Last June, the Q2 Wells Fargo/Gallup Small Business Index survey showed relatively high optimism among Black and African American small business owners, with 7 out of 10 saying their current financial situation was somewhat or very good. However, another statistic in the survey highlighted an issue that has continued to challenge Black and African American business owners and other diverse business owners in general: more than one third or 35% of Black and African American business owners said they had some level of difficulty accessing credit.
As we celebrate Black History Month, it is as important as ever to acknowledge this ongoing challenge faced by the Black and African American business community and consider solutions to help shift the landscape for better equity and prosperity.
Assessing the problem
According to the National Bureau of Economic Research, Black-owned small businesses are closing at nearly twice the rate of the industry placing a spotlight on the lack of access to credit.
The first step in solving any problem is acknowledging it exists. These businesses are often smaller in terms of number of employees, payroll and startup capital, and they may not have established banking relationships. These factors make them much more susceptible to economic downturns and challenges as they stage a comeback.
Creating an ecosystem of support
Making more credit options available to diverse business owners can be the difference between a business’ survival and its closure. In addition to traditional lending, working with Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) can create an ecosystem of support that provides additional avenues to access capital. These institutions specifically work with underserved populations, including those in low-to-moderate income areas and minority populations.
Supporting these organizations and their mission is at the heart of the creation of our Open for Business Fund (OBF), Wells Fargo’s industry-leading effort that has donated roughly $400 million to support nonprofits who serve small businesses.
The OBF provided additional capital for these institutions to continue their important work in supporting diverse business owners. As the larger financial industry continues to work toward solutions to tackle inequity in access to capital, these organizations are critical to bridging the access gap to help smaller and diverse-owned businesses achieve their goals.
Beyond accessing capital
As our work continues toward solving the issue of access to capital, it is also important to highlight the additional challenges outside of (but related to) accessing capital that must be tackled for these businesses to truly thrive. In addition to accessing capital, training, technical support, and long-term resiliency planning are needed to help diverse small business owners find ways to pivot their business models and reimagine their products and services so they can meet the needs of an evolving economy. These actions, coupled with more equitable access to capital can accelerate the recovery of the wider small business ecosystem, creating numerous pathways for entrepreneurs to seek the help they need.
The path forward
As we look ahead, there’s very little about the future that seems predictable right now. As we move forward, let’s start with the things that can be controlled, such as putting customers first, being a community leader, and understanding the most effective tools and resources to establish good banking relationships. While success is not guaranteed, taking these steps will help to move us in the right direction.
Wells Fargo is committed to improving access to credit for Black and African American business owners, which can be accomplished through effective partnerships and holistic solutions. By working together, communities, financial institutions and business owners can continue to move toward a more equitable landscape where business owners can thrive and prosper.
Don Pearson is the Wells Fargo Lead Region President