Does Micro-Lending Offer Unique Access To Capital For Black Entrepreneurs?

April 6, 2015 in Featured, Hot Business Tips, In the news, Uncategorized by admin

Micro-Lending Offers Unique Access To Capital For Black Entrepreneurs

April V. Taylor

As economists tout the fact that U.S. economy has experienced 58 consecutive months of job growth since the end of 2014, Black people are being left out of this supposed economic recovery. For those who do have jobs, the slow and stagnant wage growth continues to decimate the finances of Black families in terms of income and wealth accumulation.

The unemployment rate for Black men consistently remains twice that of white men, as it has since the 1940s. Adding insult to injury, the economic chasm between Black and white Americans has not budged in the last 50 years. As Washington Post columnist Zachary Goldfarb points out, “Many of the most overt forms of racial discrimination and bias have faded coincidentally, the same year that Martin Luther King Jr. led The March On Washington for Jobs and Freedom.

Black entrepreneurs are on the rise as individuals and households search for ways to be more in control of their own financial stability in terms of income generation and wealth accumulation.  As more and more Black people start businesses, the racial wealth gap that sees Black households have a median income of $15,500 compared to $130,600 for white families and the fact that Black entrepreneurs can only provide one-twelfth of the necessary collateral to start their own businesses means that many Black entrepreneurs use high interest financing tools like credit cards and personal loans to bridge the capital development gap.

Black entrepreneurs must educate themselves about alternative options, especially considering that the Minority Business Development Agency found that minority-owned businesses are less likely to receive loans than non-minority owned firms, especially when a business has gross receipts that amount to less than $500,000. In 1992, The Small Business Administration established the Microloan program to increase the availability of very small loans to small business borrowers. The average amount of such loans is around $13,000, ranging from $500 to $50,000. The loans are made available to entrepreneurs through some 200 nationwide nonprofit community based organizations that serve as intermediaries.

Since the 1970s, micro-financers have lent approximately $300 million to tens of thousands of U.S. businesses and entrepreneurs to start businesses that include day care centers, restaurants, home cleaning services, landscapers, and hair salons. There are more than 22 million self-employed micro-entrepreneurs in the country, meaning they own small businesses that have five or fewer employees and require $35,000 or less in capital. More than half of of these self-employed micro-entrepreneurs lacks the access to financial services they need. One in four smaller businesses, who have one to five employees, cite capital as the main problem they contend with. This is reflected in the fact that the National Small Business Association (NSBA) reports that only 59 percent of small businesses are able to obtain adequate financing.

The truth of the matter is that big banks don’t like making small loans because loans less than $50,000 are generally not profitable for big banks. The fact that the majority of Black owned businesses are microenterprises means that Black entrepreneurs could make significant gains my accessing microloans. One of the unique benefits of micro-finance institutions is that in addition to providing capital, they also oftentimes provide business development services that include credit counseling, business incubation, tax preparation and one-one-one training.

While micro-businesses may not produce full time self-employment for entrepreneurs,they do provide residual income that can provide more stability, savings and potential asset development. They often give Black families “wiggle room” to entertain investment options and create an economic future that gives them the opportunity to do more than just stay afloat. In addition to the short term impact of income generation, micro enterprises provide a wealth building tool for Black entrepreneurs that provides the long term impact of creating inter-generational wealth.

When preparing to apply for a micro-loan, be sure to have a business plan; make sure you can make the required monthly payments; stick to micro-lenders in your geographic area; and show a readiness to invest some of your own money into the start up of your micro-enterprise. A full list of microloan providers is  available through the Small Business Administration.

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