4 Ways to Improve Access to Capital for Minority-Owned Businesses

Adequate financing is essential for starting and running a business, but American entrepreneurs don’t have equal access to capital. Lack of funding opportunities has been an ongoing issue and barrier for many minority-owned businesses, and these disparities have been especially highlighted throughout the COVID-19 pandemic.

As the U.S. continues to support its small business communities, here’s how the government can work to improve access to capital for minority-owned businesses and ensure greater equality of opportunity for all entrepreneurs.

America Must Place Equity at the Forefront

According to Carmen West, senior business development specialist at the Minority Business Development Agency (MBDA), the MBDA is “the only federal agency that's designed to grow and expand ethical businesses.”

“There’s been no legislation impacting ethnic-owned businesses since the ‘60s,” said West. “As you know, this business segment has evolved tremendously. Codifying this agency really puts equity at the forefront, as the president promised when he came into office.”

“We're creating a platform for us to have better engagement, working with the National Bankers Association, working with the Opportunity Finance Network, and working with the African-American CFI Alliance to ensure that all of the lending options are coordinated in a way so that they can actually touch these businesses,” she continued.

According to West, MBDA calls these efforts the “eco scope,” or their way of working with partners to collectively support minority-owned businesses.

Minority Entrepreneurs Must Develop Established Banking Relationships

Many businesses have access to capital but lack established relationships with banks.

“Lack of access to capital is certainly an important issue, but what we learned during PPP is the importance of having an established banking relationship,” said Nicole A. Elam, Esq., president and CEO of National Bankers Association. “Right now, we are seeing so many programs, both private sector and public sector, that are pushing capital out to small businesses, particularly minority-owned small businesses, but what's missing is … that banking relationship as we saw in PPP.”

She added that those who had an established banking relationship knew about PPP and got the assistance they needed to apply for it — which was half the battle for those who lacked that relationship.

“What’s important is that people have these relationships, not just when they need them, but before they need them, so that they can learn about all of these federal, … state, [and] local programs, [and] these private programs that are out there, [so] they have what they need in order to get capital-ready to receive those funds,” Elam said.

Chambers of Commerce Must Continue Providing Assistance and Support to Minority-Owned Small Businesses

Chambers of Commerce provide great assistance to minority-owned small businesses via different grant and investment programs. However, they should continue focusing on supporting such businesses by actually investing in them, as well as helping to remove barriers that keep them stagnant.

“There are so many barriers,” said Elam. “When you think about the Small Business Administration program, for example, they only have about 3% of African-American borrowers who are participating in their flagship programs … because there are so many barriers to participation.”

Minority Business Owners Should Understand Their Business’s Specific Financial Needs

When taking actionable steps to secure the right tools, resources, and organizations available to them, Mikal Quarles, executive director of Minority Entrepreneurs for Chase for Business, recommended business owners really know their business before seeking capital.

“Understand your business’s numbers, your direction, and what it is you're looking to accomplish,” he said. “So, if it's a need for capital … you should understand that based on what [your] business’s operations are today, here's the gap that [you] needed to solve for, and this is how access to capital helps [you] to solve for that.”

Additionally, you should identify the optimal dollar amount you believe would help you to address those gaps in your business.

“The access to capital starts before the demand for capital or need for capital,” Quarles said.