In conjunction with Accion’s Center for Financial Inclusion, Accion Opportunity Fund (AOF) is pleased to publish Global Perspectives: A Comparative Study of Small Business Financing in Ghana, Kenya, and Black Entrepreneurship in the United States with the organization’s inaugural HBCU Research Fellow, Jaquetta Graham, PhD, leading the research.  Under the mentorship of AOF’s Vice President of Research and Policy, Dr. Joshua L. Miller, Dr. Graham adds to a growing body of research calling attention to the ways in which the United States can look to African nations to better serve its Black entrepreneurs and expand access to capital. At the forefront of financial and mobile technology, Ghana and Kenya serve as prime examples to study.  Dr. Graham and Dr. Miller sought to answer questions regarding capital access challenges faced by Ghanaian and Kenyan entrepreneurs, the impact of alternative and digital financing products, and potential comparison and application to the experiences of Black entrepreneurs in the United States. Key Findings 

• Formal financing, or financing from banks and traditional lenders, remains out of reach for many Ghanaian and Kenyan entrepreneurs with half or more entrepreneurs in the study refraining from applying for traditional financing options. Focus group participants reported being denied capital due to insufficient revenue or collateral, offered unfavorable repayment terms, or rejected due to inadequate documentation.
• Women entrepreneurs in Ghana and Kenya, who already struggle with higher rates of rejection due to owning smaller businesses in more competitive, low-margin industries than men, reported additional obstacles in balancing their home and business obligations and accessing mentors who could adapt to their schedules. 
• The plethora of alternative financing options in Ghana and Kenya, like mobile financing, factoring or merchant cash advance (MCA) products, and informal savings groups, helps to alleviate the lack of access to traditional financing. However, these options are associated with risks like obscure fees and terms, high cost of repayment, or theft. 
• Likewise, Black entrepreneurs in the United States face difficulties in accessing capital. Only 14% of Black-owned small businesses receive the entirety of the funding they requested, according to the Federal Reserve. Black female entrepreneurs in the United States also struggle with accessing mentors who could relate to their own struggles. 

Given these similarities, there is much to glean from the experiences of Ghanaian and Kenyan entrepreneurs that can be applied in the United States. As capital access remains the biggest obstacle for Black entrepreneurs in starting and growing their businesses, AOF offers the following recommendations for American policymakers, service providers, and other relevant stakeholders.  Recommendations 

• While speed and innovation are key to expanding access to capital—particularly among mobile apps and services—new products and technologies must be fair and transparent in their terms and pricing. Policymakers and regulators should encourage the private sector to innovate new products while also requiring and enforce transparent lending standards.  
• There is a demonstrated need for women-centered products and services that reflect the specific credit and mentorship needs of female entrepreneurs in the United States. Solutions like informal savings groups, pitch competitions, and greater access to female mentorship should be fostered in the United States.
• Global Perspectives – A Comparative Study of Small Biz Financing (final)Establishing more public-private partnerships is a viable means of easing loan criteria and extending additional credit to Black entrepreneurs. For example, the already-existing State Small Business Credit Initiative provides federal dollars for use in state-led loan backstop programs. Programs like this allow lenders to take on more risk without directly involving the government or jeopardizing their portfolios.  

The full report can be viewed here 

Download our quick EmpowHERing Tomorrow guide to educate yourself on the basic trends and be equipped to speak on this topic to your network.

DOWNLOAD GUIDE

New survey reveals challenges, motivations, and untapped power of Black-owned small businesses

FOR IMMEDIATE RELEASEMedia Contact:

Janel Knight Trulear
Janel@emccommunications.com
617-875-6581

September 28, 2023 – A new study from Accion Opportunity Fund (AOF), with philanthropic support from LegalZoom, offers insights into the experiences and motivations of Black entrepreneurs who are driving a nationwide small business boom. Empowering Excellence: Building Ecosystems for Black Entrepreneurs shows how Black-owned businesses that power our economy have been resilient despite challenging times.

Based on a survey of 660 Black small business owners (of which 70% were women) who have been in business for at least three years, as well as a focus group discussion, this research uncovered several key findings.

