Dive Brief:
- More than half of black sole proprietors that applied for financing received none, according to a New York Fed report released Wednesday.
- 62% of nonemployer firms said they have had financial challenges in the previous year, according to the survey, but that number is 76% for black-owned businesses, 70% for Hispanic-owned companies and 59% for white-owned firms.
- This category of small business typically relies more heavily on the owner's credit score or personal assets for financing. A study posted on Inequality.org shows the median white family owns 41 times more wealth than the median black family. As a result, the figures from the New York Fed survey show black-owned businesses experience greater difficulties in several categories.
Dive Insight:
Nonemployer firms surveyed for the report account for 81% of U.S. small businesses. These businesses count the owner as the only salaried employee, but may also employ freelancers, contractors or gig-economy workers.
A pattern emerges for small businesses and their funding needs. 39% of surveyed firms said their funding needs were met, but that number dips to 17% for black-owned companies and 25% of Hispanic-owned businesses. That and other statistics, when compared against those of white and Hispanic small-business owners, illustrate the disparity in lending that plays out along racial lines.
The data "underscore financing challenges for non-white business owners," Claire Kramer Mills, assistant vice president at the New York Fed, said in a press release accompanying the report.
Financing and credit represent other hurdles. 38% of nonemployer firms that applied for financing said they received none. That breaks down to 36% of white-owned small businesses, 54% of black-owned companies and 45% of Hispanic-owned firms, according to the data. And 36% of companies surveyed said they were either debt-averse or were discouraged from doing so.
About 58% of nonemployer firms said their company was a low credit risk. However, 70% of black-owned companies in that category and 56% of Hispanic-owned firms said their business was a medium or high credit risk.
