There are great inequities in entrepreneurship — as with so many other aspects of life in the United States. One of the most obvious examples of this is that business owners of color — as well as women business owners and other overlooked entrepreneurial communities — are not able to access the same financial resources that white, male business owners obtain regularly.
In analyzing data made public by the Federal Reserve, as well as other research and analysis from experts in the field of entrepreneurial inequality, this report demonstrates that in virtually every way that it is possible to measure, there is a gap between the financing that white small-business owners receive and the financing that Black, Latinx and Asian business owners receive.
6 key takeaways on the racial funding gap
BIPOC receive less business financing, less often and at higher rates: According to the Federal Reserve, 80.2% of white business owners receive at least a percentage of the funding they request from a bank, compared to 66.4% of BIPOC (Black, indigenous or person of color) business owners. Another study found that the average loan size for small white-owned firms was over $30,000 higher than for small BIPOC-owned firms. And according to a report from the Minority Business Development Agency, “minority firms paid 7.8% [in interest] on average for loans, compared with 6.4% for non-minority firms.”
Banks subject BIPOC to more scrutiny than they do white business owners: One audit study found that in comparison to white applicants, BIPOC applying for bank loans were more often asked to show business financial statements, income tax returns, bank account information, personal financial asset details,and credit card debt. They were also offered less frequent assistance in filling out loan applications.
Online lenders approve loans to white business owners more often: Online lenders typically have less stringent qualifications for loan approval than banks, and their processes should remove the possibility of in-person bias. But while 82.1% of white business owners are approved by online lenders, both Black and Hispanic business owners still trail in approval rates, coming in at 67.2% and 71.5%, respectively.
Black-owned startups receive a small fraction of the outside equity white startups receive: Research shows that white-owned startups have an average of $18,500 in outside equity at the founding, compared to just $500 for Black-owned startups.