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The myths, facts, and theories of ethnic, small-scale enterprise financing

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The Review of Black Political Economy

Abstract

This article combines the results of three financial studies that examine capital issues affecting minority business development. The results are presented so as to explain or refute conventional wisdom regarding capital availability, cost of capital, credit market discrimination, sources of capital and differences in firm capital composition. Generally, Asian and Hispanic businesses more approximate nonminority businesses in the sources of capital, the cost of capital, total capital investment, and access to capital. Black firms, on the other hand, face credit discrimination from all sources of capital, which limits their access to capital, increases its cost, and affects firm profitability. Consequently, black firms have a smaller capital composition at startup and during operations. The only deviation from this pattern occurs where minority and nonminority financial institutions vie for black business patronage by reducing the cost of borrowing and increasing the availability of funds.

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Notes

  1. U.S. Department of Commerce/Bureau of the Census,1982 Characteristics of Business Owners, (Washington, D.C.: U.S. Government Printing Office, 1987).

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  2. See William Bradford,Minority Financial Institutions: Performance, Prospects,and Role in Business Capital Formation, MBDA/ARI Research Report, 1986; Financial Research Associates, Inc.,Minority Business Capital Formation: The Role of Minority Banks, MBDA/ARI Research Report, April, 1987; and JACA Corporation,Capital Issues and the Minority-Owned Business, MBDA/ARI Research Report, November 1986. Also see Faith Ando, “Capital Issues and the Minority-owned Business,” in this volume.

  3. See Ivan Light, “Immigrant and Ethnic Enterprise in North America” inEthnic and Racial Studies, Vol. 2, (April 1984), pp. 195–216, and Frank Fratoe, “Social Capital of Black Business Owners,” in this volume.

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  4. See Light op. cit.“ and Fratoe op. cit., also Alejandro Portes, “The Social Origins of the Cuban Enclave Economy of Miami,”Sociological Perspectives, Vol. 30, 4 (Oct. 1987), pp. 340-372.

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  5. See Phillip K.Y. Young and Ann H.L. Sontz, “Is Hard Work the Key to Success? A Socioeconomic Analysis of Immigrant Enterprise,” in this volume. Also Faith Ando op. cit., in this volume.

  6. See JACA Corporation, op. cit.

  7. See William Bradford, op. cit.

  8. This is more fully explained in Bradford, op. cit., also JACA Corporation, op. cit. and is supported by the Bureau of the Census report, op. cit.

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Authors
  1. Gavin M. Chen
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  2. John A. Cole
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Chen, G.M., Cole, J.A. The myths, facts, and theories of ethnic, small-scale enterprise financing. Rev Black Polit Econ 16, 111–123 (1988). https://doi.org/10.1007/BF02892168

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  • DOI: https://doi.org/10.1007/BF02892168

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