June 6, 2022
Main Street Monday – African-American Self Employment Rate is Half of White Self Employment Rate
“African-Americans are underrepresented among self-employed workers. When African-Americans own firms, they are less likely to have employees, operate with less financing, and are more likely to become discouraged enough to forego applying for loans,” writes the SBA Office of Advocacy in their newest report. “African-American Entrepreneurs: Contributions and Challenges”. “Despite the financial constraints African-American owned firms operate under, when they do receive financing, they consistently do more with less.”
Here are the facts:
• The self-employment rate of African-Americans is only half the rate of White self-employment, the gap narrowing only slightly since 1970.
• Whites are 2.5 times more likely than African-Americans to operate an incorporated business.
• There is an over 30% racial gap in earnings for both self-employed and employees.
• African-American-owned firms are 7% larger on average and 22% more likely to be in the top 5 percent of the employment distribution than White-owned firms.
• 34% of African-American owners of businesses with employees have an advanced degree compared to 23% of White owners, but 32% of White owners have prior business experience compared to 27% of African-American business owners.
• The share of African-American women-owned businesses (27%) is lower than the share for White women-owned businesses (38%).
• African-American owners of businesses tend to be younger than whites with 26% of owners being less than 46 years old compared to 20% of White owners. The rate of business owners aged 55 or older is 52% for White-owned businesses versus 32% of African-American-owned businesses.
• African-American business owners use personal assets (75%) and credit cards (20%) more frequently to fund their small businesses than 68% and 12% of White-led firms.
• Compared to 4% of White entrepreneurs, 15% of African-American entrepreneurs do not apply for credit because they expect to be rejected.
• The Office of Advocacy found that African-American small businesses are more likely to receive an SBA loan, but they receive smaller loans on average.
The Office of Advocacy believes that targeted finance programs for African-American firms would be more efficient in job creation than finance programs geared towards all firms, some of which may not need increased financial access. The Community Reinvestment Act is used as an example since it contributed to increased financing and employment for African-American firms compared to other firms (3-6% increase in employment for African-American recipients).