Whitman School of Management at Syracuse University
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Abstract Details

The Financial Capital Needs of Black-owned Businesses
Vol. Volume 1, Number 1 June/1996

Timothy Bates

Timothy Bates is Professor of Labor and Urban Affairs and Economics at Wayne State University. Research reported in this study was conducted, in part, at the U.S. Bureau of the Census Center for Economic Studies. Findings expressed are those of the author and do not necessarily reflect views of the U.S. Bureau of the Census. Financial assistance from the Woodrow Wilson Center International Center for Scholars supported this study.

The human capital gap separating black American and nonminority small-business owners has rapidly narrowed in recent years but the financial capital gap has narrowed slowly. Looking solely at owners using debt to finance small-business creation, for example, average loan sizes were $51,700 and $25,073, respectively, for whites and blacks. Limited access to financial capital stunts the black business community in three ways: 1) some potential entrepreneurs never take the plunge because they are unable to finance adequately their planned business venture; 2) inadequate capitalization depresses firm size; 3) poorly capitalized firms are more likely to go out of business than cohort small businesses. Financial capital and human capital are complements in the small business realm, not substitutes. Many who enter self-employment lack the human capital and financial resources that typify successful business creations; their chances of survival are low.

Keywords: Small business capitalization and race, small business failure, financial capital and human capital requirements.