Successful Black Entrepreneurs

6Access to Capital for Black Entrepreneurs

ONE OF THE major differences between Black and White entrepreneurs is access to capital. Whether the capital is for start-ups, acquisitions, or growth, there is a major inequity that favors White entrepreneurs. Voluminous empirical research from scholars at renowned universities as diverse as Duke University, Stanford University, Brigham Young University, Rutgers University, and Utah State University show that the primary reason for this disparity is anti-Black racism. The narrative surrounding the inability of Black entrepreneurs to procure only a fraction of the capital available to White entrepreneurs applies to equity and/or debt capital.

In a thumbnail, money given to an entrepreneur in the form of a loan is debt capital. The dollars lent is the principal, and the interest charges against that principal is the cost of the capital. Financial institutions like banks typically want to see that the business has a minimal monthly cash flow to debt obligation ratio of 1.25 to 1. This is called the debt coverage ratio. Simply speaking, they want the business to generate at least $1.25 in net profit for every dollar of debt (principal and interest) due each month. For example, if a loan was requested that had a payment of $7,000 per month, the lender expects minimum profit of $8,750 per month, in order for the entrepreneur to qualify for the loan. The ratio looks as follows:

While a valid component of the underwriting process for loan ...