Boosting Wealth Growth for Black & Hispanic Business Owners
Research report: "Strengthening the Links between Business Ownership and Wealth Building for Black and Hispanic Entrepreneurs"
May 2, 2023
Business ownership can be transformative for Black and Hispanic communities, offering the potential to build wealth for owners and their communities and narrow the racial wealth gap. This study, conducted by Boston Consulting Group and the Capital One Insights Center, sheds new light on what it would take to boost wealth growth for Black and Hispanic entrepreneurs, with a deep dive into businesses and the business ecosystem in Richmond, Virginia.
- Successful businesses have shown that it is possible to unlock wealth under the right conditions: About 35% of Black & Hispanic business owners in Richmond saw $188,000 in personal wealth growth over the course of their business ownership, achieving parity with the median wealth for white households in the US.
- Even when personal wealth did not increase, these businesses brought jobs to the community, enhanced neighborhoods, and provided essential goods and services.
- But wealth growth is not a guarantee: From 2017/18 to 2022, Black and Hispanic business owners in Richmond grew their wealth by roughly half that of Black and Hispanic residents who did not own a business.
Also, Black and Hispanic business owners gained just 25% of the wealth that non-Black and non-Hispanic business owners gained, while the racial wealth gap for non-business owners stayed the same. This suggests that business ownership widened the wealth gap–at least during this five-year period that included a global pandemic.
Drivers of success
Our research suggests that the following conditions can boost the wealth-generating potential of business ownership:
- Initial funding: Access to capital is critical. Black and Hispanic business owners who received all the start-up funding they requested generated three times more wealth than their peers who received only part of the funding they requested.
- Growth funding: But starting a business is just the first step; businesses also need growth funding to scale up. Black and Hispanic businesses that received growth funding grew their wealth by 45% more than those who did not. But we found that only 40% of Richmond’s Black and Hispanic business owners received growth funding, and the funding they received was about half the amount received by non-Black/non-Hispanic business owners.
- Capabilities and expertise: Black and Hispanic businesses in Richmond often found it difficult to hire or access the skill sets they needed, gain access to markets and networks for revenue opportunities, and develop their internal infrastructure to support growth.
- A coordinated business ecosystem: Local and virtual players in the business ecosystem can provide technical assistance, connections to business networks, and access to capital and other resources. But they must have sufficient resources to ease navigation, improve coordination and collaborate effectively.
The public and private sector can help ensure equitable access to resources and empower Black and Hispanic business owners to succeed.
- Access to capital: Continue exploring innovative methods for increasing access to capital, including partnerships and financing mechanisms that allow for greater customization of products and services.
- Greater program take-up: Increase awareness of, access to, and engagement in public and private programs that support small business incubation and growth.
- Training and tools: Level the playing field and ensure that all small business owners are well prepared to seek funding by providing them with financial management, coaching, and digital tools that streamline business documentation.
- Community supports: Strengthen the community organizations that support small businesses so they can offer more tailored forms of business support and can maximize the impact of their limited resources through better coordination and collaboration.
- Stronger relationships: Continue building trust between funders and communities of color through transparency and engagement.