The Equity Gap Facing Minority Businesses

More than $6 trillion and 21 million new jobs would be added to the U.S. economy if minority-owned businesses grew at the same rate as non-minority businesses. That’s one of the reasons we’re at the NMSDC Conference in Baltimore this week.

Closing the equity gap starts by understanding the unique challenges minority entrepreneurs face in starting and maintaining businesses. We’ve created this infographic to help make sense of it. What surprises or frustrates you most?

Stay tuned for a follow-up article on our key takeaways from the conference and solutions to close the equity gap.

The Equity Gap Facing Minority Businesses

The United States has never been more diverse. The Census Bureau estimated in 2022 that 41.4% of Americans (~137 million) are non-White or multi-racial.1 Yet, the U.S. Minority Business Development Agency found that Black, Asian, Hispanic/Latino, and other racial and ethnic minorities owned only 21% of employer businesses.2 This gap represents just one of the disparities that exist for minority entrepreneurs and business owners and make clear the need to ensure equal opportunities for both aspiring and active minority business enterprises (MBEs).
Access to Capital

Starting, running, and growing a business requires significant financial investment. But minority-owned businesses have been overwhelmingly undercapitalized. 
Among minority-owned businesses:
- 4 out of 5 micro, small, and medium-size enterprises have never had access to bank loans or venture capital. 3
- 45% cite obtaining a bank loan as a top obstacle to growth.4
- 43% have had difficulty obtaining financing needed to grow.4
•	Pre-pandemic, only 1% of venture capital went to business owners of color.3
- 45% of owners who could not get a loan were denied because of insufficient collateral.5

50% of Black business owners and 37% of Hispanic/Latino business owners cited credit availability when asked what financial difficulties they were facing in the past 12 months, compared to 27% of white business owners.5
COVID-19 Pandemic

The COVID-19 pandemic exacerbated and reinforced inequalities.
- Only 1.9 percent of Paycheck Protection Program (PPP) loans went to Black-owned businesses while 83 percent went to white-owned businesses.5
- Between 25 and 36 percent of small and medium-sized minority businesses had to close permanently in the first four months of the pandemic.3
Bias and Discrimination

Minority business owners often encounter biases when building and growing their businesses. 
In a comparative study of nearly identical businesses with strong credit histories showed that when applying for small business loans:
- Black- and Hispanic/Latino-owned businesses were asked to provide personal income tax statements 28 percent and 32 percent more, respectively, than their white counterparts.
- Hispanic/Latino--owned businesses were asked about their credit card debt over 5x more than their white counterparts.

According to the Federal Reserve, 40% of Black business owners and 24% of Hispanic/Latino business owners claimed the reason they did not apply for financing was because they felt discouraged from applying, compared to 12% of white business owners.6
Threats to Progress

The U.S. federal government helps create more equal opportunity for minority-owned businesses. For instance:
- 5% of federal contracts are set aside for small businesses owned by “socially and economically disadvantaged individuals.”7
- The Small Business Administration’s 8(a) program provides training and technical assistance to strengthen MBEs ability to compete.

But challenges lie ahead. The Supreme Court’s June 2023 affirmative action ruling poses a threat to supplier diversity programs. The SBA temporarily paused 8(a) program applications and has introduced a requirement that current participants submit a Social Disadvantage Narrative to maintain their status.
Equity Can’t Wait

The current economic impact of minority-owned businesses is significant. But the potential benefits to the economy are still largely untapped.

16 trillion has been erased from U.S. GDP over the last two decades due to discrimination.8

The impact of minority employer firms on the U.S. economy was $1.6 trillion in revenue and 9.8 million jobs in 2020.2

While these figures are significant, they represent just 10.6% of gross receipts and a 15.4% share of the number of employees. 2

If minority-owned businesses grew at the same rate as non-minority businesses, over $6 trillion would be added to the U.S. economy and more than 21 million new jobs would be created.4