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October 31, 2024

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Lending Tree study: MBEs thrive the most in Maryland

With nearly 3.6 million Black-owned U.S. businesses, there are pockets of the country in which minority-owned businesses fare better than others. This LendingTree study examines the states where minority-owned businesses thrive and where they struggle.

Using the U.S. Census Bureau definition of minority-owned businesses (those with majority ownership by someone with any race and ethnicity combination other than non-Hispanic and white), our study analyzes five metrics, including the percentage of minority-owned businesses and the pay ratios of these companies compared to all businesses.

Maryland, Nebraska and the District of Columbia occupy the top three spots in our study, while Iowa, Idaho and Rhode Island are at the bottom.

Key findings

• Minority-owned businesses thrive the most in Maryland. The state finishes in the top 10 in three of five metrics, with minority-owned businesses paying employees the fourth-highest relative to all businesses. Additionally, Maryland has the sixth-highest percentage of businesses that are minority-owned and the 10th-highest rate of these businesses that have operated for at least six years. Nebraska and the District of Columbia join the top three.

• Minority-owned businesses thrive the least in Iowa. The state finishes in the bottom 10 in two of five metrics, with the rate of minority-owning businesses being seventh-worst in the nation. It also saw the seventh-worst year-over-year growth in the number of these businesses. Idaho and Rhode Island join the bottom three.

• States in three regions occupy the No. 1 spots in our metrics. Hawaii (West) has the highest percentage of minority-owned businesses, while Nebraska and South Dakota (both Midwest) have seen the biggest year-over-year growth in this number. Meanwhile, Tennessee (South) has the highest rate of minority-owned businesses with at least $500,000 in revenue.

• Northeastern states take the last spot in four of the five metrics. Vermont has the lowest percentage of minority-owned businesses, while Rhode Island has seen the worst year-over-year growth in this number. Additionally, Pennsylvania has the lowest percentage of minority-owned businesses open for at least six years. (More on the other metric next.)

• Minority-owned businesses pay their employees about two-thirds of what businesses across the states analyzed pay on average. Employees at minority-owned businesses garner 67.7% of the earnings across all businesses. This ranges from a low of 50.6% in Connecticut — $36,393 versus $71,861 — to a high of 83.0% in North Dakota — $45,114 versus $54,334.

Minority-owned businesses thrive the most in Maryland

Maryland lands in first in our study, with top-10 rankings in three of five metrics. Minority-owned companies in the Southern state have the fourth-highest pay per employee relative to all businesses. Over a quarter (25.4%) of companies in Maryland are minority-owned, the sixth-highest share in the U.S. Additionally, the state scores high for the longevity of its minority-owned businesses. In fact, 56.6% in the state have operated for at least six years, the 10th-highest across the country.

2020 Census data shows Maryland is one of the country’s most racially and ethnically diverse states, behind only Hawaii, California and Nevada. According to Pew Research Center, Black-owned employer businesses in Maryland make up the most significant share of classifiable companies (8%) in the state.

While Maryland’s diversity is reflected in the makeup of its small businesses, less than half of the state’s minority-owned companies (47.8%) earn revenues of at least $500,000, earning it 16th for that metric. Additionally, the number of minority-owned businesses in Maryland only grew by 6.5% from 2020 to 2021 (the latest data available), landing it in 30th for that metric.

Maryland has multiple statewide and community initiatives to support and improve the outcomes of minority-owned businesses, including the Minority Business Enterprise Program, the Maryland Small Business Development Financing Authority and TEDCO’s Social Impact Funds.

Also thriving: Nebraska, District of Columbia

Nebraska and the District of Columbia follow Maryland in our analysis of where minority-owned businesses are thriving. Nebraska has three top-five rankings, including first in two metrics: the percentage of minority-owned businesses operating for six years or more (74.3%) and the growth in minority-owned companies from 2020 to 2021 (41.4%). More than half (53.9%) of Nebraska’s minority-owned businesses earn at least $500,000 in revenue, the fifth-highest ranking.

Notably, only 3,032 of the Cornhusker State’s 41,391 businesses with paid employees in 2021 were minority-owned, a 7.3% share, the 11th-lowest percentage. So, while the minority-owned businesses in operation are thriving, they represent a minimal portion of the state’s total companies.

Nebraska’s increase in minority-owned businesses echoes the state’s population changes. Over a decade, Nebraska’s minority population has grown, with the largest shifts among Asians, Hispanics, and Native Hawaiians and Pacific Islanders.

The District of Columbia places third in our study, with top-10 rankings in three of five metrics. Over a quarter (28.6%) of the district’s businesses are minority-owned, the fourth-highest share. The District of Columbia also scores high for longevity — 60.2% of its minority-owned businesses have been around for at least six years, the sixth-highest rate. Over half (50.4%) of the District of Columbia’s minority-owned businesses earn $500,000 or more in revenue, the ninth-highest share.

