The Funding Challenge: What to Keep in Mind Before Starting Your Small Business

The following first appeared in the Hartford Business Journal. It is reposted here with permission from JPMorgan Chase.

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Small businesses have a special place in all our hearts—whether it’s fond memories of visiting the local ice cream parlor or discovering a new favorite at the local bookstore.

Small businesses not only provide character and color to communities, they are also bedrocks for local economies, driving growth and opportunity.

In addition to stimulating the local economy, small businesses provide jobs and stability for their employees, who often live in the same community. 

For entrepreneurs, small businesses can serve as a creative outlet, a source of inspiration, and a way to improve their financial situation and build generational wealth.

However, not everyone has equal access to the resources needed to get a business off the ground, let alone sustain it for years to come.

Barriers

While there are more avenues for more people to grow their ventures than ever before, significant barriers to entry still exist that can impact a person’s decision to start a business. 

This has several implications for minority entrepreneurs, who often lack access to the same level of support needed to set up and launch their companies.

Minority-owned firms have fewer opportunities to build businesses that have a competitive advantage from the outset.

The JPMorgan Chase Institute has found that female-, Black-, and Hispanic-owned businesses are just as likely as White-owned businesses to grow organically, but they are underrepresented among businesses that grow using external financing (such as household savings, social network support, or bank financing).

The institute found that only 18% of female-, 5.8% of Black-, and 21.3% of Hispanic-owned business saw growth due to external financing, compared to their male or White counterparts.

This suggests that female-, Black- and Hispanic-owned firms have fewer opportunities to build businesses that have a competitive advantage from the outset. 

Investment Support

Despite having less access to capital and a network of mentors and fellow entrepreneurs, minority and female-owned businesses still manage to thrive.

Across the country, business ownership has been bolstered by growth in communities where minority groups are the majority, and female entrepreneurs make up nearly half of all new entrepreneurs in the country.

Here in Connecticut, female-led businesses have contributed significantly to local prosperity.

Business ownership has been bolstered by growth in communities where minority groups are the majority.

Eighty-three percent of organizations who have received support from the Women’s Business Development Council Equity Match Grant Program saw an increase in their revenue and 63% saw an increase in profits, success which can be reinvested into growing the local economy.

Additionally, they have created new jobs, guaranteeing lasting effects for the local economy.

The EMG program, in which JPMorgan Chase has invested $300,000, provides capital to women-owned businesses to help pay for specific investments (not operating expenses) that will contribute to the growth of the business. 

Opportunity

With all the benefits that entrepreneurship and small businesses can have on individuals, families and local economies, everyone should have the opportunity to pursue the dream of starting their own business.

As the pandemic caused people to reassess what was important to them, or as they dealt with changes in their careers, the past few years have presented an opportunity for more people to think about taking a chance and starting their own company.

The pandemic, and the additional support in the form of stimulus payments and tax credits, allowed more people to take that chance. 

While there is no shortage of programs to support and guide entrepreneurs through the process of starting their own business, especially those from underrepresented communities, gathering resources is still a hurdle all aspiring small business owners need to tackle. 

Gathering resources is still a hurdle all aspiring small business owners need to tackle. 

For example, readily-available wealth is a major resource that entrepreneurs draw on when taking the leap to start their own business, and can be a major factor in the decision.

Recent research from the JPMorgan Chase Institute looked at the impact an owner’s liquid-wealth has on their business, by comparing what they had before they started their business to after they closed their business.  

According to new research from the institute, small business owners have 40% more liquid wealth than the average wage earner before they start their business.

The disparities are even greater when comparing minority small business owners to their White counterparts, with Black entrepreneurs having less in liquid wealth than White wage earners.

Wealth Disparities

The Institute found that the disparities in wealth held by White, Black, and Hispanic and Latino business owners only changed modestly four years after launching a business.

With all the personal risks that come with starting a new business, having higher savings can alleviate some of the fears that budding entrepreneurs face. 

Since starting a business can be a risky venture for anyone, having higher savings not only provides budding entrepreneurs with the peace of mind they need to take that risk, it also helps them plan for a rainy day.

The institute also found that having higher savings allowed a new entrepreneur to invest more into their business and keep those businesses open and running.  

Small business owners need to create a strategy to access the support or resources they need.

By having more personal wealth, entrepreneurs are then able to invest more into their businesses, allowing them to generate more interest and external support.

Down the line, the initial investment that an entrepreneur makes in their business helps generate continued support and revenue to sustain a living and prevent their businesses from closing. 

For small business owners and entrepreneurs from underrepresented communities, this hurdle can be daunting.

However, it doesn’t mean that a person needs to be rich or have a large amount of money, just that they need to create a strategy to access the support or resources they need, such as seeking out mentorship and entrepreneurship programs, or looking at smaller, low-risk loans to get started. 

Resources for Entrepreneurs 

• The Chase for Business Resource Center houses a variety of tips, tools and information to help entrepreneurs start, manage, grow and develop their ventures. 
• WBDC provides entrepreneurial education and business advising to help women (and men) launch or scale businesses in Connecticut. Most services are provided at no cost. The organization also provides grants to qualified women-owned businesses.
• The Connecticut Small Business Development Center’s trained and experienced full-time advisors work with a variety of small businesses in all industries and stages of development by providing no-cost advisory services.