This Article First Appeared on: Forbes.com
Written By: Rohit Arora
Juneteenth, also known as African American Freedom Day, is celebrated to commemorate the emancipation of slavery on June 19, 1865, when Union general Gordon Granger read federal orders in Galveston, Texas, that all previously enslaved people in Texas were free.
According to historian Henry Lewis Gates, Jr., although the Emancipation Proclamation had formally freed slaves almost two and a half years earlier, and the Civil War had largely ended by April 1865, Texas was the most remote of the slave states. The state had a low presence of Union troops, thus enforcement was both slow and inconsistent.
Economic freedom for the former slaves and their descendants has been far from swift, and in many ways, it remains one of the deepest running wounds caused by slavery until today. However, in the 21st century, black entrepreneurship is on the rise. In fact, black-owned businesses in the U.S. increased 34.5% between 2007 and 2012 totaling 2.6 million firms, according Census Bureau data available on BlackDemographics.com. More than 95% of these businesses are sole proprietorships or partnerships.
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Further analysis finds that in 2012, million black-owned businesses in the U.S. employed 975,052 workers, and their payrolls totaled $27.7 billion (not adjusted for inflation). Additionally, revenues of black-owned businesses during the same time period increased to $150.2 billion.
Regionally, Georgia had the largest number with 256,848 black-owned businesses, roughly 10% of the nation’s total, and 27.6% of the companies in the Peach State were black-owned. Among cities, New York had the most black-owned businesses, with 250,890 (9.7% of all the nation’s black-owned businesses), followed by Atlanta, according to the 2012 data.MORE FOR YOU4 Tips For Positioning Yourself As An Expert In Your NicheLaunching A New Business? 3 Key Areas Of Concern To Address FirstSBA Opens Up New Grants And Loans For Small Businesses And Independent Contractors: The EIDL Program
The top earning industries in black-owned businesses are in health care and social assistance, while the retail sectors totaled more than $41 billion in revenues. Nearly four in 10 black-owned businesses (1.1 million) in 2012 operated in the health care, social assistance; and other services such as repair, maintenance, personal, and laundry services sectors.
Gauntlett Eldemire, a former minor league baseball player has operated GSE Laundry, a coin-operated laundry and cleaning business in the Cleveland, OH, area since 2013. Like many small business owners who need capital for expansion, he found that securing the funding for an SBA loan can take months. It was even more challenging during the COVID-19 pandemic.
“I was working with a local bank, but when the coronavirus hit, they were overwhelmed by the volume. During the past five years, I’ve worked with Biz2Credit to secure bridge financing in the past, and they came through for me,” said Eldemire, who was a star outfielder at Ohio University and played with the Lakewood Blue Claws of the Philadelphia Phillies organization.
Eldemire, who received an infusion of $287,000 while he was in the middle of construction, now owns three coin-laundry businesses, and his new location in Garfield Heights, Ohio, is four times bigger than his previous one just a mile down the road. He hopes to keep expanding.
While Eldemire was fortunate to get funding in the middle of the pandemic, black-owned firms typically face greater challenges in securing capital than their white-owned counterparts. At the start of the Paycheck Protection Program (PPP), banks favored larger businesses, especially ones that were their existing customers. Since many black-owned companies are sole proprietorships, they encountered difficulty securing funding through the CARES Act program run by the Treasury Department and the SBA.
The challenges for black-owned companies in securing financing is well documented. Often the largest source of capital for black entrepreneurs is their own personal savings and loans from friends and family to fully or partially fund their companies, according to a survey by Guidant Financial. A study by the Kauffman Foundation, black entrepreneurs rely the most on personal credit cards as a form of outside credit to fund new companies or acquire existing ones. Further, the Kauffman Foundation discovered that nearly 6 in 10 black entrepreneurs who did not seek additional financing despite needing it did so because they thought the business would not be approved by a lender.
Big banks typically look for two to three years’ worth of financial data when making their underwriting decisions. This does not work in favor of black-owned startups. Thus, minority applicants have a better shot at obtaining capital from community banks, CDFIs, and non-bank lenders.
Now, more than ever, attention is focused on social and economic fairness in America. People across the country are vocalizing their support of the black community. This support cannot simply be making a sign, joining a protest march, or posting on Facebook. Consumers and investors must put their money where their mouths are. Supporting black entrepreneurs is perhaps the best way to drive improvements in the economic conditions of black Americans from a grassroots level.
According to the Guidant Financial survey, the top reason why black entrepreneurs go into business for themselves is because they’re ready to be their own boss (34% of responses). The second highest motivation was “wanting to pursue my passion.” Guidant’s study also found that 21% more business or franchise owners were motivated by a dissatisfaction with corporate America than they were last year, making it the third most common response.
The study revealed that 35% of black business owners are women. Indeed, black females represent one of highest ratios of women-to-men business ownership. Guidant’s survey also shows that black entrepreneurs skew younger than the average small business owner. In fact, black business owners are 59% more likely to be Millennials than the average small business owner. Eldemire is a prime example of this trend.
“I wanted to get into something where I could run a business that provides a necessary service but one that didn’t require me to be there all the time,” said Eldemire, 31, who lives in South Euclid, a suburb of Cleveland.
However, unless black-owned companies have equal opportunity in securing financing, they will not be able to reach their full potential. Capital is the life blood of any small business, and infusions of investment money make them healthier. Until the time comes when minority entrepreneurs are given the opportunity to obtain funding for start-up and growth, we will not have full economic freedom in this country.