Capital accessibility, gender, and ethnicity: The case of minority women-owned firms

Leyland M. Lucas
2006 New England Journal of Entrepreneurship  
M inority women continue to make significant gains in economic activity, particularly as entrepreneurs through the creation of small businesses. Despite this increased role in small business activity and an admirable rate of success, minority women-owned businesses continue to experience problems in acquiring capital. This difficulty, which some have attributed to discriminatory practices, forces a large number of these businesses to rely on governmental support programs for assistance in
more » ... assistance in meeting their capital needs. Building on the idea that things are not as simple as commonly presented, a case is made that access to capital for women-owned businesses is affected by a number of other factors tied to the inability to join important networks. Small businesses are an essential tenet of the U.S. economy and continue to be created in increasing numbers.According to recent census estimates, small businesses account for more than 35 percent of economic activity and will continue to increase despite changes in the qualifying criteria. Within this broad sector of the economy, even more rapid growth is occurring in the creation and successful operation of small businesses owned and operated by minority women. The number of these firms has been increasing at a faster rate than that of minority males (U.S. Census Bureau 2002), suggesting that minority women-owned businesses are taking on an increasingly important role in the U.S. economy. Despite continued growth in minority women-owned businesses, attempts by government, private banking, and boutique lenders appear unable to fulfill the need for capital generated by these businesses. As a consequence, many minority women-owned businesses are unable to secure capital for reasons such as unacceptable rates of return, concentration in low-profit industries, and incompatible risk exposure (Greene et al. 2001; Mason and Harrison 1999; Timmons and Bygrave 1997) . As a result, stories persist of the challenges that minority women-owned businesses face in accessing capital. Further complicating the issue is the fact that set-aside programs and stereotypical attitudes that view these owners as "too soft" and incapable of making the tough decisions persist are seen as hampering the development of these businesses. Although these stories persist, there are other valid reasons why minority women-owned businesses have difficulty in accessing capital. The intent of this article is to suggest that, while these attitudes persist, there is a more rational explanation why minority women-owned businesses find access to capital so difficult. We suggest that lending decisions are driven by issues of profitability, return on investment, and the perception that investments are "relatively safe." Such determinations can be made by examining the experience of entrepreneurs, information accessibility, liabilities of newness and size, and management styles.These factors rather than the persistence of prejudice and stereotypical attitudes explain why many minority women-owned businesses find access to capital so difficult. The next section reviews some of the critical aspects of women and minority-owned businesses.It is followed by arguments and the development of propositions that explain the challenges to capital accessibility among minority womenowned businesses.The article concludes with a discussion of possible implications for these businesses and policy-makers in assessing strategies to increase capital accessibility. Conceptual Development Success in business often depends more on who knows you
doi:10.1108/neje-09-01-2006-b004 fatcat:ohaizp5bwjafnpecadqzqrwaua