As Black Entrepreneurship Grew, the Value Gap With White-Owned Businesses Widened

The vast majority of new businesses created from 2007 to 2012—both white- and minority-owned—weren’t, say, small storefronts, but rather had no paid employees. 

MARK LENNIHAN/ASSOCIATED PRESS

African-Americans were more likely to open a new business in the years during and after the recession than white entrepreneurs. But the white-owned businesses were generally much more successful, according to a new report from the Corporation for Enterprise Development.

While the racial gap in business ownership narrowed between 2007 and 2012, the gap in the value of those businesses widened considerably, the group said in its annual Assets and Opportunity Scorecard, released today.

Business ownership rates among American-Americans increased to 16% in 2012, from 13% in 2007, an increase of almost two million new businesses. During the same time, the number of white-owned businesses declined by more than one million firms.

The vast majority of those businesses—both white- and minority-owned—had no paid employees. That suggests that black workers were more likely to turn to self-employment when times were tough, but white business owners found better jobs elsewhere, said Kasey Wiedrich, CFED’s director of applied research.

At the same time, the value of the average white-owned business—measured in sales, receipts or revenue—went up much faster, and is now three times the value of the average minority-owned business. Businesses owned by African-Americans were worth an average $224,530 in 2012, compared with $656,364 for the average white-owned business.

And the difference was even starker for women. In 2012, their businesses were worth $239,500 on average, versus $726,000 for men. While minority-owned businesses performed better on average in some states than white-owned businesses, the same was not true for women.

“Nowhere do women-owned businesses do better than men,” Ms. Wiedrich said. “I think it probably speaks to access to capital.”

While CFED’s scorecard has always included small-business data, this is the first time the data has been broken down by race. The report also draws on the latest Census Bureau survey of business owners, released in August, which comes out every five years. It offers an updated look at what happened to those businesses during and after the recession.

Consumer advocates and lawmakers have urged the Consumer Financial Protection Bureau to require lenders to provide better data about business loans, including the race, ethnicity, gender and income level of  borrowers. (The requirement was mandated by the 2010 Dodd-Frank law, but the bureau has yet to issue a proposal.)

They argue better information could help expand access to credit, in part by shining a light on which banks have the best track record of lending to women and minority business owners.

Related reading:

Better Small-Business Lending Data Could Tell Us a Lot About the Economy

Big Banks Cut Back on Loans to Small Business

Online Lenders Deluge Small Business

from Real Time Economics http://ift.tt/1njcEtE