Business Ownership and Its Role in Maintaining the Racial Wealth Gap

The racial wealth gap remains one of the biggest economic inequity problems facing the United States today. With its origins in chattel enslavement of Black Americans, the gap remains a stark reminder of the societal costs of these insidious practices. Long after abolition, neighborhood redlining and instances of racial terror, such as the 1921 Tulsa Race Massacre where the Black business district known as Black Wall Street was burned to the ground, further compounded the disparities in wealth still seen today.

Racist policies and racist violence targeted not only Black residential areas but also the Black business community, impairing two of the most efficient paths toward economic independence: business ownership and homeownership. In recent years, the gap in wealth between median Black and White households in the United States has remained stark, with the former’s wealth being only 15% of the latter’s. We estimate that a 10% increase in the business ownership rate among Black Americans would increase their average wealth by approximately $50,000, reducing the racial wealth gap by around 9.5%.

Homeownership – out of reach for many Black families – is the primary source of wealth creation, as NCRC research showed in 2024. This is a fragile foundation for creating sustainable intergenerational wealth. 

Diversifying the sources of Black wealth is paramount if we want to see America move on from the shadow of its past sins, as a subsequent NCRC report on the racial wealth gap showed. One possible pathway towards diversifying wealth could be through business ownership.

Black business formation has risen faster than for any other racial/ethnic group in the country. The number of Black-owned businesses increased by more than 13% between 2017 and 2022, which was 25 times higher than the overall formation rate. 

According to the 2022 Survey of Consumer Finances (SCF), the percentage of Black households reporting business assets was around 8.9%, up from 4.6% in 2019. Over the same period, the median value of those holdings declined by 22%, to $324,231.

It makes sense that those figures moved in opposite directions over those three years. The simultaneous rise in the number of Black households reporting business assets coinciding with the drop in the median values of Black-owned businesses suggest that many created small and micro businesses during the COVID-19 pandemic. According to GoDaddy.com, Black Americans accounted for 26% of all micro-businesses created during the first year of the pandemic versus 15% before March 2020.

As the number of Black-owned businesses rose, so did their overall revenue. According to the Census Bureau’s American Business Survey (ABS), their gross revenue increased by 66% from 2017 to 2022. A similar share listed their business as their primary source of income. Additionally, the majority of Black-owned businesses are considered small businesses, employing 1 to 9 employees.

Despite these impressive growth metrics, Black-owned businesses still make up only 3% of all US businesses. They were particularly devastated during the COVID-19 pandemic, with losses in business earnings for Black businesses reaching 28% in 2020 (the highest of all racial groups), according to a report published by the Small Business Administration. This was due in part to the concentration of Black businesses in the transportation, hospitality and education industries.

While the height of the pandemic has subsided, the challenges for Black-owned businesses remain. According to the 2024 Small Business Credit Survey administered by the Federal Reserve, 77% of Black-owned small businesses rated their current financial situation as poor or fair. Almost half reported they were operating at a loss. This compares to 53% and a third of White-owned small businesses, respectively.

50% of Black-owned small businesses reported being denied financing, compared to 31% of White-owned businesses. This may explain why 31% of Black businesses who chose not to seek financing did so because they may have felt discouraged by possible racial biases in the financing application process. Only 5% of White business owners reported discouragement as a reason for not pursuing financing. 

Investigations by NCRC’s fair lending division suggest Black business owners are right to anticipate discrimination. We found dozens of instances of discrimination against Black business borrowers in a 2024 investigation into small business lending in New York City, some of which likely violated the Equal Credit Opportunity Act. 

Black business owners are not only dealing with a lack of on-hand capital due to historical practices such as redlining, but also the inability to access new capital due to racial bias and discriminatory practices. Despite these challenges, recent polling of Black Americans found that the majority support increasing the number of Black-owned businesses. 

The business assets of Black households are minuscule compared to White households. In addition to the low rates of Black households reporting business assets, the difference in business scale for the ones who do is massive. 

Black businesses accounted for less than 1% of all business revenue and only 3% of all businesses in the most recent Annual Business Survey (ABS). While SCF doesn't provide financial information for the households detailing their business assets, the ABS suggests that Black business owners face lower revenues and experience more difficulty accessing credit.

As one of the largest components of wealth creation for the average household, even slight differences in business ownership rates across racial/ethnic groups can result in large differences in wealth accumulation. Based on 2022 SCF data, about 24.4% of the difference in the average net worth between White and Black households came from differences in the two groups’ average business assets. 

Another way of understanding the effect of business ownership on the racial wealth gap is to calculate the expected change in the average Black household’s net worth if there were more Black-owned businesses. A regression analysis is able to calculate how wealth would change if the percentage of Black households with business assets rose while keeping other factors constant.

The results from the regression analysis highlighted that if the percentage of Black households with business assets increased by 10 percentage points, the wealth of the average Black household would increase by $53,103. For perspective, the median Black household’s net worth currently stands at $44,700. This means that even doubling the Black business ownership rate would only reduce the racial wealth gap by 9.5%.

The Black business ownership rate increasing from 9% to 19% would provide a large boost to Black wealth creation. However, it is a drop in the bucket compared to the over $2 million in business assets currently held by the average White household. This underscores the need to not only diversify Black wealth by increasing access to business assets, but also the importance of creating more transformative policy solutions, such as baby bonds and reparatory programs and initiatives.

By increasing the number of Black business owners, we can make progress towards closing the racial wealth gap while simultaneously enriching Black communities and strengthening Black families. Closing the wealth gap not only benefits Black Americans economically, but also makes the country more financially stable as a whole. 

By expanding opportunities in key areas of wealth accumulation, such as business formation and homeownership, we can make progress in closing the wealth disparity. Today’s racial wealth gap is a reminder of the past, yet it does not have to persist into our future.  

Joseph Dean is the Jr. Racial Economic Research Specialist with NCRC’s Research team.

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