

It’s been a relatively good few years for African-American small business owners.
According to a subset of data in the 2020 State of Small Business report from Guidant Financial and the Lending Club, African-American small business owners are happy these days.
In fact, 70% of them say they are either “somewhat happy” or “very happy” with their businesses. And 72% of African-American small business owners say their businesses are “currently profitable.”
However, the study also shows African-American business owners are “are less confident than the average small business owner about the state of small business in this political climate, with 53% of African-Americans saying they are either “somewhat confident” or “very confident” compared to 60% of average small business owners saying the same.
Being “ready to be my own boss” was the primary reason African-American survey respondents started their businesses (34%). This was followed by a “desire to pursue my own passion” (29%), “dissatisfaction with corporate America” (13%), and “the opportunity presented itself” (10%). These stats are a bit of a change since a previous Guidant survey showed 62% started a business to “pursue their passion.”
Diversity of African-American business owners
Overall, African-American small business owners are younger and include more women than the general small business population. The study reports 22% of African-American small business owners are millennials, nearly twice as many as the 12% of millennial small business owners in the general population.
The Guidant report shows, “There are more female African-American small business owners than the general population of business owners. In the American small business universe, 27% of small businesses are women, among African-American owned businesses, 35% are women.
The concerning stat is about earned average revenue. African-American businesses owned by women in this report earned an average of $24,000 per firm vs. $142,900 among all women-owned businesses. This gap, says the report, is “the greatest of any minority [group].
According to digitalundivided’s Project Diane 2018 report, The State of Black Women Founders ( the report is issued every two years) the number of startups founded by Black women more than doubled from 2016 to 2018—to less than 4%. But that’s small compared to the percentage of Black women in the U.S. (14% of women in the U.S. are Black). Nearly half of all African-American women-led startups were in California and New York.
In fact, according to BlackBusiness.com, New York state has the most (regardless of the gender of the owner) Black-owned businesses—-204,093—which is 10.6% of the businesses in the state, followed by Georgia, Florida, and Texas. However, Washington DC has the highest percentage of Black-owned businesses in the country with 28%.
Lack of capital and cash flow is the biggest challenge for African-American small business owners, according to Guidant. That’s not really a surprise since those are the same problems most small business owners face.
But fewer African-American small businesses are approved for financing, often at lower amounts of money with higher interest rates, according to a report in The Washington Post. Guidant reports that the “wealth gap also contributes to financing challenges…making it harder to [get] financing. Without the funds to invest in as many resources as other businesses, such as hiring talent or marketing and advertising, competing for contracts or attracting clients becomes exponentially more difficult.”
A report, 8 Insights on the State of Black Entrepreneurship, from American Express reports 47% of African-American small business owners run their businesses by themselves, compared to the 33% of average small business owners. And African-American businesses have fewer employees: 38% have 2-5 employees and only 7% have 6-10 employees. This compares with the average small business owner, with 41% employing 2-5 workers and 12% employing six to 10 workers.
More African-American small business owners (44%) use cash to fund their businesses than the average small business owner (37%), according to the Guidant report. Only 15% get help from friends and family, which was the second most popular source of capital for African-American business owners.
Other funding sources for African-American business owners include:
And according to Project Diane, the picture for African-American women is equally challenging—since “2009, Black women led startups have raised $289MM in venture/angel funding, with a significant portion of that raised in 2017. This represents .0006% of the $424.7 billion in total tech venture funding raised since 2009.”
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