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In a world impacted by racial injustice in so many areas, the realm of entrepreneurship is no different. Black, indigenous, and people of color (BIPOC) have historically been hindered when it comes to funding for starting businesses.
In a 2019 study conducted by the Federal Reserve Bank of New York it was noted that only 17% of firms with non-Hispanic Black ownership reported their funding needs were satisfied. In addition, racial disparities in financing access were found. Fewer black-owned companies had a recent relationship with a bank than white-owned companies. One would begin to wonder if black and other people of color were even applying for loans or other forms of financing. However, research shows BIPOC, particularly black owners, have applied for loans and additional financing but are denied at higher rates.
This phenomenon has come to be known as the racial funding gap. “White business owners receive more financing from lenders, with fewer challenges, and at lower rates, than BIPOC.” Only 29.4% of BIPOC business owners receive all the funding they request from the bank compared to 54.2% of that of white business owners.
As a result of this phenomenon, BIPOC business owners need more help than ever to overcome these disparities. Business owners find themselves feeling alone in overcoming a gap they did not create. Despite the significant gap, there are steps a business owner could take to close the gap.
Tip #1: Apply for grants and loans
Yes, research shows people of color being denied at higher rates than their white counterparts, but you won’t have the chance to receive funds if you don’t apply at all. Due to the negative historical nature of business funding for BIPOC in America, people of color have been discouraged from applying. This limits a lot of business owners from developing into stronger entities. Applying doesn’t guarantee you will receive anything, but don’t be the biggest obstacle to your business growth.
As you seek to apply for loans and grants there are various opportunities you should consider. In the beginning stages of starting up your company, look into receiving capital from organizations like Backstage Capital.
Backstage offers initial investment ranging from $25,000 to $100,000. For more information and to apply, please see the link.
Just as POC are working to close the racial funding gap, companies and organizations like American Express are seeking to support POC in their endeavors. American Express has created the Accion Opportunity Fund to help small businesses. 90% of their clients are women, people of color, or immigrants. More about this opportunity can be found here.
Tip #2: Become a research junky
You’re reading this article, so you’re already on your way to doing the research to help your business. Research has clearly highlighted the racial disparities with entrepreneurship and, as a result, there are various organizations that are seeking to fill in gaps and provide equitable resources to BIPOC specifically. Now you must use research to find the right organizations and companies for you. With many people seeking to start a business there must be diligent research to ensure you find the support your business needs. For a great place to start in your research check out this site.
Tip #3: Work with Black and Latino owned banks
Banks are dominated by white leadership, but they aren’t the only option. Black and Latino banks and are on the rise. These banks need more support and what better way to start your business and limit racial funding disparities than to bank Black? World renowned banks may feel like the safer bet with more funds, but with proper research you can become just as certain of your security with banks owned and controlled by BIPOC.
A great option to consider can be found here. For other bank options you can search for a place that meets your needs with this map.
Tip #4: Word of mouth
If you haven’t already, start consulting other BIPOC business owners. Everything is always harder when you feel you have to go at it alone. You may be paving your own way with your business, but getting advice from others with experience financing their own business could yield a wealth of knowledge. The local entrepreneurs of color in your community may be aware of opportunities smaller organizations may have that helped them.
For BIPOC business owners that have been able to successfully receive funding for their business, feel free to share your experiences and tools you found helpful in the comments.
This article originally published on GREY Journal.