Minorities struggle to become entrepreneurs in Utah, report says, and pandemic makes it tougher

SALT LAKE CITY — For minorities in the Beehive State hoping to become their own bosses and carve out a place in Utah's burgeoning business landscape, the playing field is anything but level, a recent study shows.

That fear of not getting a fair shake is known well by one Salt Lake entrepreneur.

Thirteen years ago, Senegalese immigrant Ibou Fall decided to follow his dream of owning his own business and opened Twisted Roots reggae store in downtown Salt Lake City. Rather than apply for funding through a bank for his new venture, he saved the money on his own.

He said it was the only path he believed there was for him to take, fearing he would be rejected for a loan because he was "Black and foreign."

"I knew what I wanted to do, work and save as much as I can every month and I built that capital slowly," he explained. "When I was ready — and I wasn't even ready — I just went for it because if I waited I probably wouldn't have ever been ready."

He began with a small inventory and gradually grew his retail shop into a purveyor of clothing for men, women and children, selling hats, bags, jewelry, flags, posters and other products catering to reggae, Rasta and hippie African aficionados. Now, years later, he is a proud businessman who has carved out a unique niche in the local market.

As for why he did not apply for traditional funding for his startup idea, he said he wasn't confident his application would be approved.

"I don't think I tried hard and the reason why is probably because I didn't think I was going to get it," Fall said.

"I could have gone to a bank with a business plan or these ideas and given a presentation and all that stuff and still would not get the amount I wanted even though my credit was good enough," he said. "I was able to afford to buy my own house, so most likely my credit was good enough. But getting money for a business loan is pretty tough."

A report from Texas-based Self Financial examining minority-owned startups across the United States showed the lack of access to capital is one of the top hurdles they face. Another problem is their disproportionate representation within industries that are more prone to economic upheaval, such as closures in the restaurant and lodging industries brought on by pandemic.

For that reason, minorities are marginalized in the startup economy when compared to their percentage of the overall population, the study finds. While African Americans comprise 12% of the nation's population, they represent just 3% of new minority business owners, the report stated. The study also ranked U.S. states by the proportion of minority-run startups within the overall total, including every state's total number of minority-owned startups, their number of employees, annual sales and their share of the total statewide minority population.

For Utah, the results found that minorities make up for 22.3% of the state's total population although just under 7% of Utah startups are owned by minorities. Nationwide, the Beehive State came in with the 10th lowest percentage of minority-owned startups.

"The first and foremost structural barrier for would-be minority entrepreneurs is access to capital," wrote report author Lauren Bringle, an accredited financial counselor and content marketing manager with Self Financial. "Minority households have lower preexisting levels of wealth and savings to put toward a new business, while banks and other creditors are less likely to approve loans for Black or Hispanic small-business owners than they are for white business owners. Without upfront capital to invest in a growing business, minority entrepreneurs struggle to run and scale their operations."

Those factors, and others, impact minority businesses' numbers relative to their share of the national population, she said. For example, non-Hispanic whites, who make up approximately 60% of the U.S. population, run almost 80% of the nation's startups. Hispanics of any race, by contrast, comprise 18% of the U.S. population and just 7% of startup entrepreneurs. For Blacks, those numbers register at 12% and 3%, respectively, the data showed.

The study indicated that minority enterprises are also especially hurt by the COVID-19 pandemic because of the types of businesses they lead. Research showed that the industry sectors with the highest concentration of minority business owners are food, lodging and small retail, all of which were hit hard when parts of the country experienced lockdowns.

Even with all the challenges, there are currently almost 170,000 minority-owned startups spread across the United States, according to the report, with more than 700,000 employees that generate nearly $100 billion in revenue annually. The numbers are likely to increase based on demographic trends as the nation's population continues to transform and expand along ethnic and racial lines, Bringle said.

Unsurprisingly, states with higher minority populations, including "majority-minority" California and Hawaii, also have the highest percentage of minority-owned startups, she said.

The study found that the Salt Lake City metropolitan area's minority population accounts for 28.27% of the total population, but only 7.83% are minority-owned businesses. Those enterprises employ just over 1,400 people and generate nearly $156 million in yearly revenue. In comparison, just under 20% of U.S. startups are minority-owned, while the national minority population registers at nearly 40%.

Local business leaders contend the problem for minority businesses has existed for years but may have just become highlighted by the pandemic.

"Small businesses really don't grow as often here as far as a minority business goes," said James Jackson III, founder of the Utah Black Chamber. "Within a Black chamber, the most growth I've seen within startups has been over the last eight months with people (producing) masks and thinking about innovative ways to start their own business because they're out of work, so they're trying to use their craft and skills and abilities to start something from scratch."

Nationally, the average Black business has about 10 employees, he noted, and in Utah it's about half of that, which makes it hard for them to take advantage of programs that other small businesses can use to keep themselves afloat. He said never was that more apparent than when the federal government passed measures like the Paycheck Protection Program — or PPP — to help small businesses survive the pandemic.

"When you think about the PPP, how those monies are allocated toward the employee base, it may yield a couple of thousand bucks, maybe," he said. "But it doesn't go a long way to really support them because they don't have 10, 15, 20 or 100 employees. They have two, three, maybe five employees, so you get a little bit of money but it doesn't go very far."

He said developing partnerships with institutions that can help provide greater access to capital can be a way to build bridges to resources for minority businesses in Utah.

"Create awareness about the barriers that do exist for small businesses — particularly that of Black and brown entrepreneurs, then solutions to get rid of those barriers," Jackson said. "We want to build that bridge of inclusion to bring out resources to (minority) businesses, elevate them, get them scaled up so that they can have more growth because we all know that diversity pays dividends. If we add more diverse businesses within our community, that also helps close the racial wealth gap."

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