By Philip Brown
May 29, 2024
The Bay State Banner
Capital is the lifeblood of any business, as every businessperson knows. But for many small-business owners of color, access to capital can be a challenge. According to The Boston Foundation‘s “The Color of the Capital Gap” report published in November 2023, Boston’s small businesses of color face a $603 million annual funding gap due to structural barriers and the racial wealth gap. Traditional lending requirements prevent small business owners from accessing capital and may even discourage them from seeking capital.
A new report by UMass Donahue Institute, “Supporting Diverse Small Business Owners in Boston,” cites four themes in the challenges businesses of color face:
Systemic financial barriers. “Requirements for obtaining capital can prevent business owners that are from historically disadvantaged groups from growing and building wealth. Small-scale businesses with modest but critical financing needs are particularly underserved,” according to the report. Betty Francisco, CEO of the Boston Impact Initiative (BII), says, “Barriers such as lender bias, limited access to family wealth, and not having well-developed networks of business contacts have many Black entrepreneurs relying on their own limited resources as a form of bootstrapping, and, as a result, overleveraging their personal credit, damaging their credit rating and at times falling prey to predatory lending.”
The racial wealth gap. One of the very first sources of capital for many entrepreneurs is a network of friends and family. Donahue reports that “two-thirds of entrepreneurs use personal or family savings to start a business, and entrepreneurs of color are often at a disadvantage for this type of capital because of the racial wealth gap.” The number one reason many survey participants said they believe BIPOC small-business owners have a harder time accessing credit was “lack of personal wealth or assets for collateral.”