Why do Black Businesses Fail: Struggles of Black Businesses

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It’s not easy for any business to succeed. However, black business owners have continuously faced unique challenges. According to a report, eight out of ten black-owned businesses don’t live to their 18th month. Similarly, globally, 20% of start-ups don’t see to the end of their first year. 50% of those who survive don’t live to celebrate their fifth birthday. 

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Why do black businesses fail at such high rates?

For decades it has been a tall order to start a black-owned business and stay afloat. With the global pandemic, this became tougher. Their business performance declined almost twice that of white-owned and other minority groups’ businesses.

Struggles That Cause Black Businesses Fail

Lack of Adequate Funding

Why do Black Businesses Fail: Struggles of Black Businesses

Counting money with hands. Image source: Wikimedia by Mustafa Özdemir Licenced by: CC PD MARK

Every business must have adequate funds for the smooth running of its operations. Black business owners have three main funding challenges:

  • Some don’t have adequate information on how they can apply for capital
  • Many don’t have a relationship with any lender or have weaker ties with banks
  • Others don’t know where they can seek funding or apply for capital

In 2019, New York Fed surveyed that 1 in 10 Black nonemployer businesses had a recent relationship with the bank compared to 1 in 4 white-owned non-employer businesses. Additionally, less than 47% of African-Americans entrepreneurs get their finance applications approved. Black applicants are denied at a higher rate. For black startups, the denial rate is much higher. The collateral required is not available to most applicants.

People Also Read: Racial Disparities in Banking

This makes most Black people concentrate on industries that are not capital-intensive.

A significant source of white business funding is generational wealth. However, the same scenario is not seen in the black community. Federal Bank of St. Loius reported that in 2022, A black family held $0.25 compared to $1.00 held by a white family. 

The wealth gap between the two communities is huge. Blacks start their businesses with unequal footing, thus causing economic inequality.

Lack of Clients

empty seats in a restaurant

Empty seats in a restaurant. By Mateus 2019. Image Source: Wikimedia Licenced Under CC By S.A 3.0  

Black people are hard-working. They know where to set up their business targeting their customers. However, even with all the planning, customers don’t buy from them.

Why?

A major reason is racism. The history of Black entrepreneurship in America is long but is fueled by racism and violence.

A newly released report by Intuit Quick Books showed that besides dealing with the pressures of any business, black entrepreneurs navigate through racism and biases to thrive in their businesses.

The report stated that 79% of Black entrepreneurs had experienced racism from their customers. Also, 48% said they had had a racist interaction with a client at least once in the previous year.

This challenge was slightly addressed after the death of George Floyd. Some Black business owners reported clients to have increased to show they stood in solidarity with the Black community. Black-owned business directory apps download increased by 44%. The sales upscaling in most black businesses were for a short period, but this has been the trend for other businesses.

Lack of Family Background in Business Operations

Most children learn by copying. How a child is raised impacts their future career choice. It’s known that parents who are entrepreneurs easily influence their children’s business endeavors. A non-business parent can only encourage those behavior traits in their children.

A child raised by entrepreneurs ai twice likely to be a business owner than parents whose parents are not entrepreneurs.

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mother elephant with her kid

Mother elephant with a kid. Image by KKPCW. Image source Wikimedia. Licenced by CC SA 

Parents influence their children by steering a certain developmental path. This path is based on apparent observation or preference of their child’s ability. Such include: 

  • Enrolling them in a certain class
  • Introducing them to certain practices and lessons
  • Exposing them to certain places or persons

The above is maintained by praise and encouragement. Besides, they offer resources such as equipment, books, tutors, etc. Such parents also mediate the pathways, and this helps their children understand what is before them. 

Black Americans in the past were successful entrepreneurs. But, a white gang attacked Greenwood in Oklahoma,  one of the leading cities with thriving black-owned businesses. The entire city was bombed, and everything they owned was no more. This disproportionately affected Black businesses.

The authorities squashed their efforts to bounce back. 

With no one in their families to look up to, many black people lack the enthusiasm to open their businesses. 

People Also Read: How to Access Capital as a Black Entrepreneur

Lack of Proper Plan

Material-to-help-write-business-plan

Items to include in a business plan. Image Source: Creatives Common. By Plantoo47. Licenced under CC by SA 2.0

Most people had their lives planned while they were young. The plan was to go to school, get good grades and secure a good-paying job in a big company.

What happens when this doesn’t come to be? Whatever comes our way is good for us. This makes people open carbon-copied-business-ideas. Most black people open businesses because someone opened the same and did well. They fail to identify tier reason for doing the business. The main reason is to quench their thirst for making quick cash. Within a short period, such business is buried. 

Failure to increase their knowledge and do more research on their businesses leaves them with redundant ideas. Businesspeople can’t thrive because they have a good idea; they need to learn their markets and products.

People Also Read: How to Support Black Businesses as a Business Owner

Final Thoughts

Violence and biases have played a vital role in slowing down the efforts of Black Americans to launch and run their businesses successfully. 

Could the 1921 historic bombing of successful businesses in Oklahoma that left many black families destitute be a source of a struggling black community? The oppression and lack of necessary resources crippled their efforts.  But they have fought to dismantle the systems of oppression coming their way.

After the Corona pandemic, more businesses are closing down. Most minority owners believe their business can only last one year or so under the current conditions. 

It’s not easy to pinpoint the actual solution to the above challenges. Resources need to be redistributed for equality. Financial institutions, non-profits, and corporations should be more intentional with black business owners. 

People Also Read: 12 Black Leaders in Tech You Should Know

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