Equity in Access to Capital for Food Entrepreneurship in Durham

Authors: 
Keiley Gaston, MPP
Published: 
April 2019
Type of Publication: 
Report

Food entrepreneurs of color in Durham—building restaurants, food trucks, catering businesses, and grocery stores—face significant barriers in starting up and growing their businesses compared to their white counterparts. One of the most critical challenges these business owners face is achieving access to capital. The Federal Reserve’s Small Business Credit Survey found that 40% of African American business owners had been discouraged from completing a loan application, versus 14% of their White counterparts. A recent study controlled for credit scores, business type, and industry differences, yet still found that black-owned startups are much more likely to experience loan denials and unmet need for capital than white-owned startups. Racial inequity in Durham’s food ecosystem can perpetuate gaps in the city’s food security and economic development.
 

Executive Summary

Policy Questions

What barriers do minority food entrepreneurs face in accessing capital in Durham?
What services can the Duke World Food Policy Center and Self-Help offer to address the challenges minority food business owners in Durham face in accessing capital?

Introduction

Food entrepreneurs of color in Durham—building restaurants, food trucks, catering businesses, and grocery stores—face significant barriers in starting up and growing their businesses compared to their white counterparts. One of the most critical challenges these business owners face is achieving access to capital. The Federal Reserve’s Small Business Credit Survey found that 40% of African American business owners had been discouraged from completing a loan application, versus 14% of their White counterparts. A recent study controlled for credit scores, business type, and industry differences, yet still found that black-owned startups are much more likely to experience loan denials and unmet need for capital than white-owned startups. Racial inequity in Durham’s food ecosystem can perpetuate gaps in the city’s food security and economic development.

Data Collection

Interviews were conducted with 11 black and Hispanic food entrepreneurs in Durham, who own catering businesses, food trucks, and restaurants. Respondents were asked about the initial resources they used to start their businesses, the barriers they faced in accessing capital, resources they wished they’d had in the process, and advice for other minority food entrepreneurs in Durham. Interviews were primarily conducted over the phone for 20-60 minutes.

Results

Strongest Barriers  

  1. Minority food entrepreneurs are discouraged by interactions with lending institutions.
  2. Loans become an option after the food entrepreneurs need it; by the time they have reached the required profit level, they are not always seeking more capital.
  3. Various regulations around food trucks, restaurants, and catering businesses are difficult to manage; there is a need for a more consolidated checklist just for food entrepreneurs.                                                    

Alternative Resources

  1. Minority food entrepreneurs are relying on their own capital and full time or part time jobs on the side to support their businesses.
  2. A few entrepreneurs have found alternative working capital options through Square, Kabbage, and Kiva.  
  3. Small business resources offered in Durham can provide another path to success through mentors and grants for entrepreneurs without access to lending institutions.

Recommendations

  1. Encourage working capital through Square / Kabbage / Shopify and other alternatives.
  2. Provide a small business resource map for business plans and information packets.
  3. Strengthen lending institutions’ role in Durham’s food ecosystem.
  4. Introduce an economic development grant in Durham.

Partners: 

  • Faculty advisor Douglas Brook, visiting professor at the Sanford School of Public Policy, Duke University