The hidden challenges of Black entrepreneurship in America

 By Paige Martin 

Skyhawk View Staff Reporter 

 

When Avian Dandridge’s family seafood restaurant began struggling financially in the early 2000s, he stepped in as part owner. He began looking for funding to put the restaurant on a better financial footing. He knew changes needed to be made to Off the Hook in New York, and those changes would need an infusion of cash. 

 

Dandridge first turned to a traditional standard bank loan but was only offered high-interest rates, which would not be feasible for growing the business. He realized that he would need to look at less traditional sources for his business and sought funding from seven private investors to help improve the family business. 

 

As a Black business owner, Dandridge is not alone in having difficulty obtaining financial funding. 

 

Recent research shows that Dandridge’s experience is common among minority small business entrepreneurs who often have difficulties obtaining funding with favorable rates from traditional banks. 

 

A 2023 study by the 12 Federal Reserve Banks called the Small Business Credit Survey (SBCS) found that black small business owners were the highest of any ethnic group to be denied financial funding assistance and that minority small business owners face more financial challenges than their white-owned counterparts. The annual survey included nearly 14,000 respondents from all 50 states and the District of Columbia.   

 

The United States Bank reported that 82% of small businesses fail because of inconsistent or insufficient cash flow and found that only 27% can receive the funding they need. 

 

Lucas Misera, a policy analyst in the Community Development Department at the Federal Reserve Bank of Cleveland, was on the report and national SBCS team for the 2023 survey.

 

The survey data found that 72% of Black business owners were the highest ethnic group to use their savings to fund their business.

 

"Our data has shown for quite some time now that Black business owners have a harder time accessing financing or credit from financial lenders…which is why specifically Black business owners are turning to personal funds,” said Misera, who received his bachelor’s of business administration in economics and finance from Kent State University and holds a master of public policy from the University of Michigan.  

 

After Dandridge realized that financial sourcing from a bank would not be feasible, he was able to secure funding from private sources, close his father’s restaurant in West Haverstraw, and relocate the business to a better location in New York. 

 

In order for his father's restaurant to grow, Dandridge said they needed to move out of West Haverstraw, NY, into a more populated town where the customers were more likely to appreciate and enjoy their Southern American cuisine.  He chose Yonkers, NY as the new location.

 

"We needed to create a sit-down restaurant, have a bar and create more ambience besides just takeout," said Dandridge. 

 

The survey found that white business owners use financial funding from institutions for their small businesses at a greater rate of 54% compared to 34% used by Black business owners. 

 

"One interesting thing to keep in mind is that firms owned by people of color are often more likely to apply for financial funding but less likely to say they were able to source funding from financial institutions. The answer is that they are less likely to receive funding when they do apply and that is what the small business credit survey is showing overtime," said Misera. 

 

 Dandridge received his bachelor of business administration from St. Thomas Aquinas College and his master of business administration in entrepreneurial studies from Long Island University. 

 

In addition to the private funding, Dandridge knew he had to get creative in other ways to get the backing he needed for his business. 

 

Using his business education, Dandridge decided to add a real estate holding company to accompany his family's small business.  

 

According to the U.S. Office of Government Ethics, a real estate holding company is a business principally engaged in owning, holding, selling, or leasing real estate. These companies derive most of their income from dividends, interest, royalties, and rent collection. 

 

"Essentially when we purchased the property, we rented to tenants above it and have our restaurant below," said Dandridge.

  

Renting allows Dandridge to avoid the double taxation on his restaurant and have more flexibility when distributing his property. 

 

"Our financing upstairs pays for our financing downstairs," said Dandridge. 

 

With this new financing plan, Dandridge was able to add a bar in his restaurant and also have a food truck alongside his restaurant as another option for selling his food. Having a food truck allowed him to take his restaurant to various locations and expose his cuisine to customers that he otherwise would not have access to. Dandridge also modernized the restaurant's vibe by adding a karaoke section and having weekly themes like hip hop night, jazz night, and afro beats night. 

 

"We might not make all the money in the world, but we can support our family and our staff's families,” said Dandridge. 

 

Misera said it is hard to predict how this financial funding discrimination will play out in the future. 

 

"It's hard to project because the pandemic was a really hard time, specifically for Black-owned firms to access credit," said Misera. 

 

However, Misera said that the gap did start to close between Hispanic and Asian firms and white-owned businesses, but for Black-owned businesses, there is still a stark disparity. He said continued research will help understand the financial landscape for minority business owners. 

 

"The future of the disparity is uncertain, but to see the conversation and people willing to address the issue is why I think the work we do is so important because you can't make sound decisions without data,” said Misera.