While the COVID-19 pandemic was an especially challenging time for small businesses across the United States, researchers have noted a possible surge in new businesses during that time. This may have been the case particularly among people of color, as data from the US Census Bureau’s Current Population Survey suggest the number of incorporated, self-employed persons of color rose approximately 13% from January 2020.
This publication uses data from the 2022 Small Business Credit Survey (SBCS) to examine startup firms owned by people of color (that is, firms owned by people of color that launched in 2020 or later). Overall, startups of color tend to be smaller and in slightly worse financial condition than their white-owned counterparts, though startups—regardless of race or ethnicity of firm ownership—are generally on precarious financial footing. Still, a majority of startups of color expected to add employees in the year following the survey, suggesting many of these firms aim to scale up. Since most startups are not profitable, accessing external funding can be key to growth.
However, SBCS data show that startups of color are significantly less likely than white-owned startups to receive funding through financial institutions or lenders, despite being as likely—and, among nonemployers, more likely—to apply for financing from a lender. Startups of color are less likely than their white-owned counterparts to be fully approved for the financing they sought when they do apply.
For more SBCS findings on firms owned by people of color, see 2023 Firms in Focus: Chartbook on Firms by Race and Ethnicity of Ownership.