Financing
October 24, 2021

Why is Black business funding still an issue?

Author

It takes a village to help businesses grow. Imagine all the businesses that could grow, but due to lack of support, decided to give up based on lack of knowledge.

There are a few big problems in the business funding world, and one of the most prevalent lies is funding for Black-owned businesses. While the past few years have seen the rise of new methods of e-commerce funding, there remains a gap in supporting Black-owned businesses with foundational skills and resources to help build successful businesses.

There has been a rise in entrepreneurship during COVID-19. According to the Census Bureaufootnote 1, business registrations increased by 95% during July 2020 in comparison to the year prior. Entrepreneurship is an opportunity to promote economic growth, wealth accumulation, and job creation, particularly in minority communities.

Why does Black business funding remain a problem today?

Business funding remains a problem for Black-owned businesses in the entrepreneurial space.

Major VC firms are risk-aversefootnote 2 and look for existing patterns of success when making funding decisions. Less than 9%footnote 3 of minority-owned businesses pitch to angel investors, and only 15%footnote 4 of these businesses successfully translate a pitch into actual dollars. Simply put, Black-owned businesses don’t get a chance to pitch their ideas.

In addition, many Black business owners are discouraged from applying for loans through traditional financial institutions, such as banks, venture capital firms, and angel investors.

According to a report released by the Federal Reserve in 2020footnote 5, 80.2% of white business owners receive at least a percentage of the funding they request from a bank compared to 66.4% of BIPOC (Black, Indigenous, people of colour). When BIPOC-owned businesses receive funding, it tends to average $30,000 less than comparable white-owned businesses. In turn, the cycle continues where Black-owned businesses feel discouraged from receiving some sort of external funding. 37.9%<footnote 6 of Black entrepreneurs don’t apply for loans due to the belief they would get turned down, while only 12.7% of white-owned businesses feel the same way.

5 ways to close the Black business funding gap


According to the Canadian Black Chamber of Commerce (CBCC) reportfootnote 7, 5 solutions are presented to close the funding gap: