Social and Financial Capital: The Ingredients Black Women Business Owners Are Missing

The average Black woman’s business earns just 11 percent of the revenue earned by white women-owned businesses. (WOCinTech Chat / Flickr)

Black women are driving America’s entrepreneurship boom—starting six times more businesses than average and creating 1.4 million jobs, according to the Center for American Progress. Latina women are also making a significant contribution, with 944,000 firms and $65.5 billion in annual receipts. This increase in entrepreneurship indicates that women are seeking alternatives to the traditional workforce for establishing economic self-sufficiency, pursuing business ownership as a wealth-building tool instead.

But even though Black women are starting businesses at a rapid rate, their businesses earn less revenue, remain smaller, and have a higher failure rate.

Most women-owned businesses are smaller operations with lower growth rates than those owned by men, according to a report published by the U.S. Small Business Administration (SBA). Moreover, the average Black woman’s business earns just 11 percent of the revenue earned by white women-owned businesses. Hispanic women’s companies make just 28 percent.

Access to capital is still a significant obstacle, preventing women-owned businesses from leveraging valuable opportunities, or in some cases, from even getting off the ground.

A history of social and racial inequalities means that women of color often operate at a disadvantage. For instance, they have less access to capital due to wealth disparities and lending discrimination. Women of color also have fewer mentorship and training opportunities, which also means they tend to have less social capital (Think: friends, colleagues and strategic allies who can help them acquire business deals).

Data from the Federal Reserve’s 2016 Small Business Credit Survey (SBCS) confirmed that Black-owned businesses are less likely than white-owned firms to receive approval for financing and are more likely to be discouraged from applying for financing. The report also found that businesses operated by people of color are more likely than white-owned firms to seek financing at non-bank online lenders, such as OnDeck Capital, CAN Capital and Kabbage. Women and minority business owners usually pay higher interest rates and are often denied loans from traditional banks, the SBA’s Office of Advocacy confirmed.

During Racism and the Economy: Focus on Entrepreneurship, an online event conducted by the Atlanta Fed, I was touched by a story from Carmen Tapio, founder of North End Teleservices, LLC. Tapio operates her business in an enterprise zone—an impoverished area that offers incentives like tax concessions to encourage business investment and create jobs—in a predominately Black community in Nebraska. She employs 425 people. Despite a 30-year business relationship with her bank and stellar credit history, Tapio could not get her PPP loan processed. She was also denied a $10,000 line of credit without being provided any reasoning.

Women of color are also cut off from investment opportunities. According to a 2020 report from PitchBook, women of color are only awarded 2 percent of venture capital funding. The venture capital world itself is still predominately white and male.

Let’s face it: A business cannot grow or scale without a variety of credit resources—especially if the business owner plans to pursue contracting opportunities. Entrepreneurs need a steady cash flow to keep their businesses operational and support the business through times of crisis.

The lack of access to capital emphasizes the critical role of community development financial institutions (CDFIs). CDFIs are nonprofit organizations strategically serving distressed communities by providing business owners with loans, training and technical support using funding provided by the federal government, commercial banks and nonprofit foundations. Through CDFIs, entrepreneurs can obtain low-interest loans that provide critical working capital to start and grow their business enterprises. (Small business owners interested in finding a CDFI can use this locator.)

One of the key problems women entrepreneurs face is access to networks. Without a wealth network, it’s difficult to expand a business’s reach, visibility and notoriety, resulting in missed opportunities.

In his report, Black Women Startups, Dell Gines collected information from 34 Black women entrepreneurs. Participants said they wished for or would recommend four things be available for Black women startups:

  1. access to general and specific business knowledge,
  2. mentoring,
  3. peer engagement, and
  4. financial resources.

Hindering access to capital impedes the success of women and minority-owned businesses. The result is a snowballing effect of inequality. 

Despite the challenges, minority women are still succeeding in business, which in some cases, is necessary for economic survival due to the lack of employment opportunities. The COVID-19 pandemic has created yet another shock of uncertainty for women- and minority-owned businesses, creating a critical need for support, preferably provided through a coordinated system of services that address the unique challenges faced by underserved entrepreneurs.

In the meantime, women themselves are stepping up to the challenge. Black Girl Ventures provides Black and Brown woman-identifying founders with access to community, capital and capacity to help them meet business milestones that lead to economic advancement through entrepreneurship. Backstage Capital, founded by Arlan Hamilton, invests in companies led by underrepresented founders of color.

Since its founding in 1999, the Women’s Entrepreneurial Opportunity Project (WEOP) has been dedicated to promoting the economic advancement of minority women with innovative programming and model projects that connect women to new opportunities for business expansion and growth globally. Women are changing the narrative with a movement by “starting their own.”

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Antionette Ball is co-founder and CEO of The Women’s Entrepreneurial Opportunity Project, Inc. (WEOP), a nonprofit organization founded in 1999 and located in the heart of the community providing a calendar of activities that brings women together. She is also the author of a Women Owned Business Guide to Winning Contracts and served as editor for From A Woman’s Perspective magazine. She has an extensive background in nonprofit management and academia working with a program funded by the National Aeronautics and Space Administration (NASA) at Morehouse College.