Capital Crisis: Minority Businesses and Access to Credit
Nana Adjeiwaa-ManuNana Adjeiwaa-Manu is a former Research and Writing Fellow at the Center for Global Policy Solutions. She is interested in identity, social support systems, and the connection between health and wealth. Nana holds a bachelor's degree in Sociology and African & African-American Studies, and will be pursuing a Ph.D. in Sociology this fall. You can follow her on Twitter @AdjeiwaaKodyie.
Entrepreneurship is a crucial to closing the racial wealth gap. Yet, Experian Data’s recent study on minority businesses shows that although the number of minority businesses is growing, they tend to fail. Why? Minority entrepreneurs are facing a capital crisis.
Twenty-one percent of all small business owners are minorities, and industry professionals are beginning to take an interest in helping these businesses grow. However, minority businesses are unable to access capital at the same rate as non-minority businesses. Less access to capital results in slower business growth.
In addition, 8.3 percent of minority business owners have at least one consumer credit card that is severely delinquent, compared with 6.8 percent of the general small business population. This disparity in credit profiles impacts minority business owners’ ability to obtain credit lines, which are useful for capitalization, especially in a firm’s early stages.
To add to this concerning situation, minority businesses are already more likely to be denied credit, and tend not to apply for loans because they fear that they will be denied. Evaluating this statistic through the lens of race and gender reveals that more than 31 percent of minority business owners are women. Minority women’s businesses are even more likely to fail because they tend to have less access to financial resources such as venture capital and access to credit.
Policymakers have much work to do in advancing inclusive lending practices and establishing systems that uniquely address minority business owners. Lawmakers’ support of alternative lending sources such as community development banks and calls for lenders to be equitable in their lending practices will help expand minority firms’ access to credit and capital. Through policies aimed at financial inclusion for all, minority firms will be more readily equipped to thrive.