Low-Wealth, Minority Enterprises and Access to Financial Resources for Startup Activities : Do Connections Matter?

The role new startups may play in the economic recovery has been thrust into the political limelight, with a number of policymakers and advocates calling for public interventions to stimulate and foster an environment conducive to their growth and development. However, the design and implementation of these policies may have differential effects for low-wealth, minority enterprises. As Bates (1997) and Servon (2005) argued, despite affirmative attempts to stimulate access to credit for low-wealth and minority entrepreneurs, a disconnect still remains between these groups and the resources available through mainstream financial institutions and targeted government programs. In this paper, I draw upon the social capital literature to conceptualize the effects of social networks on access to financial resources. The social resource composition of one's network may influence whether or not one gains access to financial resources, as well as the sources of financial resources available, formal or informal. The findings suggest disparities do exist among low-wealth, minority enterprises in the amount of social resources they possess as well as the formal financial resources obtained. Low-wealth, minority enterprises that do obtain a higher level of formal financial resources have upward connections to those that possess greater social resources. The research has implications for the design and implementation of policies geared towards low-wealth, minority entrepreneurs