Rather than seek financing from banks and credit unions, women and minorities are more likely to turn to their own savings to start or grow their businesses.
According to a new report from the SBA Office of Advocacy, in the current financial climate, new high-tech businesses rely more than other firms on outside loans and investments, while non-technology businesses owned by African Americans, Latinos and women simply operate on less capital.
The report, Access to Capital among Young Firms, Minority-owned Firms, Women-owned Firms, and High-tech Firms, used data from the Kauffman Firm Survey to look at new businesses’ access to capital during the 2004-2010 period, the SBA said.
African American and Latino owners of young firms were less likely than others with similar credit scores to have access to bank financing, the data showed. During the financial crisis, women and minority owners of new startups were also less likely to apply for credit, fearing loan denial.
Alicia Robb, the author of the report, said she found that minority firms in particular rely more on their own funds and have less capital to start up and grow.
Still, high-tech businesses that rely on patents, copyrights, and trademarks also faced bank financing hurdles possibly because their products rely on knowledge, which is harder for banks to assess than physical assets, according to the report.
The full report is available on the SBA’s Office of Advocacy website.