Key Findings

• AOF’s research demonstrates that Black entrepreneurs remain resilient despite major setbacks during the pandemic and the lingering impacts of record high inflation. Nearly 70% of survey respondents reported breaking even or making a profit from their business.
• While Black entrepreneurs are creating jobs and growing their businesses, their full power as engines of our economy remains untapped because of a lack of support. Seventy-six percent said access to capital was a challenge and of those who have never received money for their business, nearly 80% said they either could not find the right support or could not afford to pay for services that would help connect them to capital.
• Black-owned small businesses are particularly vulnerable to emergencies or economic shocks. Eighty percent of Black entrepreneurs surveyed said they had three or fewer months of cash reserves on hand. Thirty-nine percent had less than a month’s worth of cash reserves.
• AOF’s research highlights that many Black business owners are motivated not just by revenue growth, but community impact. Twenty-six percent of respondents shared community or social motivations for starting their business, including creating meaningful jobs, providing affordable services, and improving their neighborhood. In communities of color, entrepreneurship offers the opportunity to meet broader needs that go unmet due to systemic racism.

“It’s time to acknowledge that Black business owners possess an abundance of potential and passion. Our financial system has kept them from reaching that potential  for far too long and we are all worse off for it,” said Dr. Joshua Miller, VP of Research and Policy at Accion Opportunity Fund. “This research shows that our economy and communities are missing out on vital jobs and activity that could be generated if Black entrepreneurs had better access to resources that support business growth and success. It’s more important than ever to create an inclusive financial system that helps Black business owners and our economy succeed.”

“We’re proud of our partnership with Accion Opportunity Fund, and the opportunities we have to continue to help level the playing field when it comes to access to capital, education, legal, tax, accounting, and compliance services. We hope these findings motivate and inspire organizations of all kinds to do more to provide equal access to the services Black business owners need, as well as other under-represented communities,” said Catherine Davie, Head of Engagement, Impact, & Inclusion from LegalZoom.

Based on these survey findings, AOF recommends that:

1. Policymakers tap into the full potential of Black entrepreneurs by investing in community development financial institutions (CDFIs) and public-private partnerships to increase access to capital;
2. Small business service providers continue to innovate to provide low-cost products and services such as legal, tax, compliance, accounting, and bookkeeping. In addition to providing the service, there’s an opportunity to  centralize and share resources with Black small business owners to access educational materials, connect with other business owners, and network for mentorship opportunities.
3. Philanthropic supporters partner with mission-based organizations to address systemic gaps in capital access and other resources, creating a robust small business support ecosystem for Black entrepreneurs.

View the full report here.

On Thursday, October 5th at 11a.m. PDT/ 2p.m. EDT AOF is hosting a free, one-hour webinar featuring Dr. Joshua Miller to discuss the real-world implications of these findings and give audience members a chance to have their questions answered live. Click here to register.

To request an interview with Dr. Joshua Miller and small business owners, contact Janel Knight Trulear at janel@emccommunications.com or 617-875-6581. 

###

Accion Opportunity Fund works to advance economic mobility for low-income communities and women and people of color who own small businesses through affordable financial services, knowledge resources, networks, and policy. We promote an equitable financial system by providing quality financial services and resources, building cross-sector partnerships and advocating for fair policies so all individuals can build financial well-being and improve their lives. Accion Opportunity Fund Community Development is the lending arm of Accion Opportunity Fund, California Finance Lender license #6050609. Visit the organization at aofund.org/ to learn more about their business growth resources and funding opportunities.

LegalZoom is the leading online platform for business formation in the United States. Driven by a mission to unleash entrepreneurship, LegalZoom delivers comprehensive legal, tax and compliance products and expertise for small business owners through easy-to-use technology. From free business formations to business management solutions and professional advisory services, LegalZoom supports millions of small business owners and their families throughout the entrepreneurial journey. Founded on the belief that everyone should have affordable access to legal and financial expertise, LegalZoom empowers entrepreneurs to make their dream a reality. To learn more about LegalZoom, visit www.legalzoom.com.

We recently checked in with 400 of our small business borrowers, who reflected on how they navigated COVID-19. Through a national survey, entrepreneurs shared both the sacrifices they’ve made–nearly 40% didn’t pay themselves through 2020–and how they’ve forged ahead, with many business owners hiring new employees. 

