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African American businesses grew 400% – but they still need investment

By February 19, 2019No Comments

(This post originally appeared on The Guardian)

2018 was a great year for African American small businesses.

According to a recent survey of more than 2,700 small businesses conducted near the end of last year by small business financing company Guidant Financial and online credit marketplace LendingClub Corporation, African American businesses grew by more than 400% in 2018 as compared to 2017. The pleasant surprise? That growth is being fueled by women.

The survey found that 38% of African American businesses are female-owned which is significantly higher than the 23% average among all other business owners. I guess it’s no surprise that, according to the survey, African American small businesses are not only growing their market share but opening up more health, beauty and fitness businesses than ever before.

“It’s exciting to see African American business owners increasingly confident about the state of business in today’s current climate,” said David Nilssen, CEO of Guidant Financial. “It takes confidence to open and maintain a small business and having a positive outlook will inevitably lead to increased growth and opportunity.”

Of course, those same African American small business owners face the typical challenges that any other small businesses face: finding employees, growing sales, managing overhead. But one challenge is particularly hard for this demographic: financing. That challenge was underscored by the study which found that minority owned businesses received lower loan amounts than non-minorities and as a result were forced to leverage more of their own cash to run their business.

The impact of this? Slower growth and less hiring. The study found that African American businesses had fewer employees than the average small business owner. Without capital, it’s tough to invest in the future.

The good news is that some governments and entrepreneurs are trying to leverage the growing momentum of black-owned businesses and provide more support. For example, Oakland, California’s city council has designateda special business district to “highlight, celebrate, preserve and support” their local black artists and business owners. The first ever Texas Black Business Week launched in February to celebrate Black History Month and marketplaces such as BBurbBlack Wall Street and Philadelphia’s have sprung up during the past few years to help consumers find and buy from black-owned businesses.

Yes, there are also grants and non-profits that provide capital to minorities and a few organizations that are dedicated to providing capital for black and minority-owned businesses, like the UP Community Fund and the $100m New Voices Fund for female entrepreneurs.

But the question still remains: why isn’t there more investment in African American owned businesses?

You can point to a number of reasons, including deep-rooted prejudices or just plain ignorance. But one thing’s for sure: if the stunning numbers from the Guidant/LendingClub report reveal anything it’s that African Americans – particularly women – are starting businesses at a record clip despite financing obstacles. Just imagine the potential profits to be earned – both by those entrepreneurs and their financial backers – if those obstacles were removed. It seems like a major opportunity for the smart investors that recognize it. I believe that more will in the years to come.

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