Like Maryland, the District of Columbia is one of the country’s most diverse states. According to Pew Research Center, Black-owned employer firms make up the district’s largest share of classifiable businesses (15%), helping it earn first in our study of where Black Americans thrive the most. D.C.’s Department of Small and Local Business Development operates multiple initiatives designed to remove the barriers to entrepreneurship for small business owners in the area.

Minority-owned businesses thrive the least in Iowa

Iowa ranks last in our study, with bottom-10 rankings in two metrics. The Hawkeye State has the seventh-worst rate of minority-owned businesses in the country (5.1%). While most states saw gains in minority-owned companies between 2020 and 2021, Iowa lost 2.5%, also the seventh-worst.

Additionally, only 42.9% of minority-owned businesses in Iowa earn revenues of at least $500,000, the 11th-worst ranking. About half (50.8%) have operated for six or more years. Iowa fares better in the ratio of pay for minority-owned businesses compared to all companies, placing 18th in that metric.

According to U.S. Census Bureau data, Iowa is the country’s sixth-least diverse state, a factor in its low percentage of minority-owned businesses and poor growth rate. Minority Business Development Agency data shows that most of Iowa’s minority-owned businesses earn under $25,000 in gross receipts. Despite the low scores, there’s evidence of an improved small business climate in Iowa, partly due to recent tax reforms.

Also not thriving: Idaho, Rhode Island

Idaho follows Iowa, with bottom-10 rankings in four metrics. Idaho lost 3.4% of its minority-owned business from 2020 to 2021, the fifth-worst ranking. Only 40.5% of such companies earn at least $500,000 in annual revenue, the seventh-lowest rate. The Gem State has the eighth-worst ranking for the share of minority-owned businesses in operation for six or more years (48.3%) and the ninth-worst ranking for its share of minority-owned businesses (6.4%).

Idaho ranks well in one metric: its ratio of pay for minority-owned businesses compared to all companies, placing sixth in that metric.

States that occupy No. 1 spots are spread across the U.S.

Three of the country’s four regions are represented in the top spots of our study’s individual metrics. The Northeast fails to land first in any metric, though it appears three times in the top three rankings.

Representing the West, Hawaii takes the top spot for the percentage of minority-owned businesses, followed by fellow Western state California at a distant second. Southern state Texas rounds out the top three.

The high rate of minority-owned businesses in Hawaii echoes the state’s population. Hawaii, which places fourth in our overall ranking, has a high Asian (37.2%) and total minority (77.1%) population. Similarly, California and Texas have high minority populations.

States in three regions take the top three spots for the percentage of minority-owned businesses operating for at least six years. Nebraska (Midwest) finishes first, followed by Vermont (Northeast) and Hawaii (West).

Southern states occupy two of the top three spots for the percentage of minority-owned businesses with at least $500,000 in revenue. Tennessee lands in first, while Alabama places third. Northeastern state Vermont finishes second.

The Midwest occupies the three top spots for growth in minority-owned businesses. Nebraska ties with neighboring South Dakota for first, followed by North Dakota. Despite the significant percentage increase, the share of minority-owned firms in these states remains low.

Three regions of the country are represented in the top spots of our fifth metric, the ratio of pay compared to non-minority-owned businesses (discussed later). North Dakota (Midwest) places first, followed by New Hampshire (Northeast) and Hawaii (West).

Northeastern states occupy the bottom spot across most metrics

While the Northeast isn’t well represented in the top positions, the region occupies the last spot in four metrics.

Vermont has the lowest share of minority-owned businesses (2.7%), followed by fellow New England state Maine (3.8%). Both states have small minority populations, contributing to the minimal share of businesses owned by people of color. Vermont’s population is 89.8% white, while Maine’s is 90.8%.

Midwestern state South Dakota ties with Maine to finish out the bottom three.

Pennsylvania finishes last for the share of minority-owned businesses operating for six or more years (38.0%). Three regions occupy the bottom spots in this metric, with Wyoming (West) and Louisiana (South) joining Pennsylvania.

The metric in which the Northeast doesn’t occupy any of the lowest three spots is the percentage of minority-owned businesses with $500,000 or more in revenue. Two Western states, Wyoming and Utah, take the worst and third-worst positions, respectively, with Missouri representing the Midwest for the second-worst position.

Two Northeastern states, Rhode Island and Vermont, take the bottom two spots for growth in minority-owned businesses, losing 22.7% and 17.6% of their minority-owned companies, respectively, between 2020 and 2021. West Virginia rounds out the bottom three.

Notably, the data covers a time when the impacts of the coronavirus pandemic hammered all small businesses, though communities of color were affected disproportionately.

According to Fed Small Business data, the number of active small businesses nationwide declined by 22% from February to April 2020. However, minority-owned businesses fared much worse. Black-owned small businesses declined by 41%, Hispanic-owned companies dropped by 32% and Asian-owned firms decreased by 26%. Contrast that to the 17% decline of white-owned companies.

