Opening a successful business is already very difficult but when the business is black-owned, the barriers can be overwhelming to the point that you might give up or never break the red line that leads to success.

The underlying and embedded economic disparities pose a detrimental threat to black businesses.

Institutional barriers

Funding is often the biggest challenge for new entrepreneurs, regardless of race. Almost no one gets to start armed with a check for the full amount they need to get things off the ground. So many of us resort to either digging into our own pockets or turning to family and friends for investments.

So, if you’re a black entrepreneur and you’ve resorted to using your own cash, or you’ve decided to turn to your family and friends for funding, you’ll almost inevitably start with lower capital.

Sometimes for even simple things like opening a business account can be challenging. You encounter a lot of bureaucracy and most likely you will be rejected by a 1 or 2 high street banks.

According to Eric Collins from impact Investment capital does not always find the best opportunities. Pat McGrath, MBE, the British makeup artist and powerhouse behind global cosmetics brand Pat McGrath Labs; Cathy Hughes the billionaire founder and chair of publicly-listed Urban One; and Richelieu Dennis, founder of global skin and hair company Shea Moisture, which was acquired by Unilever, were all rejected by various investors. Despite initially being turned down for funding they have gone on to great success. But the truth is, as black-led businesses, they’re more likely to be rejected because the reality is most investment goes to companies founded and led by white men.

It is predicted that Covid-19 followed by a financial crisis resulting from the lockdown will wipe-out almost 50% of black-owned businesses.

A report conducted by Diversity VC and RateMyInvestor found that less than 1% of venture capital is invested in black businesses in the US and the number for the UK is no better. 

During the recession that followed the 2008 global financial crisis, a report prepared for the Department for Business Innovation and Skills by Warwick Business School into the effect on bank lending to SMEs found that businesses owned by black Africans were 11.9% more likely to be rejected for an overdraft than white-owned businesses. When black African-owned businesses did manage to secure overdrafts, they paid margins that were 2.12% points higher than margins paid by businesses with a white principal owner. When it came to term loans, the report revealed that businesses with a black African principal owner were 14.4% more likely to experience rejection than businesses with a white principal owner. 

A 2009 report from the Equality and Human Rights Commission on the impact of the last recession said there was evidence that “black ethnic groups may be faring particularly badly”.

The status quo leaves minority founders fending for themselves

The black British entrepreneur, almost invisible in the public consciousness, is more and more common in fact. A report by the Department of Trade and Industry shows that nearly half of black-owned businesses have been trading for less than three years, reflecting an upward trend, with more moving away from niche services such as black hairdressing and catering, and into the mainstream, especially the IT sector.

There are 10,000 black-owned businesses in London, accounting for 4% of all firms in the capital and bringing in £4.5bn for the nation’s coffers, with many thousands more across the country. And the numbers are growing.

Charles Ejogo set up Umbrolly three years ago after being made redundant at Merrill Lynch. With a company worth £1m and umbrella-vending machines in 400 shopping centres and train stations, he says the refusal of banks to lend to him only spurred him on.

“If you go down the traditional routes, there is discrimination,” says the entrepreneur. The banks will probably turn you down. But part of being an entrepreneur is being able to adapt. If the idea is good and strong, there are people out there who will invest.”

Lack of support

When Khanye Molomo started her writing business, she approached her uncle for guidance. He was in a completely different industry and owns a brick-and-mortar business, but she turned to him because he’s the closest relative she had who’s a business owner. She needed advice on a lot of things – budgeting, marketing strategies, how to position yourself to attract ideal projects, and so much more. He helped her prepare for the challenges he experienced that she had no idea were coming.

Unfortunately, many black business owners don’t have access to mentors. The main reason? Not nearly as many black people, on average, have successful entrepreneurs within their families or social circles.

You might ask yourself what the actual value of a mentor is in this day and age. With so much information at our fingertips, can’t you just Google the information you need?

Well, of course, you can. But research reveals that mentoring has a significant impact on small business success. Mentors help you expand your network. They help you reach markets that can be difficult to access. They can also share with you lessons from their experiences, which is hard to come by, even from some of the best business books.

Without proper financing, it’s difficult to get the employees you need, to advertise yourself, and to purchase the equipment and materials you need to start making your art on a larger scale. Black artists, designers, and other creatives start their businesses on lower funding in part because of these socioeconomic barriers, and this has an adverse effect on how they can grow their companies.

Moral support is something usually taken lightly but it is of higher importance. You’re 90% destined to fail if you don’t receive support from your partner and family. You need that support in order to keep pushing, it is already very difficult enough going through the huddles with strangers. But family and friends must be at your side

Lack of Unity

Unlike other communities, the black community don’t have the habit of buying from our own and the challenge is often higher when we try to reach other communities.

All the factors described above can have an impact on the pricing of some of the products. On the other hand, you have customers expecting the price to be cheaper because without taking into consideration the production costs. This leads into black business owners going extra-mile to try to satisfy the customers by writing personal cards, giving free items or giving out discounts. 

Until we accomplish the goal which is to give equal opportunity to black-owned business, we will never leave this vicious cycle of the problems we are facing in our community. 

Despite these challenges, we’ve seen a significant increase in the number of black entrepreneurs over the past few years, in particular, black female entrepreneurs. Black women have become so invested in starting their own businesses that they’ve surpassed the number of black male entrepreneurs, making them the only ethnic group that has more female business owners than their male counterparts.

The origin of all the challenges faced by black-owned businesses came from Racism and Discrimination. It has been in the spotlight for many years but never tackled. We do talk about it for a few months, then it goes quiet for years until an event brings it back to the spotlight. 

To solve this problem, we need to Unite. No one on their own can solve this issue because we don’t have enough power, we don’t own banks, we are not proportionally represented in the political spectrum.

References:

– Molomo, K (18 February 2020) The Unique Challenges Faced By Black Business Owners, Available at: https://blog.bigcartel.com/the-unique-challenges-faced-by-black-business-owners (Accessed: 03 August 2020).

– Collins, E (19 June 2020) Black businesses are in crisis, Available at: https://sifted.eu/articles/black-business-crisis-uk/ (Accessed: 03 August 2020)

– Smith, L (15 May 2006) Black entrepreneurs break through the red line, Available at: https://www.theguardian.com/money/2006/may/15/discriminationatwork.discrimination (Accessed: 03 August 2020).

One thought on “Challenges and Barriers faced by black-owned businesses.

  • AJ Aromatics05/08/2020 at 15:28

    I make candles and sell them on artisan markets. My problem is that I’m the only black woman who sells amongst loads of white owned candle business and I feel the jealousy and probably racism that comes with owning your own company in a white dominated candle industry. I find this a challenge but I try not to think about it and go sell my candles. Thanks for the article.

    Reply

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