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Pandemic widened capital gap between business owners of colors, white counterparts in Mass., data show

Entrepreneurs of colors are lagging behind their white counterparts in capital access even as the pandemic subsides.

The brick-and-mortar spot for Bos. Shop South End, a Black women-owned business in the city.Jonathan Wiggs/Globe Staff

The stark disparities in access to capital between Massachusetts entrepreneurs of color and their white peers grew after the COVID-19 pandemic, according to new data compiled by The Boston Foundation, illustrating a cycle of inequality that has persisted for generations.

“Capital is the very lifeblood of any business,” said Lee Pelton, president and CEO of The Boston Foundation. “The data shows us then and now that entrepreneurs of color continue to have huge unmet demand for finances to start and grow their businesses.”

The data provided an update to a 2021 Boston Indicators report, “The Color of the Capital Gap: Increasing Capital Access for Entrepreneurs of Color in Massachusetts,” and it documented barriers to wealth building for business owners of color, while also identifying potential solutions.


In 2019, it would have taken $574 million to level out the gap in available capital between entrepreneurs of color and their white peers, said Matt Brewster, principal of P2 Advisors, LLC and co-author of the report. Three years later, the gap widened to more than $600 million, he said.

In the meantime, while all entrepreneurs faced financial shortfalls during the pandemic, entrepreneurs of color faced far greater economic losses, the report found.

Amine Benali, managing director of the Local Enterprise Assistance Fund, said the shortfall speaks to the amount of companies owned by people of color who were “orphaned by their banking institutions” during the pandemic.

In Massachusetts, 60 percent of small business owners, regardless of race, listed capital access as one of their main obstacles to growth. Yet Black, Latinx, and Asian business owners were far more likely to name it a key concern, at 85 percent, 88 percent, and 77 percent, respectively.

Glynn Lloyd, executive director of Mill Cities Community Investments, said decades of institutional racism created the inequality the data show today.


“We can talk everything from resource networks, to capital access, to people that control the contracts, to access government funding,” Lloyd said.

As a result, “we have incredibly powerful, creative people who aren’t reaching their full potential in their community,” Lloyd said.

The updated data released last Tuesday showed racial disparities in who received business funding, and who knew about potential funding sources in the first place.

In 2022, Black and Latinx entrepreneurs were most likely to apply for financing. Yet, they were nearly twice as likely to be denied for such funding than their white counterparts.

Half of the state’s Black business owners had their financing applications rejected, and 53 percent of entrepreneurs of color overall were denied.

Betty Francisco, CEO of the Boston Impact Initiative, said the disparities stem from the lack of capital providers owned by people of color. Instead, most of the capital is owned and controlled by white executives, who might see entrepreneurs of color as a risk not worth taking, she said.

“That has a lot to do with discrimination,” Francisco said. “That has a lot to do with misunderstanding the communities these entrepreneurs are from.”

In spite of the greater need for capital, the state’s Black and Latinx entrepreneurs were least likely to apply for federal COVID relief funds.

The report found that 26 percent of Black and Latinx businesses in the state sought loans through the Paycheck Protection Program, a federal program enacted to help small businesses pay their employees through the pandemic’s economic downturn. Meanwhile, 80 percent of white-owned businesses applied.


“Those people are missing out on a potential free resource,” Brewster said.

Reginauld “Reggie” Williams, director of small business for the Dorchester Bay Economic Development Corporation, said the disparities show the need for more on-the-ground, grassroots efforts by lenders to inform them about what resources are available.

“We need to be successful as lenders to educate and really work deeply with the communities we serve,” Williams said. “And that work takes time.”

Francisco said the losses businesses sustained during the pandemic also show the need for businesses to look to other funding methods, such as the private sector or philanthropy.

The economic difficulties of the pandemic did spur ideas for solutions to close the gaps in access to capital, the panelists agreed. For instance, community development financial institutions, or CDFIs, banded together to form partnerships that provided emergency relief and technical assistance to entrepreneurs on the ground.

“Sadly, it took a catastrophic event of a pandemic to break those barriers [that existed before 2020],” Benali said. “Maybe, going forward, we won’t need that type of catastrophe.”

Tiana Woodard is a Report for America corps member covering Black neighborhoods. She can be reached at tiana.woodard@globe.com. Follow her @tianarochon.