A new study by an advocacy group reveals new information on how small businesses are operating in the current financial climate.
The report, called Access to Capital among Young Firms, Minority-owned Firms, Women-owned Firms, and High-tech Firms which was sponsored by The Office of Advocacy, looked at new businesses’ access to capital during the 2004-2010 periods and how it affected their operation and growth.
The first takeaway from the report, which was authored by Alicia Robb, found that minority firms in particular rely more on their own funds –and have less capital to start up and grow. This was true especially of non-technology businesses owned by African Americans, Latinos, and women. African American and Latino owners of young firms are less likely than others with similar credit scores to have access to bank financing. During the financial crisis, women and minority owners of new startups were less likely to apply for credit, fearing loan denial.
High-tech businesses that rely on patents, copyrights, and trademarks also faced bank financing hurdles, possibly because their products rely on knowledge, which is harder for banks to assess than physical assets.
“We know that startup businesses with access to financing drive innovation, job creation, and economic growth,” said Dr. Winslow Sargeant, Chief Counsel for Advocacy. “Policies that help close the financing gaps for minorities and women and for high-tech startups will benefit the whole economy.”
The Office of Advocacy, which serves as the voice for small business within the federal government, sponsored the report which was based on data provided via a survey from the Kauffman Firm. The full report is available on the Office of Advocacy website.