Underfunded: The Problem With Black Startups And Securing Funding

If you read or watch an interview featuring a Black founder or CEO where they discuss the growth of their businesses, you’ll quickly identify the common thread in all of their experiences. And that’s how difficult it is to access and secure capital funding compared to their white peers. As a result, Black startups are forced to think outside the box to secure financing because, without the help of financial institutions and investors, Black entrepreneurs can’t get their businesses off the ground.

Now more than ever, as the country continues to wage its war against the pandemic, it’s essential that banks and other financial institutions step up and fix this overwhelming problem that many Black entrepreneurs face. But how? William Towns, the managing director of 4 S Bay Partners, LLC’s private equity fund that targets BIPOC businesses, has a couple of ideas:

Banks and Investors Need to Redefine Credit Worthiness

The racist belief that Black people are high-risk candidates for loans has long plagued our country. According to Forbes, Black entrepreneurs are less likely to even apply for loans out of fear of rejection. Instead, Black companies rely more on personal savings and funding from friends and family. This should not be the case. Financial institutions need to rethink how they approach creditworthiness and evaluate an applicant’s credit and payment history vs. credit limits and credit scores.

Financial Institutions Need to Diversify Their Board of Directors
The board members of private equity firms, banks, angel investors, and venture capital funds tend to lack BIPOC and female leaders. To understand the unique experiences and challenges that Black entrepreneurs face, there needs to be someone on the board that looks like them. Leaders need to step up and recruit more minorities to sit on the board and be unafraid to call out gatekeeping and discrimination when they see it.

Much needs to happen for Black businesses to grow and receive the same funding as white businesses. However, the longer it takes for change to happen, the more Black-owned companies we continue to lose in the process.