Report shows surge in black-women-owned businesses, lingering capital challenges

Since 2002, the number of businesses owned by black women has increased by 179%, making black women the fastest-growing demographic of business owners, according to a report from the Federal Reserve Bank of Kansas City.

To compare, all women-owned businesses grew by 52% between 2002 and 2012, and businesses in general grew by 20%. Despite this growth, businesses owned by black women make significantly less money than those owned by other demographic groups.

The report is the result of focus groups conducted with 34 black women in the Fed’s Kansas City district, which comprises all or parts of seven states, including western Missouri.

Black women are more likely than black men to own a business, the report said, making them the first female ethnic group to achieve parity with their male counterparts in terms of business ownership. However, they make the smallest profits of all female ethnic groups, according to the report.

On average, black-women-owned businesses make around $28,000 a year — about six times less than white-women-owned businesses, which make around $170,000 a year. Of all women-owned businesses, those owned by black women make the least, and those owned by Asian women make the most, at around $181,000 a year.

This is partly because black women tend to own smaller businesses relative to other demographics, the report said. The majority of black-women-owned businesses are clustered in three sectors: “other services,” health care and social assistance, and administrative and support waste management and remediation services.

Capital funding is the biggest financial challenge facing black female entrepreneurs, women in the focus groups said, with many sharing similar stories about barriers to credit.

“I went to contract (with a government procurer) and he says, ‘Can you bond?’ ‘Yeah, I have a bond.’ I was excited. But it wasn’t the bond that I needed,” one focus group participant said.

Black women were more likely to abstain from applying for credit because they were discouraged borrowers — or good borrowers who don’t apply for loans because they think they’ll be rejected, the report said. When they do apply for credit, they often receive less than what they asked for.

As a result, most black women start their businesses with no capital or their own personal or family savings. While many cited family as a source of encouragement, others said family sometimes didn’t believe in them, largely because they did not understand business and didn’t want to invest in efforts they perceived as risky.

Aside from financial concerns, black women said they consider a lack of general business knowledge one of their biggest barriers to success.

“I had my dad who was positive, but no one in my family had owned a business,” one focus group participant said. “I didn’t have that relationship with somebody where I could say, ‘Uncle started a business’, and have that inside knowledge. I think that’s what was missing, someone with information that I know truly was looking out for me.”


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