The benefits of debt for Black business owners 


Access to capital is a top challenge Black businesses face, and addressing the issue could benefit from a culturally competent response.

According to the most recent Federal Reserve Survey on Small Business Credit focused on Business of Color from 2022, Black businesses were the least likely to receive the full amount of funding that they sought and most likely to be discouraged about their chances for receiving a business loan.

A survey conducted by Black Onyx Management found that less than 20% of city and state certified Black businesses had ever used a business loan to grow their business.

In the same study, 34% of Black businesses reported being debt averse — or just unwilling to take on debt.

Equity1821 was interested in why Black businesses were debt averse and collaborated on a series of focus groups with our partners.

We found that financial trauma, education and the lack of experience with making major financial purchases drove debt aversion for the Black businesses in the survey sample.

Our research on financial trauma has revealed that both private traumas of stories shared by families regarding personal abuses and public traumas where people see how Black people have been discriminated against by financial institutions in very public fashion has an impact on Black business owners and their decision to seek business credit.

Consider the collapse of the Freedman’s Bureau Bank, where right after slavery ended, Black soldiers and others in the Black community put their money in a bank that ultimately was mismanaged by white bankers.

Consider the financial abuse that was sharecropping where no matter what, the sharecropper always owed more than he made by a system designed to keep Black people chained to land and producing for white landowners.

Redlining meant that even if we could get a home, we would be in less desirable areas of town and would likely not have the ability to get homeowners insurance or loans to make repairs.

More recently, Navy Federal Credit Union denied 50% of its Black applicants who sought conventional loans.

We should also consider the fact that the Black homeownership rate has been below 40% for decades.

So, while over 87% of Black businesses in the survey had a business bank account, only 42% had a business credit card from their primary bank and only 17% had a business line of credit.

It has been said in our community, that “they” will give is credit cards and car loans, but “they” won’t give us business loans or mortgages.  

To address this issue, Equity1821 collaborated with our partners to explore how we could have a positive impact of the issue of debt aversion.

Afterall, research has found that while personal debt is a challenge, business debt can increase the value of a business anywhere from 10-15%.

We engaged business owners who identified as debt averse in the Black Onyx Management business lending survey. We then invited these self-identified debt averse businesses to a focus group.

We worked with a banking partner to talk about their presentation and the kinds of questions they should be prepared to answer based on our research with Black businesses.

We worked with our partners to have an underwriter recognize that financial trauma and discrimination by financial institutions is real. They then not only provided training on the underwriting process but answered questions.

Each participant left with questions they should ask a banker.

Program participants were empowered to have a conversation with a business banker because they knew what to look for and why a business banker might ask certain questions.

When we followed up with the participants two months later most of them had taken some step to improve the financial position and business banking relationship with at least one person obtaining business a loan.

It is important to note that every business is not ready for a loan. Business owners should make the very best decision for their business.

But if accessing capital makes sense, we want Black businesses to be empowered to engage the system, be able to advocate effectively for themselves and obtain the capital they need to grow their business.

Equity1821 understands that it wasn’t just about access to capital, it’s about empowering our businesses through cultural responsive methods to engage in the process.