Small business is consistently among the most trusted institutions in the United States according to studies by Gallup and Edelman. However, another question to ask is who do small businesses trust and what challenges do they face. Finding the answers is important because when small business owners have trust in financial institutions, they are more likely to seek out and obtain the necessary funding to grow. This, in turn, leads to a more robust economy.
The findings of the “Trust & Access to Capital 2023” survey were released this week alongside the U.S. Minority Business Development Agency’s (MBDA) inaugural Diverse Business Forum on Capital Formation providing insight on these questions. The MBDA forum brought together leaders and experts representing capital providers, government, and communities to reflect on and identify solutions for capital access. The results of this survey are especially timely as it reflects the experience and attitudes of small business owners and entrepreneurs on MLK Boulevards, Cesar Chavez Ways, Chinatowns, and Main Streets across the United States.
More than 1,000 Black, Latino/a, Asian and Pacific Islander (AAPI), and white business owners participated in the survey, which was conducted by Reimagine Main Street, in partnership with the National Asian/Pacific Islander American Chamber of Commerce and Entrepreneurship, United States Hispanic Chamber of Commerce, and US Black Chambers Inc., with support from PayPal.
Here are five important takeaways from the survey.
1. Entrepreneurs, particularly diverse small business owners, face a precarious reality: The survey finds that a third of small business owners, including 58% of Black entrepreneurs and nearly 40% of Latino and AAPI entrepreneurs, worry they cannot handle a $5,000 unexpected expense. In addition, most respondents said that a lack of financing would be a barrier to pursuing a contract or purchase order.
2. Small business owners are open to sharing data: More than half (58%) of respondents expressed willingness to share digital access to their financial data when applying for financing. These results are especially notable because about two-thirds (67%) of respondents were over the age of 50. This willingness to share data holds promise for innovations developing customized and accessible financing options and creating alternatives to traditional credit scores, which can be biased against business owners of color.
3. Demand is high for small dollar financing: Of the business owners surveyed, 54% applied for credit last year. Of these, 85% were seeking less than $250,000 and 57% wanted to borrow less than $50,000. Underwriting small-dollar loans is economically challenging for lenders without a reliance on automation so this finding emphasizes the critical role digital financial services can play here.
4. Priorities vary by race and ethnicity: The survey found that Black business owners prioritized their confidence in application approval, while Latino business owners valued swift responses the most. Meanwhile, both AAPI and white business owners rated low rates or “good pricing” as their prime criterion when deciding where to seek financing.
5. Entrepreneurs trust their peers most for advice: Small business owners reported they are most likely to turn to fellow business owners for counsel and guidance, unsurprisingly preferring those with similar experiences. This often involves working with structured networks like chambers of commerce, industry organizations, or other related affinity groups.
Capital is the lifeblood of business, and this data offers critical insights into how we must help diverse businesses access it. Banks, Fintechs, and Community Development Financial Institutions need to commit to cooperation and innovation to meet the unique needs, preferences, and constraints of small businesses and entrepreneurs.
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