Can Black-Owned Franchises Close The Racial Wealth Gap?

August 7, 2013  |  

Within the past decade, institutions like MinorityFran and National Minority Franchising Initiative (NMFI) sought to encourage non-White entrepreneurs to become franchisees to close the racial wealth gap. Scholars say that’s all good and dandy, but we forget that wealth cannot be created without minorities having wealth themselves, reports New Pittsburgh Courier.

Karim Webb, one of the few African-American franchisee owners, has two Buffalo Wild Wings restaurants in Los Angeles. Webb would be considered the quintessential face of a successful minority entrepreneur, but it was his advantageous upbringing that helped him hop over the many hurdles facing many Black entrepreneurs. Together, Webb’s parents and sister own 15 McDonald’s restaurants. Growing up around a business-oriented family, he skipped the pursuit of a business degree and decided to apply for financing for his franchise. Unsurprisingly, the banks rejected him. For most African Americans, that would bring their business dreams crashing down. But because of his connections with high net worth investors, he received $2 million and Webb’s entrepreneurial goals were met.

But Webb’s success, which was reached through his wealthy background, is a rarity in the minority community. On average, Black entrepreneurs start their businesses with less money than Whites and put up 56 percent of their initial capital while Whites put up only 39 percent. “Qualifying for a loan in today’s tight credit market is hard. But add race to the mix, and a [Black] borrower’s odds can go from bad to worse,” The Huffington Post says.

Easing existing racial differences with self-employment goes beyond just pushing minorities to pursue a business in franchising, The New Pittsburgh Courier adds. “We have to address racial differences in wealth.” Obviously, one is less likely to take a risk in a new business venture if he or she has too much to lose.

MinorityFran, formed by the International Franchise Association (IFA), wanted to “connect would-be minority entrepreneurs with businesses that were looking to recruit.” Similarly, the NMFI “staged international lectures for minorities across the country,” Pittsburgh notes. However how beneficial are these initiatives anyway when business dreams are trumped by lack of capital, connections, and income? And when black-owned franchises are formed, they are the most fragile in this weak economic climate. Minority owners were hardest hit by America’s Great Recession: “Prior to the downturn, White families had about four times as much wealth—in cash, real estate, retirement accounts—as non-White families. In 2010, Whites had about six times more,” Pittsburgh reported. 

Although the push for more black-owned franchises is noble and well-intentioned, the New Pittsburgh Courier insinuates, the notion that it can “narrow the wealth gap” is unlikely.

Do you think the push to recruit more Black entrepreneurs into franchising will dissipate the wealth gap?

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