Are Black Owned Businesses More Likely to Fail?

No industry has a distinctly higher percentage of startups that fail, and this is the case even for the restaurant industry. Data shows that black entrepreneurs are much less likely to secure business capital than their white counterparts, and when they do, that capital comes in much smaller amounts and with much higher interest rates. This can be a major factor in why eight out of 10 Black-owned businesses go bankrupt in the first 18 months. Breaking this cycle to give black entrepreneurs the same chance of success requires intentional efforts on the part of the public and private sectors.

Increase federal, state and local government investment in marginalized, disadvantaged and destroyed black business districts. Generations of redlining and other legalized discrimination and segregation place the government at the front of the line when it comes to the responsibility of rectifying the equity gap of black companies. Organizations like the Ludwig Institute for Shared Economic Prosperity are working to provide solutions informed by scholarship and experience. They are developing programs with former U.

S. Comptroller of the Currency Gene Ludwig to attract major banks to invest in local black businesses. This is important because when black companies prosper, it benefits everyone, including their lenders and investors. Putting more money into the hands of black lenders and financiers is key to helping them succeed.

Those who better understand the needs, financial and otherwise, of black business owners should be in a better position to assess and help them, and that includes investors. We all know that 80% of companies collapse and burn in the first year, so it's important for black entrepreneurs to be aware of common mistakes they may make when starting a business. These reasons can fit into any minority-owned small business, but some of the biggest mistakes African American startups make include not having a solid course of action for their new businesses, not having access to resources or tools needed to apply for loans or financial support, and not having enough capital or investment to grow their business. The study released by the New York Fed found a disturbing link between areas that have been hard hit by COVID-19 and the economic health of black-owned businesses.

Spending weeks and months without customers or income has led to many small black businesses closing permanently. The death of Ahmaud Arbery, Breonna Taylor, George Floyd and other African-Americans has highlighted disparities faced by blacks, including banks making commercial lending decisions that penalize black entrepreneurs based on systemically biased policies that have harmed them for generations. It would be unfair to say that black companies are the only entities that have less than desirable services. However, with an understanding of why businesses fail in advance, entrepreneurs can be much less likely to fall victim to them.

Tessa Monday
Tessa Monday

Freelance internet maven. Hardcore burrito aficionado. Professional internet trailblazer. Wannabe zombie fanatic. Professional travel expert. Friendly travel enthusiast.