Can Black Entrepreneurship Close the Black-White Wealth Gap?

A new AEO report suggests that black entrepreneurship may be solution to slashing racial wealth divide in our country

wealth gap
(Image: iStock/DNY59)

For decades, a wealth gap has persisted between blacks and whites. While a quick fix to trim the gap remains absent, a new report suggests black entrepreneurship perhaps is the answer.

The revelation comes from The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success, a report by the Association for Enterprise Opportunity. The Washington, D.C.-based nonprofit and its 450 members provide capital and services to help underserved entrepreneurs start and expand their businesses.

The report draws insights from many sources, including innovative data analytics and a survey of 300 business owners—200 of them black—conducted last spring. One of the study’s objectives was to change the national conversation about black-owned businesses, focusing on their potential for economic power, instead of just looking at their challenges. For instance, the median net worth for black business owners is 12 times higher than for black non-business owners, helping disrupt a low wealth cycle that often lingers in black communities.

AEO President and CEO Connie Evans says business ownership for blacks is imperative for job and wealth creation, helping strengthen both black communities and the national economy.

“Self-employment can go a long way toward closing the racial wealth gap,” Evans says. “White adults have 13 times the median wealth of blacks, whereas white business owners have three times the wealth of their black counterparts. That is a significant difference—one that would help create economic opportunities for all people.”

The report also found that if there was job parity between black and U.S. firms, it could help reduce the nation’s black unemployment rate, which is at 8.1% as of February. Right now, 96% of black-owned sole proprietorship firms have no employees versus 81% for all U.S. firms. And black-owned employer firms have fewer workers than the average U.S. privately held firms—nine versus 11. If black-owned employer firms could boost their workforce by two people, and 15% of black-owned businesses with no employees could hire just one person, researchers estimate about 600,000 new jobs could be created and another $55 billion would be pumped into the economy. The jobless rate for black Americans would fall to about 5% if these black firms mainly hired people from their communities, which they often do.

“There are different levels of success in business,” Evans says. “A restaurant owner who has been on the same corner for 20 years would definitely be called successful. But what we wanted to do was take a look at what hinders black entrepreneurs from reaching their economic potential. What stops that restaurant owner from hiring more staff and adding a catering service? Or opening more locations? How can black entrepreneurs launch flourishing businesses, or move away from low revenue business models and industries?”

Evans pinpoints three ongoing gaps—wealth, credit, and trust—whose interplay hampers the startup and growth of black businesses. A microbusiness advocate for over three decades, Evans discusses what can be done to boost black business ownership.

 

How are these gaps stopping black Americans from opening more businesses and keeping those that do start from stabilizing and growing?

Persistent low wealth in black communities equals less access to personal or friends-and-family funding for startups. It means lower homeownership, fewer assets overall, and a lack of collateral to secure credit via loans. These wealth and credit gaps are exacerbated by a trust gap, fueled by discrimination and bias black Americans have faced. That can stop them from taking crucial actions to grow or maintain their business.

 

What steps can black entrepreneurs take to overcome these barriers that they might not be using now?

Black entrepreneurs can reach out to nonprofit organizations that can help them with plans, capital, and other resources to start and grow their businesses. For example, there are microfinance organizations, accelerators, and networks seeking black entrepreneurs.  Some of these entrepreneurs will have to change their “go it alone” mindset and search for networking opportunities and partnerships to access new markets and contracting opportunities. In addition, black entrepreneurs, particularly startups, should explore entering higher revenue producing sectors like technology, healthcare, and construction.

 

What is your group doing to help black Americans start new businesses and boost their wealth?

AEO is offering to help move capital to the small business owners who need it. They can visit www.tiltforward.com or www.aeoworks.org to get access to financial resources and business support services. AEO also makes recommendations to Congress for policies and programs that support businesses in low-wealth communities.

 

Where can black entrepreneurs get more tools to build their businesses?     

National Urban League Entrepreneurship Centers 

Minority Business Development Centers 

Operation HOPE for Small Businesses 

Small Business Administration 

 

 


Jeffrey McKinney is a long-time freelance business writer and reporter, contributing to Black Enterprise magazine on a broad range of business and financial topics.