The Importance of Supporting Entrepreneurism and Start-Ups Within Black Communities

The Black community has always had to face the realities of a system that was designed, whether consciously or unconsciously, to make every aspect of life harder for them. But many white Americans have only recently become aware of the many ways racism is perpetuated throughout the justice system, our health care system, our political system, and, unfortunately, our educational system.

Communities of color have overwhelmingly paid the price for our society’s persistent struggles around race. Recently, the CDC reported that racism poses such a serious threat to Black people’s physical and emotional well-being that it has caused a four-year reduction in their average life expectancy.

But racism has also had a negative impact on the entire country. It’s deprived every American of the incredible talent, insights, and knowledge that is found within Black communities. Furthermore, financial experts estimate that racism has actually cost our country around $16 trillion just since 2000. While that figure is alarming, it can’t even come close to quantifying the toll racism has taken throughout our history.

Racism and other forms of implicit bias will never be overcome by one person, one business, or even one institution of government. Still, there are ways that businesses can make a tremendous difference. Some financial institutions, for example, are stepping up to find effective ways of addressing the racial wealth gap.

What Is the Significance of the Racial Wealth Gap?

Today, the earning power of Black households lags behind that of white households by 39%. Furthermore, Black Americans are more than twice as likely to live in poverty. It’s also important to note that gender further affects earning power. The median income for Black males was $51,284 in 2017. Black women made, on average, just $41,453.

In large part, rampant housing discrimination created, and continues to exacerbate the wealth gap, as homeownership is the single most significant source of wealth for the majority of Americans and can help families weather lean times or in financial emergencies. Redlining is no longer legal, but in many ways, the practice continues in different forms. According to Redfin, Black families have lost out on at least $212,000 in personal wealth over the last 40 years because their home was redlined.

How Can Entrepreneurship Help Close the Racial Wealth Gap?

According to a study by the Congressional Black Caucus Foundation (CBCF), Black business owners have a median net worth that is 12 times higher than Black non-business owners. Additionally, while white Americans have 13 times the wealth of Black Americans, that gap decreases to just three times when comparing white and Black business owners.

Black entrepreneurship won’t close the racial wealth gap entirely, but it has the power to provide significant change for every community where Black businesses thrive.

What Are the Barriers to Entrepreneurship in Black Communities?

Put simply, Black people have much less access to capital. They’re less likely to get small business loans, they’re denied credit more frequently, and they’re charged steeper rates by lenders. Some of this disparity is due to conscious or unconscious bias within financial institutions. In any case, the cumulative financial effects of institutional racism are often difficult for even a sympathetic lender to overcome. For example, Black Americans are much more likely to have poor credit scores or live paycheck to paycheck, which poses higher risks to lenders.

To complicate matters further, Black Americans have historically had reason to distrust banking institutions and are therefore less likely to reach out to a lender. Not surprisingly, many Black entrepreneurs have a sense that the entire system is working against them. They’re right. It is.

What’s Being Done to Address These Inequities?

In a post-pandemic world, it can be especially easy to lose hope that the business world will ever be inclusive and equal for all, regardless of race or gender. However, there is good reason to be hopeful. In addition to various SBA programs explicitly designed to help minority-owned businesses succeed, many organizations have devoted themselves to supporting Black entrepreneurs across the country.

Many banking institutions have also devised a number of ways they can overcome traditional barriers to lending without taking on too much risk. Some banks are partnering with Community Development Financial Institutions (CDFIs) and Minority Deposit Institutions (MDIs) and have greatly expanded their ability to reach underserved communities.

Here in Minnesota, Stearns Bank has formed a partnership with the African Development Center (ADC) to help support the center’s goals of growing businesses, building wealth, and increasing reinvestment in African American and African immigrant communities throughout Minnesota.

In time, Stearns Bank will also pursue new partnerships with nonprofits and community organizations around all of its branch locations and design new initiatives to expand access to capital, banking services, and financial empowerment resources to more underserved communities.

How Does Removing These Barriers Help the Broader Community?

66% of new jobs in America are created by small businesses. With more successful Black entrepreneurship comes more opportunities for employment within their communities. And more jobs close to home will provide better options for those without access to reliable transportation.

Black entrepreneurs also can provide inspiration and mentorship for others in their community. 92% of small business owners state that having a mentor has been critical to the success and survival of their business. However, only 40% of Black entrepreneurs currently have access to a mentor. Mentorship has been shown to boost profits and productivity, and mentors can help business owners avoid costly mistakes, and reach their long-term goals much faster.

Removing barriers to Black entrepreneurs has a ripple effect that goes far beyond the Black community. In fact, the recently popularized saying, “When we all do better, we all do better,” is quite true. When Black communities have better access to entrepreneurship and the jobs entrepreneurs provide, they have more buying power. When they have more buying power, those dollars will flow into the nation’s economy, contributing to the financial and social stability of our entire country.

Stearns Bank’s Commitment to Change

Stearns Bank is committed to expanding access to capital and other banking services to underserved communities. As just one lender with its roots in small-town Minnesota, we may not have the power to change the world. But for the small businesses and entrepreneurs we’ve served, we know that lending has the power to change lives. If you own a small business or are thinking of starting one, the Stearns Bank lending team is only a phone call away, and we’ll answer on the very first ring!