SMBs have it tough but if the owner isn’t male and white, it gets even tougher

There are many struggles that an SMB owner has to face to keep a business afloat. These troubles can be compounded if the owner is a woman or belongs to a ethnic or racial minority. During the 2023 Financial Inclusion Week, we are looking at how women and minority business owners are faring in 2023 and whether technological advancements have made it easier for them to run their businesses. 

Fewer women and minority-owned SMBs (77%) are planning to apply for funding this year. That’s down from 83% last year, according to Bank of America’s Women and Minority Owned Business Owner Spotlight. Similarly, business owners are less confident in the health of their local economies while their opinions of the national economy have remained largely stable.

While concerns about a recession have dropped since last year, they still remain significant, with 60% of SMB owners reporting being concerned about a recession. 77% of SMB owners report being ready to weather the storm if and when it occurs. 

Women-owned SMBs

For women-owned SMBs, the biggest challenge has traditionally been access to capital. That’s changing, as inclusion efforts over the past few years might have actually made a difference. Bank of America’s survey reports that more than half of women business owners believe that they have equal access to capital to start a business. At the same time, 31% of women business owners believe that they will never have equal access to capital. 

“What we recognized about a year or two ago, is that there was a slight misconception. From where I sat, it often felt like everyday a new fund was being developed for women. There was a recognition that less than 2% of VC goes to women. And so there were a lot of organizations that were addressing this, but women didn't understand where to find that,” said Pam Seagle, Global Executive for Women's Programs at Bank of America at a press roundtable. 

In an effort to close this gap, the bank has put together a directory with over 450 sources of capital that includes CDFIs, angel investors, venture capital firms, and grants. “There's a little bit of educational material in there so that people can understand at what stage their business is ready for these different types of funding,” added Seagle. 

BofA’s focus on women business owners stems from its clients: Of the bank’s 11 million SMB customers, 40% are women. 

Minority-owned SMBs

43% of Hispanic and Latino business owners report they have faced challenges in accessing capital. Some of the major causes they cite include not knowing how to apply for capital or not having a relationship with a lender. Statistics show a similar trend for Black-owned business owners, 35% of whom report that they think they will never have equal access to capital.  

Despite economic challenges, 86% of Black business owners expect their revenues to increase in the coming 12 months, and 63% of Hispanic and Latino business owners report the same. 

To encourage the flow of VC funds to diverse businesses, Bank of America decided to go to the root of the problem and invest in diverse and emerging VC fund managers.

"In 2020, we launched a program to invest in diverse, emerging VC fund managers who would go on to invest in women and diverse entrepreneurs. We set an initial target of $200 million but quickly surpassed that, committing more than half a billion to over 150 funds less than three years later," said Tram Nguyen, Global Head of Strategic and Sustainable Investments at Bank of America.

"Collectively, these funds manage more than $7 billion of capital and have invested in more than 1000 companies," said Tram Nguyen, Global Head of Strategic and Sustainable Investments at Bank of America. 

In total, these managers control over $7 billion of capital which they have already invested into over a thousand companies, she added. 

Tearsheet Take

The statistics above paint a  better picture of the differences in access to capital for men and women business owners, as well as for minority business owners. But some of the biggest disparities often lie at the intersections. When asked what challenges women of color who own small businesses are facing, Nguyen reports that this demographic receives even less funding than others. 

90% of BofA’s Institute for Women’s Entrepreneurship at Cornell are women who identify from ethnically diverse backgrounds. This group is eager to change the status quo, though. “We have a particularly high enrollment rate in entrepreneurship programming from our diverse communities. But yes, there is more to do in all of these areas,” said Sharon Miller, President, Small Business, Head of Specialty Banking & Lending at Bank of America. 

“If you think about women of color founders facing an even narrower percentage across the table, it gets even more challenging. And so that structural change is what we're what we're after here,” Nguyen added.