start-up news

Recently, we've been running across more and more African American-owned start-ups. Timothy Bates, a professor at the New School for Social Research, tells us that is no coincidence. Bates, who has been studying black entrepreneurship for more than 20 years, reports that a new generation of black entrepreneurs is at work building companies.

In his recent book Banking on Black Enterprise, Bates argues that while traditional black-owned businesses, such as small retail and service enterprises in black neighborhoods, may be in decline, there's a new community of African American business owners emerging, reflecting the entrepreneurial aspirations of a prosperous black middle class. These new entrepreneurs have more education and larger companies, are less likely to locate in inner-city neighborhoods, and are more likely to sell to racially diverse customers. They are also more likely to employ African Americans than their white counterparts are. "We're now in an era when the educated members of the African American community are going into the business world," Bates says. "This transformation is immense."

Black-owned businesses still have a long way to go; according to a 1985 study, blacks have one of the lowest rates of self-employment among American ethnic groups. And Bates's own research suggests that African Americans still face funding obstacles: even when he controlled his study for differences in education, blacks starting businesses received 37% less in bank financing than their white counterparts did for each dollar of equity invested in their companies. But, as Bates's research suggests, these new entrepreneurs -- whom he describes as "not only better educated but educated for a different world" -- will be better able to face the challenges.

-- Martha E. Mangelsdorf

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Debt Inequity
Bates's research suggests banks treat white and black loan recipients differently. For each dollar of equity capital invested in borrowers' businesses, banks provide nearly 37% less in loans to blacks than to whites.

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