Black-led middle-market firms demonstrate faster growth than their peers, yet they face persistent systemic barriers that hinder their potential. Despite new funding opportunities and legislative progress, challenges such as undercapitalization, limited access to financing, and unconscious biases continue to impede equitable growth. Ongoing debates about diversity initiatives and misconceptions about Black-owned businesses highlight the need for sustained efforts to create fair competition.
Government Regulations Not Enough to Overcome Barriers
Middle-market companies, defined by the National Center for the Middle Market (NCMM) as those with annual revenues between $10 million and $1 billion, employ approximately 44.5 million workers across nearly 200,000 U.S. firms. Though these firms represent less than 1% of all U.S. businesses, they employ about one-third of all workers.
The 2024 “Insights and Perspectives from Black Leaders in the Middle Market” report, released by the NCMM in collaboration with Wells Fargo, reveals that Black-led middle-market firms are growing faster than their peers, with revenue growth at 17.7% versus 12.4% and employment growth at 11.5% versus 9.6%. Despite this, Black-led businesses remain smaller on average, with 22 employees compared to 33 in typical middle-market firms. Ruth Jacks, executive vice president and head of the diverse commercial banking segment at Wells Fargo, emphasizes the importance of time in building successful middle-market firms, noting that even the most successful companies started small and needed time to grow.
Financial Challenges and Access to Opportunities
Systemic barriers significantly impact the financial landscape for Black women entrepreneurs. Historically, discriminatory laws required male co-signers for business loans, which were only overturned with the Women’s Business Ownership Act (H.R. 5050) in 1988. This legacy of undercapitalization continues to affect Black women, who earn significantly less than their white counterparts, struggle to accumulate the necessary capital, and face higher rejection rates for loans even with solid credit profiles.
Angela Dingle, president and CEO of Women Impacting Public Policy, highlights the opportunities and challenges of securing federal contracts, such as those from the Department of Defense. These contracts could transform Black-owned businesses due to their substantial buying power, but systemic barriers like category management and contract bundling limit the pool of vendors able to compete. Additionally, firms need substantial capital to start and sustain these contracts, as payment delays of 60 days or more are common, posing a significant barrier.
Addressing Misconceptions About Diversity Programs
The report also reveals concerns that diversity programs may deprioritize Black-owned businesses, potentially allocating resources to other underrepresented groups. This lack of visibility and representation in specific industries or supply chains can contribute to the feeling of being overlooked. Supplier diversity programs open doors, but developing other access points in corporations is critical. Building relationships and networks with key decision-makers in large corporations can be challenging for Black entrepreneurs.
With lawsuits against supplier diversity and grant programs, there is a fear that DEI (Diversity, Equity, and Inclusion) initiatives are being viewed negatively. This perception is incorrect, as supplier diversity programs level the playing field and spur economic growth for everyone. Grants provide crucial funding to address systemic barriers and inequities faced by Black women entrepreneurs.
New Options Open Funding Opportunities for Black-Led Businesses
The financing roadmap is changing, adding new roadways and access points to address the needs of diverse businesses. The U.S. Treasury’s $10 billion State Small Business Credit Initiative program—40% of which is aimed at disadvantaged businesses—along with the Initiative for Inclusive Entrepreneurship, strengthens funding networks and promotes equitable access to capital for entrepreneurs.
The 22 Fund, for instance, invests in tech-driven U.S. manufacturing companies, prioritizing partnerships with businesses led by women and BIPOC. This approach recognizes their potential to drive exceptional financial returns while generating substantial social and economic impact. Tracy Gray, managing partner at The 22 Fund, emphasizes the importance of intentional investment in women, people of color, and companies in low- and moderate-income communities.
Regulatory changes have also fostered diversity in the investment landscape. A 2018 exemption allowed smaller funds to expand their accredited investor pool, boosting the number of women- and minority-owned firms. However, the SEC is considering raising the income and wealth criteria for accredited investors, which could shrink the pool of diverse accredited investors and stifle the growth of diverse emerging VC managers.