Northeastern states Connecticut and New York occupy two of the bottom three spots for pay ratio compared to non-minority-owned businesses. We cover that metric below.

How minority-owned businesses pay employees compared to average

Our research reveals that, on average, minority-owned businesses across the states analyzed pay employees about two-thirds (67.7%) of what all companies — regardless of ownership — compensate.

North Dakota, which finishes 13th overall, ranks first in this metric, with minority-owned businesses paying employees 83.0% of what all companies in the state do ($45,114 versus $54,334).

New Hampshire and Hawaii follow North Dakota, with minority-owned businesses in those states paying 82.7% and 82.5%, respectively, of what all businesses pay.

Lower pay among minority-owned businesses is a natural result of lower average revenues across firms owned by people of color compared to non-minority-owned companies. Federal Reserve data shows that 63% of Black-owned employer firms (companies with at least one employee other than the owner) have revenues below $100,000. Nearly half (47%) of Hispanic-owned and 30% of Asian-owned employer firms take in the same. These rates are much higher than the 19% of white-owned employer firms reporting revenues below $100,000.

“One of the biggest challenges minority-owned businesses face is a lack of access to funding,” LendingTree chief credit analyst Matt Schulz says. “When you make a smaller salary or are less able to access credit, it significantly hamstrings your ability to start or grow a business.”

Connecticut, which ranks 23rd overall, performs worst in this metric. The average pay among minority-owned businesses in the Constitution State is $36,393, about half (50.6%) of what all businesses in the state pay employees ($71,861). Mississippi and New York follow, with minority-owned businesses paying employees 52.1% and 55.6%, respectively, of what all companies in those states pay.

5 ways to support minority-owned businesses

Here are a few ways to champion Black-owned and other minority-owned companies:

• Be aware of the challenges minority-owned businesses face. Whether you’re a consumer or a business proprietor, understanding and acknowledging the roadblocks entrepreneurs of color face is the first step to addressing them. Limited sources of startup funding, biases when applying for small business loans, reduced visibility and education gaps are just a few of the challenges many minority business owners face.

• Patronize minority-owned businesses. “Perhaps the best way to support minority-owned businesses is to buy from them and to encourage others to do the same,” says Schulz, author of “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life.” “It doesn’t mean you have to spend a fortune; buying their products and services and then raving about them online or in person with others is a big deal for these businesses’ bottom lines.” While National Black Business Month and heritage months are opportune times to engage with minority-owned businesses, it’s crucial to continue supporting them beyond these occasions.

• Invest in minority-owned companies. “Consider investing in minority-owned businesses,” Schulz says. “This is a significant step and isn’t to be done lightly, but if you feel compelled to and are financially able, injecting capital into a minority-owned business can make a major difference.”

• Heighten awareness of minority-owned businesses. “If you can’t support minority entrepreneurs financially, there are still things you can do,” Schulz says. “Having folks who you know are rooting for you and are there for you when times get tough is invaluable. Whether you give them business advice, connect them with a potential business partner or employee, rave about them in your socials or even act as a cheering section, that matters.” Additionally, being transparent about your efforts, whether as a consumer or a business owner, can naturally increase awareness of the existence and needs of minority-owned companies.

• Share resources. “There are organizations of all kinds to help financially strapped minority-owned businesses thrive; it’s critical that struggling entrepreneurs take advantage of them,” Schulz says. Helping to connect businesses of color with available resources such as minority small business grants, mentors, business incubators and networking opportunities can be impactful. The U.S. Small Business Administration, Minority Business Development Agency, National Minority Supplier Development Council and the U.S. Chamber of Commerce are just a few national organizations in addition to state and local small business resources.

Methodology

LendingTree researchers analyzed U.S. Census Bureau Annual Business Survey data to find the states where minority-owned businesses are thriving the most (or least). We used five metrics:

• Percentage of businesses that are minority-owned. This is from the U.S. Census Bureau 2022 Annual Business Survey, which covers 2021.

• Percentage of minority-owned businesses operating for at least six years. This is from the U.S. Census Bureau 2022 Annual Business Survey, which covers 2021.

• Percentage of minority-owned businesses with at least $500,000 in revenue. This is from the U.S. Census Bureau 2022 Annual Business Survey, which covers 2021.

• Percentage change in the number of businesses that are minority-owned. This is from the U.S. Census Bureau 2022 and 2021 Annual Business Surveys, which cover 2021 and 2020.

• Ratio of minority-owned business pay to average pay. This measures average pay at minority-owned businesses relative to average pay across all businesses. This is from the U.S. Census Bureau 2022 Annual Business Survey, which covers 2021.

Researchers ranked each state in each metric and created an index based on average rankings across the five metrics.

To view full article and statistics, please click here.