Who do small businesses trust? Five key points from the research on trust and access to capital

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According to studies by Gallup And Nobleman. Another question, however, is who small businesses trust and what challenges they face. Finding the answers is important because when small business owners have confidence in financial institutions, they are more likely to seek out and obtain the funding they need to grow. This in turn leads to a stronger economy.

The findings of the “Confidence and access to capital 2023was released this week along with the U.S. Minority Business Development Agency’s (MBDA) inaugural Diverse Business Forum on Capital Formation that provides insight into these questions. The MBDA Forum brought together leaders and experts representing capital providers, government and communities to reflect on and find solutions for access to capital. The results of this survey are particularly timely because they reflect the experience and attitudes of small business owners and entrepreneurs on MLK Boulevards, Cesar Chavez Ways, Chinatowns and Main Streets across the United States.

More than 1,000 black, Latino/a, Asian and Pacific Islander (AAPI) and white entrepreneurs participated in the survey, which was conducted by Reimagine Main Street in collaboration with the National Asian/Pacific Islander American Chamber of Commerce and Entrepreneurship, U.S. Spanish Chamber of Commerce and American Black Chambers Inc., with PayPal support.

Here are five key takeaways from the survey.

1. Entrepreneurs, especially diverse small business owners, face an uncertain reality: The survey shows that one-third of small business owners, including 58% of black entrepreneurs and nearly 40% of Latino and AAPI entrepreneurs, are concerned that they won’t be able to handle an unexpected $5,000 expense. In addition, most respondents said a lack of funding would be a barrier to pursuing a contract or purchase order.

2. Small Business Owners Are Open To Sharing Data: More than half (58%) of respondents were willing to share digital access to their financial information when applying for funding. These results are particularly noteworthy because approximately two-thirds (67%) of respondents were over the age of 50. This willingness to share data holds promise for innovations that develop tailored and accessible financing options and create alternatives to traditional credit scores, which can be biased against entrepreneurs of color.

3. Small dollar financing is in high demand: Last year, 54% of the surveyed entrepreneurs applied for a loan. Of these, 85% were looking for less than $250,000 and 57% wanted to borrow less than $50,000. Taking on small dollar loans is an economic challenge for lenders that don’t rely on automation, so this finding highlights the critical role that digital financial services can play here.

4. Priorities Differ by Race and Ethnicity: The survey found that Black business owners prioritized their confidence in application approval, while Hispanic business owners valued quick responses the most. Meanwhile, both AAPI and white business owners rated low rates or “good prices” as their most important criterion when deciding where to look for financing.

5. Entrepreneurs trust their colleagues the most for advice: Small business owners reported being most likely to turn to fellow entrepreneurs for advice and guidance, and unsurprisingly prefer people with similar experiences. Often this involves working with structured networks such as chambers of commerce, trade associations or other related affinity groups.

Capital is the lifeblood of business and this data provides critical insights into how we should help different companies access it. Banks, fintechs and community development financial institutions must commit to collaboration and innovation to meet the unique needs, preferences and constraints of small businesses and entrepreneurs.