Black-owned Businesses: Worth the Risk, Diversify Your Investment Portfolio

Black-owned businesses play a central role in economic justice and community resilience. They create jobs, circulate income locally, preserve cultural goods and services, and offer pathways to asset building and intergenerational wealth for communities historically excluded from full economic opportunity. Yet despite these benefits, Black-owned firms are on average smaller and earn less revenue than their peers because of persistent structural barriers. Understanding their impacts, the obstacles to scaling, and what works to address those obstacles helps guide effective support.

Why They Matter

• Economic and job impacts: Black-owned firms hire locally and generate multiplier effects in underserved neighborhoods, strengthening local economies and employment opportunities.
• Wealth and mobility: Entrepreneurship enables asset accumulation and equity ownership—key drivers of intergenerational wealth—though Black firms often fail to scale to the valuations needed to close wealth gaps.
• Cultural and market value: These businesses provide culturally specific goods and services overlooked by mainstream markets, broaden consumer choice, and contribute to a more diverse and innovative marketplace.
• Civic influence and social capital: Business ownership increases community influence over procurement, policy, and investment and often fosters mentorship and local reinvestment that build social cohesion.

Key Barriers to Scaling

• Capital and credit gaps: Studies repeatedly show Black entrepreneurs are more likely to be denied loans, receive smaller or higher-cost financing, and face limited access to equity and venture capital. Lower household wealth and homeownership constrain collateral options.
• Investor and market bias: Venture capital and growth funding disproportionately flow to founders outside many Black entrepreneurs’ networks and sectors.
• Sector concentration and firm size: Overrepresentation in low-margin, service-oriented, local sectors reduces scaling potential.
• Limited networks and procurement access: Fewer connections to buyers, mentors, and procurement pipelines hinder customer acquisition and contract opportunities.
• Capacity and structural constraints: Gaps in technical assistance (financial management, digital skills), discriminatory policies (zoning, redlining), and higher exposure to economic shocks (e.g., unequal PPP access during COVID-19) further limit growth.

Evidence-based Interventions

• Targeted capital: CDFIs, MDIs, specialized funds, and targeted grants improve survival and growth when sustained.
• Anchor procurement and supplier diversity: Steady contracts from governments, institutions, and corporations are among the most powerful levers for scaling.
• Bundled support: Combining financing with technical assistance—accounting, marketing, digital adoption, and management coaching—yields better outcomes than capital alone.
• Inclusive accelerators and networks: Programs that connect founders to investors, sector-specific mentors, and peer cohorts improve fundraising and growth metrics.
• Underwriting reform and policy levers: Alternative credit data, stronger anti-discrimination enforcement, tax incentives, and support for community financial institutions help reduce systemic barriers.

Limitations and Next Steps

Evidence shows promising short-term impacts from many interventions, but fewer long-term randomized evaluations of sustained scaling exist. Local context matters: effectiveness varies by region, industry mix, and ecosystem maturity. Data gaps also persist, especially around very small, informal, or multi-owner firms.

How to Support

Buy regularly from Black-owned businesses, recommend them to your network, hire them as vendors, invest or refer capital (including to CDFIs), offer pro bono professional services, and advocate for supplier diversity and policies that expand access to capital and procurement.

Supporting Black-owned businesses is both a practical investment in stronger local economies and a step toward narrowing racial economic disparities.