Responding to the Changing Demographics of Business Ownership

The 19th-century Industrial Revolution significantly transformed economics and business and influenced many societal structures. Technological advancements led to increased agricultural and manufacturing productivity. This changed the nature of work and ultimately had a significant social impact. Now, rather than a technological revolution, businesses are experiencing a change in ownership demographics. As business ownership continues to become more diverse, the best community financial institutions (CFIs) will shape their products and services to meet evolving needs.Demographic business ownership gaps have been shrinking over the past few years, with historically underrepresented groups, such as Black and Hispanic families, and women, significantly increasing their share of business equity and ownership.  Businesses owned by minorities often face a myriad of challenges, such as systemic barriers in banking and limited resources and access to capital. However, they can be instrumental in creating jobs, providing key services, representing their cultural heritage, and improving a community’s resilience. Ultimately, these businesses can help reduce wealth gaps and improve a community’s economic prospects. CFIs have an important part to play in supporting and empowering these businesses to not just survive but thrive. Reducing Barriers to Startup and Growth CapitalResearch has shown that there are significant differences in the growth trajectories of small businesses based on the demographics of their leaders. Black-, Hispanic-, and women-owned firms were least likely to earn $1MM in revenue within five years of starting business. What’s more, Black and Hispanic owners are significantly less likely to be approved for loans than their white counterparts. Research from Goldman Sachs’ “10,000 Small Business Voices” survey highlights how even if underrepresented demographic groups do secure capital, it is often at higher rates and with challenging repayment terms. For instance, despite 44% of black small business owners applying for credit — higher than the national average of 35% — a disproportionate 32% walk away with the full amount they ask for, versus 40% nationally.CFIs can help reduce barriers to capital by:

Engaging with Local Communities To understand their specific business needs and how they may best be able to support minority-owned business leaders, you may also want to collaborate with these individuals, local community organizations, and community leaders. This could be through partnerships, investments, or other means. You can also support these leaders by providing them with networking and business development opportunities. New businesses can benefit from learning from other established minority-owned businesses and can use networking opportunities to build relationships with local business advisers, coaches, and service providers, among others.Partnering with other organizations that support and advise minority-owned businesses, startups, and businesses that may not meet the requirements for traditional financing may also be of benefit to some institutions. Finally, investing in minority-owned funds or organizations that provide grants and other financial resources for minority-owned businesses can be a key step in supporting and widening financial inclusion.As the world of business changes, you should consider how your institution can meet the diverse needs of the communities it serves in order to maximize the opportunities available, increase their social impact, and support the local economy. Developing financial products, services, and educational programs to help minority business owners ultimately benefits everyone involved: CFIs, their customers, and their communities.