Who responded

Survey respondents included 400 diverse small business owners who took out loans from Accion Opportunity Fund in 2019. Nearly half of respondents work in the transportation/warehousing or retail sectors, 85% are people of color, and 86% have five or fewer employees.The entrepreneurs shared how they fared throughout the COVID-19 pandemic in 2020:

COVID-19 devastated small business revenue…

Unsurprisingly, the majority of survey respondents reported that their revenue plummeted during 2020:

• 61% of respondents said their 2020 revenues were less than 2019; respondents’ average revenues decreased by 49%

• 38% of small business owners did not take home any pay of their own in 2020

“[The pandemic was] an exercise in serious crisis management.” -Warren Brown, creator of Don’t Forget Cake and Spark Bites, who exhausted his funds to stay afloat and continue to pay his employees. Read about how Warren is now optimistic about what’s ahead.

…yet small business owners forged aheadMany small business owners rebounded from adversity:

• While 38% of businesses closed down for some or all of 2020, 75% of these reopened by the time of the survey

• 83% of small business owners took steps to adapt to COVID-19, including changing their products and services, pivoting to online sales or service delivery, finding new clientele, and moving operations into reconfigured spaces
• Each small business retained or created 3.8 jobs on average, including the owner

• In fact, 62% of businesses that stayed open in 2020 saw a net gain in employment
• 27% of businesses laid off employees in 2020, but half of those were able to hire some or all employees back by the time of the survey

How did small business owners support their staff?

• 28% adapted scheduling to meet needs of caregivers or for other personal reasons
• 23% opened dialogue with employees around racial justice and equity issues
• 21% connected employees to community supports
• 16% offered time off/flexibility for workers affected by the racial justice movement or wanting to participate in protest or other action
• 15% coordinated or provided transportation to/from work

Small businesses have shouldered the brunt of the economic fallout resulting from COVID-19. According to the Federal Reserve, the number of small businesses declined 22% between February and April 2020, with firms owned by entrepreneurs of color hit the hardest. Black (-41%), Latinx (-32%), and Asian (-26%) business ownership all declined at much greater rates than white ownership (-17%).

Accion Opportunity Fund works to create an inclusive, healthy financial system that supports the nation’s underserved small business owners, providing working capital, equipment finance loans, and business resources. This September, we surveyed our borrowers to ask how they’ve adapted their businesses in response to the pandemic and what their outlook is for the future.

As the economy continues its bumpy recovery, the findings from this survey not only act as a baseline for further research but also inform us on how to better serve our customers through these challenging times.

Ready the Study

Explore Our Small Business Loans

These loans do more than finance cleaner-burning trucks, they promote equity for independent truck drivers who literally drive our economy. Despite the challenges of market fluctuations and future automation, becoming an independent owner-operator enables a driver to build greater earning potential than they would have working for a company. This independence also promotes a greater quality of life; instead of abiding by a set schedule, owner-operators have greater autonomy to decide which routes to
take — and when to be home with their families.

The impact of these loans stretches well beyond our borrowers. It ripples through the economy, the air we breathe, and the communities that you and I call home. We hope this report leaves you with a thorough understanding of the multi-faceted impacts of our trucking loan program and why we chose to call this publication “Accelerating Opportunity.”

ACCESS THE REPORT

For 25 years, Opportunity Fund has provided a variety of loan products to support the unique needs of small business owners, empowering them to grow their enterprises and support their families. In 2010, Opportunity Fund stepped up to the plate again to release a new product geared toward the truckers that serve California’s ports.

That year, the California Air Resources Board (ARB) published new emissions regulations that required many of California’s big rigs to be upgraded or replaced with new, cleaner models. Doing so would benefit both the environment and public health but would leave many truck drivers struggling to continue operating their trucks if they could not find the money for upgrades.

We first began offering loans to retrofit existing trucks or purchase newer ones that met California’s new regulations. Since then, we’ve gradually expanded our lending to those wanting to become an owner-operator of their own rig. For truckers looking to transition from employee to owner-operator, an Opportunity Fund loan marks a chance to increase earning potential and gain more control over their schedule.

Introducing Accelerating Opportunity, Our Truck Lending Research

Accelerating Opportunity

is our first-ever research piece dedicated to the impact of our truck lending. In compiling our research and data, we found that our lending efforts in the transportation sector result in a compelling triple-bottom-line impact.

