According to the Small Business Credit Survey, as of 2021, there are 161,031 Black-owned businesses in the US. These businesses employed over 1.4 million people and generated about $206.1 billion in revenue
Marshawn Wolley, a Black business owner in Indianapolis, clearly remembers his early years as an entrepreneur providing consulting services to minority-owned businesses. What started as a part-time endeavor grew into a full-time one. When a bank employee encouraged him to apply for a business credit card, he was hopeful about accessing additional credit. But the experience of applying for credit left him with no credit card, many questions, and few answers.
“I always paid my bills on time, had good credit, and earned a high, steady income, but I was denied by two banks that I had a relationship with for a business credit card without an appropriate explanation.”
Marshawn Wolley, President and Chief Executive Officer at Black Onyx Management Tweet
A third bank Wolley had an account with increased his credit line without his asking, because they saw he had applied for credit at these two banks.
“I was confused,” Wolley recalled.
Access to credit is crucial for small businesses. It can make a difference between a business’s success and failure. The criteria for approving or denying credit involves many factors. But according to Wolley, experiences like these for Black business owners can discourage entrepreneurs from pursuing credit and taking on debt.
The importance of credit for small business growth and expansion
Each year for the past decade, the Federal Reserve has conducted the Small Business Credit Survey (SBCS). The SBCS captures the perspectives of business owners from across the United States who operate firms with fewer than 500 employees. Reports and analyses produced from the survey responses provide insights into firms’ financing and debt needs and their experiences seeking credit.
According to the recently published 2024 Report on Employer Firms: Findings from the 2023 SBCS, the share of firms that applied for loans, lines of credit, or merchant cash advances declined 3 percentage points between 2022 and 2023, falling from 40% to 37%. Approvals remained mostly steady, and applicants at small banks, credit unions, and finance companies were more likely to be approved for at least some financing than applicants at other sources.
While many businesses use credit to help afford day-to-day expenses, many also reported using financing to grow. Nearly 60 percent reported seeking credit in 2023 to meet operating expenses. Forty-six percent of businesses that applied said that they did so to expand their business, while 41% said they wanted credit for future use as needed. More than half of firms sought some type of financing in the 12 months prior to the survey. Firms most often applied for financing to meet operating expenses.