African American business owners are on the rise. According to the Minority 2018 Small Business Trends survey, the number of black-owned small businesses in the U.S. increased by a staggering 400% in a year-over-year time period from 2017 to 2018.
The new survey, which was conducted by Guidant Financial and LendingClub, interviewed more than 2,600 business owners and aspiring entrepreneurs. It found that 45% of all small business in the country were owned by minority ethnic groups in 2018. This is a dramatic uptick from 2015 when the total percentage of minority business owners was 15%. The largest minority group of respondents were African American at 19%, followed by Hispanic at 14%, Asian at 8%, and Native American at 4%.
Of the African American small business owners surveyed, 63% identified as men and 38% as women. Most fell between the ages of 40 to 49 with 28%, while 25% were between 50 and 59 years old, and 22% are 30 to 39. The research also showed that the highest volume of African American entrepreneurs lives in Texas, followed by Georgia, California, Florida, and North Carolina.
David Nilssen, CEO of Guidant Financial, said in a statement that he is excited about the rise of minority small business owners around the nation. “Growth amongst all minorities including women is promising in America as small business ownership becomes more favorable and easier to attain. We anticipate and hope to see a continued increase as the impact of tax reform and economic growth shape small business ownership moving forward.”
WHY BLACK AMERICANS ARE STARTING BUSINESSES
Sixty-two percent of African Americans said their desire to pursue their passion motivated them to start a business. Another 53% said they were ready to be their own boss. Meanwhile, 30% said they launched a startup when the “opportunity presented itself” and 22% said they were dissatisfied with working in corporate America. Twelve percent said they launched a business after being laid off or outsourced.
THE CHALLENGES OF BLACK ENTREPRENEURSHIP
An overwhelming majority of black entrepreneurs surveyed, 80%, said lack of capital was the most challenging aspect of running a business. According to ProjectDiane, only 0.2% of all venture capital funding was allocated toward startups founded by black women in 2016, while just 34 black women business owners received more than million dollars of funding in the last year.
As a result, many African Americans are forced to fund their own business. In fact, 70% of those surveyed financed their companies using cash, while 23% received funding from friends and family. Eleven percent said they tapped into their 401(k) plans to fund their businesses.