Key Findings From AOF’s Research

Specifically, our analysis found that:

• Truckers save over 20% in repayment costs with Opportunity Fund compared to other lenders; they also report having a greater sense of work-life balance after receiving a loan.
• Opportunity Fund’s $220 million historical investment in trucking has spurred an additional $470 million in new, annual downstream economic activity – leverage of $2.14 for every $1 loaned.
• Each Opportunity Fund truck loan eliminates the emissions equivalent of 140 vehicles – a cumulative impact equal to permanently removing 620,000 cars from the roads.

To learn more about our lending efforts, our impact, and what we’re doing in light of the new challenges facing the trucking industry, download Accelerating Opportunity: The Impact of Opportunity Fund’s Trucking Program.

Explore Our Small Business Loans

The Financial Health Network, the leading consumer financial health research organization, developed a Financial Health Score for consumers based on eight indicators of financial health and released its baseline U.S. Financial Health Pulse report in 2018. Building on its consumer research expertise, CFSI developed similar indicators of financial health for small businesses. As a Financial Health Network member, Accion Opportunity Fund joined this initiative to survey small business owners about their financial practices and habits last fall.

Accion Opportunity Fund clients received a short web-based survey about their businesses’ financial position, ability to re-pay debt, ability to withstand an unexpected expense, and other financial health indicators.

Findings

We received responses from 80 business owners. The findings reveal that while respondents are confident about their business’s long-term profitability and ability to manage debt, many do not have adequate cash reserves to withstand a financial shock to their business.

Specific findings include:

• Businesses are succeeding. Over 80% of the businesses reported they were at a profit (53%) or break-even (30%) at the end of 2017.
• Confidence about the future. Over 95% of respondents expressed confidence in their business’ long-term profitability.
• Our clients are on top of their bills—both payable and receivable. Three-quarters of respondents pay most or all of their business expenses on time; nearly all (97%) know who owes their business money and when it is due.
• Our borrowers have a manageable amount of debt. 80% of owners said their business has a manageable amount of debt (66%) or no debt (14%).
• But they don’t have adequate savings. 41% of respondents have less than one month of cash on hand. 42% have 1-3 months of cash on hand.
• Most aren’t well-prepared for the unexpected. In case of a large, unexpected business expense, nearly half of respondents (48%) stated that they would need to borrow money to pay it (including credit card, business loan, line of credit, or borrowing from family). Only 20% said they could cover such an expense with cash or savings on hand, with an additional 19% stating that they would use personal funds. And 13% said they weren’t sure what they would do to pay such an expense.

These findings parallel, in many ways, what we learned from Opportunity Fund and Accion’s national longitudinal impact study, published last spring. In that study, most of our entrepreneurs stated that they were able to meet their debt obligations and were comfortable with their level of debt, but most also lacked sufficient cash reserves to withstand a financial emergency. While many of these small business owners reported increased savings during the course of the study, cash flow volatility remains a significant barrier to saving and planning for the future.

Applying these findings

We are committed to providing affordable, appropriate credit that enables small business owners to improve their business’s financial health. This survey serves as an important baseline of understanding our borrowers’ financial strengths, as well as where they are most vulnerable, so that we may continue offering diverse financial products and providing access to relevant resources to help small business owners succeed.

For more details on the Small Business Financial Health Survey, check out the full publication here!

Originally posted in 2019 and updated to reflect organizations’ new names.

Opportunity Fund, the lending arm of Accion Opportunity Fund, is working to build a more inclusive financial system, helping traditionally underserved entrepreneurs access capital, build (or repair) their credit, and grow their businesses.

How do we know if our loans are helping to drive economic mobility? By analyzing comprehensive financial and credit data for thousands of borrowers, we embarked on an evaluation to measure changes in the financial and credit profiles of nearly 2,000 entrepreneurs—in some cases with data to track their businesses over the course of nearly a decade. A team of student researchers at UC Berkeley’s Net Impact conducted a detailed analysis of clients that have received more than one loan from Opportunity Fund. We have made more than 13,800 loans to small and micro businesses that can’t get a loan from a bank. More than a third of our borrowers have received two or more loans from us as their businesses continue to grow. These ‘repeat borrowers’ form the sample for this study. The analysis focused on business revenues, credit scores, and job creation over time.

READ THE REPORT