The provision of loan guarantees and other programs by the U.S. Small Business Administration are examples of government policies aimed at increasing access to credit for small businesses. Considering access to capital and credit across neighborhoods and across ethnic and racial groups raises other policy issues. Owning a successful business builds personal wealth, and self-employment historically has been an important means for raising the economic status of some ethnic groups. Promoting the success of small business is an important part of community economic development strategies, particularly for minority neighborhoods that have suffered from disinvestment. Informal financing via networks can thus substitute for borrowing in the formal sector, either because formal credit is not offered or because informal financing is preferred.
Credit offered by a supplier, which is known as trade credit, is another source of financing.
Businesses also form networks with their suppliers, and there may be an informal dimension to these networks, in that the supplier relationship, including ethnic ties, may be important for some transactions. Thus, trade credit may share some of the features of informal financing, and we group it with clearly informal sources of capital in our discussion of start-up funding. The survey results confirm the importance of personal savings and informal sources of credit in meeting the need for start-up funding. We illustrate the relative importance of the various funding sources with the average proportion of total funding provided by each source. Highlighting the importance of personal resources, 50.9 percent of Hispanic owners and 55.3 percent of Black owners in the sample started their businesses using personal savings as their only source of funding.