The Role of Philanthropy In Black Business Finance

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Introduction

According to the 2018 Annual Business Survey the most recent data available Black-owned businesses accounted for only 2.2 percent of the almost 6 million businesses that operate in the United States. That number is well below the 13 percent of the population represented by Black people in the United States. Another unique feature of Black business ownership is the number of women-owned Black Businesses. Nineteen percent of all employer-based businesses were female-led—but 36.1% of all Black-owned businesses were headed by women. That’s the highest share of businesses within any racial or ethnic group.

African-American Women-Owned Businesses

There are more female African-American small business owners than the general population of business owners. In the American small business ecosystem, 27% of small businesses are women-owned, but, among African-American-owned businesses 35% are women-owned. These Black-women-owned businesses have demonstrated a growth rate higher than the average for any other racial group. Their annual growth rate for the past year of 12% compared to an 8% annual growth rate between 2014 and 2019 for all other groups represents the highest rate of growth of any group in the number of firms between 2014 and 2019 and between 2018 and 2019. Even though African-American women are the fastest-growing group of entrepreneurs the average amount of revenue generated by these Black women is far below the national average. African-American businesses owned by women earned an average of $24,000 per firm vs. $142,900 among all women-owned businesses and raised only .0006 percent of the venture funding dollars.

Black-Owned Businesses Lack Access to Capital

As detailed in my blog post The Small Business Administration has completely failed to provide capital to Black-owned businesses by decreasing its loans by 84% since 2007, and In 2019, Black-owned businesses received 3% of the Small Business Administration’s $23.2 billion in loans. It has been well documented that one of the major issues plaguing the Black Business community is access to capital. The banking and venture capital industries are unable or unwilling to provide capital to Black-owned businesses that provide wealth building and job creation opportunities to the most financially underserved communities in the United States. The question of structural or systemic racism is outside the scope of this post, but the data on access to capital for Black-owned businesses is clear.

COVID-19 Has Exasperated Black Business Issues 

The pandemic has amplified the discrepancies. A National Bureau of Economic Research report in June found that the number of Black-owned businesses dropped 41% by April. Black-owned companies also didn’t receive as much Paycheck Protection Program (PPP) money. According to the New York Times, 75% of the loans were given to businesses in mostly white census tracts during the program’s first phase. The government and the financial sector have proven unable or unwilling to fill the enormous funding gap that Black-owned businesses faced pre-COVID-19 and are positioned to eliminate 50 percent of all Black-owned businesses in the new normal resulting from the crisis.

The Role of Philanthropy In Black Business Finance  

Supporting entrepreneurship is no longer the exclusive territory of local chambers of commerce or government economic development officers and the cumulative effect of this funding has the potential to change the nature of philanthropic giving. Entrepreneurship and philanthropy will be increasingly recognized as complementary forces. Local entrepreneurs have the potential to transform their communities, empower underserved residents, and become future donors. This trend will continue to grow as more of the supported entrepreneurs create jobs and start to give back, and as more foundation-led entrepreneurship initiatives are publicized. In recent years, a number of U.S. foundations have started investing in entrepreneurship-related programs. More than 100 U.S. foundations are now funding entrepreneurship initiatives in their local communities. Can these new philanthropy-led funding initiatives be the new catalysts to provide funding for Black-owned businesses in the United States?

Investment Crowdfunding and Philanthropy As Funding Solutions

As we examine the role that philanthropy can play in funding Black-owned businesses the opportunity to create a capital stack that includes community capital strategies like investment crowdfunding become more relevant. Investment crowdfunding is a tool that empowers community-led economic development by providing access to capital and wealth-building opportunities through inclusive investing for community members. A more logical path for Black communities to create both wealth and jobs at the grassroots level maybe this innovative use of community-led economic development funded by Philanthropy and investment crowdfunding. The traditional financial system has failed the Black community and that is well documented in the data. Now is the time for unique and innovative funding strategies to move into underserved and marginalized communities.

Key Takeaways    

Philanthropy’s support for Black entrepreneurship is in line with its mission to open doors for underserved communities, including women, minorities, and immigrants. Entrepreneurship initiatives are part of the many foundation’s “focus on economic empowerment for people with barriers to employment and wealth-building. Employment and wealth-building are a priority for many foundations that are trying to create a more equitable and just society and economy and they recognize that entrepreneurship can be an effective pathway to reaching that goal. Creating an entrepreneurial culture would allow their communities to become “thriving,” “innovative,” “revitalized,” and “strong communities where the democratization of capital, access to technology, and inclusive investing were the cornerstones of community empowerment. Join me as I embark on a journey to find the solutions that will make #BlackCapitalMatter through our research, writing, and video interviews at crowd-max.com.

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