Limited start-up capital, support networks and access to credit put African-American entrepreneurs at a disadvantage from the start

Washington, D.C. – Black-owned businesses nationally average only $58,000 in annual revenue compared to $546,000 for white-owned businesses. New research conducted in three Southern states by Prosperity Now puts a human face on those numbers, illustrating the very real problems confronting African-American entrepreneurs when they try to start and run their own businesses.

The report, entitled “Stuck From The Start: The Financial Challenges of Low- and Moderate-Income African-American Entrepreneurs in the South,” reflects interviews with 30 African-American business owners in eastern North Carolina, southwestern Georgia and the Jackson and Delta regions of Mississippi. The project was launched to better understand why Black-owned businesses struggle to succeed relative to their White peers.

 “The personal stories from the entrepreneurs we interviewed, bolstered by past research on minority entrepreneurs, help us understand how low- and middle-income African-American entrepreneurs in the South experience cash flow and other financial issues and reveal the underlying systems that foster unequal outcomes for entrepreneurs in the United States,” the report states.

Some of the deeper business challenges illustrated by those interviewed were limited startup capital; limited managerial and industry experience, and launching businesses in lower-revenue service industries in Black communities. Also noted was the lack of a robust network of supportive institutions, including ones that could provide managerial training, technical assistance and strategic advice, and an inability to establish lines of credit that could support expansion plans or cover operating expenses.

The entrepreneurs said they’ve tried to develop their managerial and industry experience but often just can’t find the support and resources they need. The business owners also frequently cited their lack of access to networks of peers who could serve as mentors. “Networking groups serve bigger businesses with money for marketing and advertising, which are typically White-owned,” observed one Georgia business owner.

Many of the major obstacles facing African-American entrepreneurs flow from “the challenge of starting a business with little to no savings or family wealth,” the report noted.  The researchers found that Black entrepreneurs simply do not have the savings or wealth of white families to leverage either on their own or through their family networks. As one North Carolina entrepreneur stated: “We didn’t inherit nothing; nothing was passed down. Our parents do all they can for us, but it was all on us from the beginning.”

Pamela Chan, Project Director of Human Insights at Prosperity Now and co-author of the report, noted that “starting with less has very real consequences. It’s problematic because it means an entrepreneur does not have enough of a buffer to withstand financial shocks and take corrective action when they are learning how to run the business.”

The report recommends several steps that could make a real difference in helping Black entrepreneurs succeed. These include: channeling philanthropic dollars to programs with a mission to provide startup capital and technical assistance; exploring why barriers continue to confront African-Americans when they’re trying to find basic information on startup funding, and doing a better job of comprehensive enforcement of fair lending laws.

“Black entrepreneurs’ best efforts are systematically stifled by the growing racial wealth divide and racial economic inequality as a whole,” said Dedrick Asante-Muhammad, Senior Fellow on the Racial Wealth Divide Initiative at Prosperity Now. “We hope that elevating their voices will result in programs and policies that allow them to succeed as vital drivers of local economies.”

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Prosperity Now (formerly CFED) believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most. Visit us at www.prosperitynow.org.