A Brief History Of The Racial Wealth Gap And Its Impact Today!

Bill HustonAlternative Finance, Community Capital, Crowd Investing



Even before the United States’ founding, the laws of the land ensured White individuals and families could build more wealth than people of color. The legal practice of slavery prohibited millions of Black people in bondage from earning wages for their labor for 246 years. After slavery’s end, the consequences of racism, as well as racial and economic segregation, continued to impact households and communities across the country. Today in the United States, there exist a significant racial wealth gap that has been driven by 150 years of openly discriminatory policies after the end of slavery and the failed Reconstruction, Jim Crow laws, which existed till the late 1960s, virtually ensured that Black Americans in the South would not be able to accumulate or to pass on wealth. 

The Great Migration and Northern Jim Crow

Through the Great Migration and after, African Americans faced employment, housing, and educational discrimination across the country. After World War II many white veterans were able to take advantage of programs like the GI Bill to buy homes — the largest asset held by most American families with low-interest loans, but lenders often unfairly turned down Black applicants, shutting those vets out of the benefit. 

The Result of Redlining

At the end of 2020, the homeownership rate for Black families stood at about 44 percent, compared with 75 percent for white families, according to the Census Bureau. Redlining, typically the systemic denial of loans or insurance in predominantly Black neighborhoods that held down property values and hampered African American families’ ability to live where they chose.

What is the Racial Wealth Gap?

There is significant wealth inequality in the United States, and it is particularly unequal when examined on the basis of wealth by race. White households in the U.S. on average have 10 times more wealth than Black households.  This difference in wealth between white households and Black and Latinx households is known as the racial wealth gap. This wealth gap is not the result of a lack of effort and drives on the part of African Americans but a systemic process based on policies. 

The Power of Black Entrepreneurship to Close The Racial Wealth Gap

Entrepreneurship plays an important role in building wealth in families, communities, and economies, but the opportunity to start and grow a business is not equal for White and Black Americans. Research shows that these disparities can be explained by persistent gaps in access to financial capital. According to findings from the U.S. Chamber of Commerce, Black entrepreneurs are nearly three times more likely than White entrepreneurs to have business growth and profitability negatively impacted by a lack of financial capital. Given that 70.6% of Black entrepreneurs rely on personal and family savings for financing, lower family wealth for Black families overall drives more of a divide in access to capital. 

The Lack of Access to Business Capital for Black-Owned Businesses and Founders

The data is clear and consistent that there are systemic barriers for Black-owned businesses and founders to access capital. Based on data from the 2018 Small Business Credit Survey, it was found that large banks approve around 60 percent of loans sought by white small-business owners, 50 percent of those sought by Hispanic or Latinx small-business owners, and just 29 percent of those sought by black small-business owners. 

COVID-19’s Impact on Black-Owned Businesses

As the coronavirus continues to batter U.S. small businesses, new data from tax-prep service H&R Block suggests Black-owned firms are taking the biggest hit. An H&R Block survey of almost 3,000 small businesses found that 53% of Black business owners saw their revenue drop by half, compared to 37% of White owners, since the pandemic started. Black business owners also had more trouble establishing an online presence. Less than 2 percent of PPP loans went to Black-owned businesses, the businesses most impacted by the pandemic. In response to these stark realities, The National Black Chamber of Commerce partnered with TagFi to create the American Dream Fund and Marketplace to help Black-owned businesses to establish an online presence and access capital.  

The Investment Crowdfunding Solution

The American Dream Marketplace and Crowd-Max aim to build understanding and strengthen the role of business ownership as an economic opportunity strategy. Lower levels of financial and business assets among African Americans are contributing factors to the racial wealth gap. Micro- and small-business development strategies and programs could be an integral factor for Black entrepreneurs to access capital through investment crowdfunding. By researching the connection between business ownership, wealth creation, and the racial wealth gap. The ADM and Crowd-Max aim to provide funders, policymakers, and potential entrepreneurs with effective tools and strategies that will strengthen access to and effectiveness of business ownership as an economic opportunity strategy through investment crowdfunding. If you are a Black business owner or founder and you want to learn more about how crowdfunding can increase your access to capital and build individual and community wealth For more information on Investment Crowdfunding and a free copy of the eBook Black Crowdfunding please visit Crowd-Max.com.