By Elana Duré
Black women are the fastest growing demographic of entrepreneurs in the U.S., with nearly 2.7 million businesses nationwide. But even with their growing presence in the business world, these women face disproportionate financial headwinds.
The number of businesses owned by Black women grew 50 percent from 2014 to 2019, representing the highest growth rate of any female demographic. Black females accounted for 42 percent of all women who opened a new business during that time and represented 36 percent of all Black employers.
And they are not letting up. In the U.S., 17 percent of Black women are in the process of starting a new business, compared to 10 percent of White women and 15 percent of White men. Motives for creating a new business include producing a source of income or following a dream.
“High rates of Black female entrepreneurship may also reflect lack of opportunity in the traditional workforce – many start businesses to survive rather than pursuing market opportunities,” said Tosh Ernest, Head of Business Growth & Entrepreneurship and Financial Health & Wealth Creation for Advancing Black Pathways at JPMorgan Chase. “Over 60 percent spend fewer than 40 hours per week on their businesses, suggesting that they have other jobs or responsibilities that demand their time and attention.”
Not so easy
Running a business does not come without its challenges – and those headwinds are disproportionately distributed among Black women. In fact, there are fewer established businesses run by Black women relative to their high rate of entrepreneurship, with just 3 percent of Black women running mature businesses. (Maturation is widely recognized as a business surviving past five years.)
Moreover, Black female founders earn an average revenue of just $24,000, compared to $142,900 among all women-owned businesses.
Why the inequities? One explanation might be the types of businesses started, with 61 percent of Black female entrepreneurs starting businesses in the retail/wholesale, health, education, government, or social services sectors. This compares to just 47 percent of White women and 32 percent of White men entrepreneurs starting businesses in those sectors. Because these sectors are crowded with low margins and high competition, these types of businesses are more difficult to sustain over time.
Another possible explanation is the lack of access to capital, with 61 percent of Black women self-funding their startup capital. This comes even though just 29 percent of them live in households with incomes over $75,000, compared to 52 percent of White men.
The trend to self-fund is likely because Black women find it difficult to get funding elsewhere. Black business owners who apply for funding have a rejection rate that is three times higher than that of White business owners, and they are more likely to identify access to credit as a challenge. Meanwhile, only 2 percent of venture capital funding goes to U.S. female-only founder teams.
The intersectionality makes it even more difficult for Black women to get funding, with less than 100 Black women raising $1 million or more in venture capital funding in 2020.
Fixing the problem
To fix this headwind, Black women need a way to access long-term funding resources and solutions that will provide their businesses with the opportunity to grow and thrive.
To make this happen, the finance community must first recognize the biases in investment assessment that have persisted for too long and caused Black women to be in this predicament. The community also needs to understand the value and benefit of businesses run by Black female leaders. With that recognition, systems can be reassessed and refreshed into something that is more fair.
“Black women are positioned to play an increasingly visible and important role in the United States’ future like never before,” Ernest said. “To elevate their voice and their careers, and to achieve the American Dream of social and economic equality, we believe that entrepreneurship is key and that we must play our part in targeted efforts that enable Black women entrepreneurs to grow and sustain their businesses.”
JPMorgan Chase has already begun that process, committing $30 billion over the next five years to advance racial equity and provide economic opportunity to underserved communities, with a focus on Black and Hispanic communities. Specifically, some of the capital will be used to increased lending and technical assistance for these communities. JPMorgan Chase also has a program targeting female-owned businesses for advice, mentorship and networking.
“These conscious efforts will require the government and private sector to uncover and address gaps and biases in entrepreneurial ecosystems in a way that provides inclusivity and support for the diversity of entrepreneurs, and that brings economic and social value to American society,” Ernest said.
Demographic of Black Women Entrepreneurs
• Black women are the fastest growing demographic of entrepreneurs in the U.S., but they face disproportionate financial headwinds.
• Given a lack of access to capital, Black women are more likely than other demographic groups to self-fund their businesses.
• To create a more equitable environment, the finance community must recognize the biases that exist in investment assessment.