half of the entire U.S. population, but only 19.4 percent of businesses in the country.
Starting a small business is challenging for any entrepreneur, but particularly so for the minority business owner. Business2Community reports:
A small business report on the minority entrepreneurial landscape also paints a disturbing portrait of where these companies are being left behind:
Like all small businesses seeking entrepreneurial help, the minority-business owner needs three primary things to grow their business:
A report entitled “Helping Entrepreneurs of Color Grow their Business” pointed out some of the difficulties inherent all three areas:
Despite these challenges, there is some good news. There is an increased focus on supporting the small business and, in particular, the small and minority-owned venture. Many companies now have MBE-preferred programs that seek to award these lucrative big contracts to small minority-owned companies. The report cited that minority-owned firms now have a higher share of government contracts over non-minority firms. These are good signs, but the truth is the numbers of minority-owned businesses should be much higher.
The New Pittsburgh Courier says, “most agree that racism, discrimination, and predatory lending are all factors” contributing to the challenges minority-business owners face today. Two big areas of concern, reported by the Charleston Chronicle are that:
Clearly, inequities in funding continue to plague minority businesses. The Ewing Marion Kauffman Foundation studied the importance of startup capital can improve the profitability of small businesses. They found that entrepreneurs most often seek funding from three primary sources:
However, the different racial categories favor one type of funding over another. For example:
The study found that African American small business owners are nearly three times as likely as white entrepreneurs to report a negative impact from the lack of access and costs associated with additional funding for their business. The two primary reasons reported by the minority companies that considered funding but didn’t pursue it were that they didn’t want to accrue the debt and they didn’t think they’d be approved by the financial vendor.
Finding the Right Small Business Advisors
Minority-owned businesses play an important part in our nation’s economic growth. To help minority-owned businesses, financial advisors, lawyers, and business organizations must work hand-in-hand to network and provide the services these firms need.
The U.S. Census says minorities will be in the majority by 2050. New jobs, products, and growth in the economy will be heavily influenced and created by these firms. This alone should argue for increased opportunities and entrepreneurial help for these firms who will lead our country and economy in the near future.
To find out more about small business funding, download Innovative Funding Strategies For Entrepreneurs today!
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