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November 29, 2023

Report says business owners of color are facing brunt of financing shortfalls

A large office building with a stone facade Image | Courtesy of Google Maps 75 Arlington St. in Boston, the site of the Boston Foundation

Small businesses grappled with a greater rate of financing shortfalls last year compared to before the onset of the pandemic, but the lack of funding was more acutely observed among minority-owned businesses and particularly Black-owned businesses, according to an updated analysis from the Boston Foundation.

The unmet demand for financing, such as loans, among Massachusetts small businesses owned by people of color grew by about 5 percent from 2019 to 2022, from $574 million to $603 million, said Matthew Brewster, principal at P2 Advisors LLC. He co-authored a report in 2021 about the capital gap for entrepreneurs of color, as well as racial disparities underlying their access to funding.

The latest capital gap reflects the rate at which businesses apply for money, how much they're seeking and their outcomes, including the rate they are denied or how much funding they ultimately secure, Brewster said at a forum Tuesday.

"Entrepreneurs of color continue to have huge unmet demand to both finance and to start and grow their businesses -- the gap persists," M. Lee Pelton, president and CEO of the Boston Foundation, said as he also stressed the importance of business ownership and economic growth in communities of color. Black and Latinx households with business owners have a net worth that is five times greater than those without business owners, Pelton said.

Reggie Williams, director of small business at the Dorchester Bay Economic Development Corporation, said the capital gap can be addressed by rethinking risk management among lenders, considering untapped business potential, building trust in communities and repairing historic disparities.

"What is the risk we take by not investing in these small businesses?" Williams asked.

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