For years, raising capital has been a struggle for Black businesses that often need the funds to scale up.
A vast number of those entrepreneurs list overcoming hurdles to gain financing among their top and largest operating challenges. It’s not shocking that those business owners generate less revenue and profits than their non-diverse peers and end up with more shutdowns.
However, in a new and surprising development, roughly $401 million more in heavy-duty financial help is perhaps in store for those proprietors through the U.S. Small Business Administration.
Based on a calculated analysis by Creative Investment Research, the SBA’s 7(a) Loan Program, the agency’s main and most common lending program, is projected to lend Black firms and businesses $1 billion this year, a whopping jump from $599 million in 2017.
The Washington, D.C.-based firm figured 7.76% of SBA loans were issued to Black business owners from October 2022 through mid-June 2023, versus 3.86% in 2017. It reports the percentage of loan dollars to Black entrepreneurs in that time frame rose to 4.41% from 2.36%.
Black businesses can use the SBA loans for many purposes, including working capital, acquiring land, or purchasing equipment. The cash can also be used for expansion, acquisitions, innovation, and hiring.
William Michael Cunningham, an economist and owner of Creative Investment Research, says his firm’s study illustrates a promising trend in the lending climate for Black American businesses. He tells BLACK ENTERPRISE that it is a sign of the continued progress that Black entrepreneurs are making while operating in a challenging economic environment. He says the report was based on an examination of SBA data in honor of Juneteenth.
“Access to capital is the key that unlocks the door o economic empowerment and unleashes the true potential of entrepreneurs,” an SBA spokesperson said in response to the report. “That’s why it is a top priority for the Biden-Harris Administration to improve equity within our lending programs, and strengthen direct outreach to historically underserved communities, including Black entrepreneurs.
“The SBA also recognizes that supporting aspiring entrepreneurs has the potential to advance economic equality and growth in communities across our nation by growing their businesses, creating jobs, and building generational wealth.”
However, Cunningham says that SBA (7a) loan allocations in 2023 for White-owned businesses were 11 times higher than for Black businesses. “This emphasizes the persistent financial gaps that Black entrepreneurs face in pursuit of business growth,” he explains.
He says historically racial discrimination in employment has often fueled Blacks to become their own bosses through entrepreneurship. “Our report uniquely identifies the relationship between small Black business lending to Black entrepreneurs and record-low Black unemployment.”
Though the study’s findings reveal a trend toward more inclusivity tied to SBA lending activities, they too showcase the need for continuous and focused efforts.
Cunningham says more work is needed given the existing racial disparity gap as the nation’s Black population is about 14% but that group is only getting just 4.41% of the dollar loan volume in 2023. In contrast, for example, Cunningham says Asians account for 5.7 percent of the U.S. population but received 19.2% of SBA (7a) loans in 2023 based on dollar volume.
Cunningham says the study finds a potential connection between the willingness of 7(a) loan participants to identify their ethnic background. During the Trump administration, which faced criticism for its stance on diversity and equality, there was an increase in “unanswered” responses regarding ethnicity.
Contrarily, Cunningham says there has been a major drop in this objection after the murder of George Floyd and the subsequent societal focus on racial justice.
More details of the report are here.
