Minority-Owned Small Businesses Challenges.

Minority-owned businesses make up about 18.3% of all US businesses. August is National Black Business Month, a perfect time to celebrate and support Black-owned businesses in the U.S. As business owners, people of color can establish financial independence for themselves and their families, and provide employment opportunities for others in their community.

Moreover, small business owners contribute to the health of the local economy by paying taxes that go into city and state coffers. When they occupy retail space, neighborhoods become more dynamic. Throughout the years, Black business owners have faced a myriad of hurdles, based on both overt and covert racism, with some biases continuing today. 

McKinsey says, “too often, these and other barriers lead to shortfalls—just 4% of Black-owned businesses are still in operation after three and a half years, compared with an average of 55.5% for all businesses.” Some other challenges Black-owned retail businesses face reported by McKinsey include:

• 47% of Black business owners’ requests for loans were approved, compared with 75% for white business owners

• 42% of Black-owned businesses were considered healthy and stable—before the outbreak of the COVID-19 pandemic, compared to 73% of white-owned businesses

• 4% of businesses owned by Black entrepreneurs are still in business after 3.5 years, compared with the national average of 55.5%

Black-owned businesses are much more likely to be nonemployer firms (sole proprietorships). In 2019, only 4.1% of Black-owned businesses were employer firms, compared to 19% of white-owned businesses. If Black businesses accounted for 14% of employer firms (equivalent to the Black population share), there would be 798,318 more Black businesses.  

The Census Bureau collected these statistics before the COVID-19 pandemic, so many of the figures presented here have undoubtedly changed. As we await updated data reflecting those changes, we can draw upon qualitative sources to get a sense of how the pandemic has impacted Black businesses.  

The study also found that small business owners of color are more likely to have to take drastic steps to stay afloat. Nearly 1 in 4 entrepreneurs of color (Black, Latino, Asian, and American Pacific Islander business owners) may lay off employees permanently in the next few months, compared to 14% of white business owners.

The survey also revealed that 18% of Black and Latino business owners say they are likely to permanently close their business, compared to 14% of white small business owners. 

While many small businesses have been able to access federal relief, some small business owners struggled to navigate funding programs last year.

The SBA released a report on PPP loan activity on January 24 that broke out the percentages of loans that went to business owners who were White (65%), Hispanic (14%), Asian (12%), African American (8%), and American Indian or Alaska Native (2%), although the overwhelming majority did not report their ethnicity

Besides racism and bias, three in five of the Black business owners said they struggled with being taken seriously while a further 63 percent of Black business owners had difficulty accessing capital compared to their non-black business-owning counterparts.

Unfortunately, half of the Black business owners studied had a hard time building a support network while a further 27 percent struggled with owning their accomplishments — which their non-black business owners didn’t necessarily have to overcome when creating a successful business.

And a third (33 percent) had trouble obtaining access to various government programs when trying to get their business off the ground.

Half of the Black business owners surveyed feel like their state and local governments made it even harder for them to get their business up and running successfully. 

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