The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success

Executive Summary

As of the latest census data release, there were 2.58 million Black-owned businesses in the United States, generating $150 billion in annual revenue and supporting 3.56 million U.S. jobs. In fact, there is a long history of entrepreneurship among Black Americans going back to the earliest days of this country and continuing via waves of immigration from the Caribbean in the 1900s and from Africa more recently, as well as from other countries.

Black business owners are wealthier than their peers who do not own businesses, and business ownership creates new wealth faster compared to wage employment. At the same time, small businesses tend to hire from the community, creating jobs for neighborhood residents. Therefore, opportunities for Black entrepreneurs to succeed are critical for economic empowerment in Black communities, where currently there is virtually zero liquid wealth, coupled with higher than average rates of unemployment.

Black-owned businesses in America lag behind other firms in the United States and have done so for decades. There are fewer Black business owners than we might expect given the population size; businesses that do exist have fewer employees than nonminority firms; and revenues are much smaller for Black-owned firms, even when comparing the same industries. Some have suggested this reality stems from a cultural context that includes lack of interest in self-employment, but AEO’s research dispels this myth and confirms that the entrepreneurial spirit remains robust in the Black community. In fact, Black business owners are similar to other business owners in terms of vision, passion, and a desire for economic independence. In this report, we assert instead that the interplay of three major persistent barriers is impeding the establishment and growth of Black-owned firms. These are: the Wealth Gap, the Credit Gap, and the Trust Gap. This paper frames these obstacles, which must be considered and solved for in order to unleash the potential economic power of Black-owned businesses in the United States.

It is well documented that Black households in the United States possess on average about one-tenth the median net worth of White households. This wealth gap is perpetuated by a cycle of little to no intergenerational wealth transfer among Black Americans to their children, especially U.S.-born Blacks. Consequently, home ownership and other asset-building activities are suppressed, the ability to locate into higher-quality school systems is thwarted, and fewer people receive postsecondary educations. Limited credentials in turn narrow work opportunities and result in high unemployment figures relative to the rest of the country. Also contributing to the wealth gap was the exclusion of many Black Americans from wealth-building government-sponsored programs that benefited nonminorities during the postwar era. When large groups of people have few opportunities for economic livelihood, the entire economy suffers: our government must spend tax money for supports, and potential consumers have little to no discretionary income.

In order to break this cycle of low wealth, new economic opportunities must be created. One important route is through business ownership. Our research has shown that the median net worth for Black business owners is 12 times higher than Black nonbusiness owners. Further, it is not because they started out wealthier. The analysis also considered people who had never been self-employed and compared wealth levels in the future between those who started a business and those who did not. The business owners grew their wealth more, and grew it faster. Starting a sustainable and healthy business is a viable and critical pathway to breaking the cycle of low wealth.

Business start, stability, and success are correlated with adequate start-up funding, and if family and friends are in a similar wealth situation to the average aspiring Black entrepreneur, one must turn to commercial lenders. But without assets for collateral and proven success in running a business, banks will not readily lend to aspiring entrepreneurs, especially those requesting very small loans, which banks typically cannot underwrite profitably. Adding to the challenge of being credit-worthy is the likelihood that low wealth has resulted in insufficient cushion against income volatility, leading to missed bill payments and other actions that can damage credit scores. For all these and other reasons, most aspiring Black entrepreneurs face a serious lack of access to credit. They may in turn be vulnerable to risky and even predatory financial products as a result of this barrier. A cycle emerges where this credit gap perpetuates the aforementioned wealth gap.

All of these factors combined means that aspiring Black entrepreneurs experience a much tougher road to start-up, business stabilization, and success. Not surprisingly, sectors with low barriers to entry are therefore more often selected by Black entrepreneurs compared to nonminority owners, and these sectors tend to be ones that produce the smallest revenues. The concentration of Black businesses in low-revenue sectors hampers the potential of current Black-owned firms to grow and hire, which, if unleashed, could result in full employment for Black Americans. Our calculations show that if Black-owned businesses were able to reach employment parity with all privately held U.S. firms, close to 600,000 new jobs would be created, and $55 billion would be added to the economy.

By offering innovative credit products, providing powerful technical supports, and designing pathways for owners to establish more firms in high-revenue sectors, Black-owned firms could grow revenues and supply new jobs in their local communities. But connecting aspiring and current Black business owners to these supports and inspiring participation in them will require addressing a third hurdle: the trust gap. The experience of discrimination, bias, continued disappointment, and these persisting wealth and credit barriers manifest in a wariness — of banks, of other institutions, of potential would-be mentors and consultants — that cannot be denied or ignored. Therefore, outreach strategy must incorporate goals to rebuild that trust and establish renewed connections.

There exists a wide tapestry of Black-owned businesses and their owners in the United States — with different countries of origin, focused on different goals, and with different needs — spreading from coast to coast. This report begins to describe those segments and launches the discussion on how to tailor appropriate supports.

New businesses are critical to our economy — they create most of the net new jobs and spur competition and innovation. More people earning money through operating their own businesses means our economy is stronger and communities are healthier because a larger portion of money spent at local businesses stays circulating in the local region versus money spent at big box stores1, and main street businesses tend to hire from the local employment pool.

But it is also important to acknowledge during this pivotal time in our nation’s history that there are many different groups of people in America who feel left out of the economy’s recovery from the Great Recession. Meanwhile, technology is radically and quickly changing the type and number of jobs available overall. Fortunately, we expect that these proposed ideas, which would foster more robust entrepreneurship and help to remove barriers to pursuing economic livelihood via small business creation, would benefit all groups who have found their opportunities limited.

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