A large literature examines the impact of financial capital on small business formation and performance.  The findings from this literature indicate that access to financial capital is one of the most important determinants of small business creation and success.  Many previous studies also examine the barriers that disadvantaged minorities face in obtaining access to capital for their businesses.  These studies find that access to capital, wealth inequality, and lending discrimination creates substantial barriers for minority business success. Wealth inequality represents a troubling and persistent root of this problem because the owner's wealth can be invested directly in the business or used as collateral to obtain business loans, and the disparities are extremely large.  For example, in the United States, African-Americans and Latinos have median wealth levels of $8,650 and $13,375, respectively, which are one-ninth to one-thirteenth white levels (U.S. Census Bureau 2011).

 Less research, however, has focused on access to and use of financial capital among immigrant entrepreneurs.  Anecdotal evidence suggests that immigrant entrepreneurs rely heavily on informal sources to finance their businesses instead of banks or other institutions, but there is little direct evidence from nationally representative datasets carefully documenting these patterns. The lack of research on the advantages and disadvantages that immigrant entrepreneurs face in obtaining capital for creating and maintaining successful businesses may represent an important omission from the literature.  A better understanding of the constraints faced by immigrant entrepreneurs may shed light on whether there is untapped potential for this group and whether their contributions to host country economies can be even greater.

            This paper examines the determinants of access to financial capital among ethnic minority entrepreneurs and businesses.  Access to capital among immigrant entrepreneurs is also examined. Data from two nationally-representative government sources, the Survey of Business Owners and the Kauffman Firm Survey, are used to examine patterns of financial capital use and their determinants. Several key questions regarding access to financial capital among small businesses owned by immigrants and minorities are examined.  First, do immigrant and minority entrepreneurs have access to less or more startup capital than non-immigrant and non-minority entrepreneurs?  Second, what are the sources of financial capital used by immigrant and minority business owners?  Do these sources differ from those used by non-immigrant and non-minority business owners, especially from informal sources compared with bank loans and other more formal sources? Finally, the single largest asset held by most households is equity in their home which can be invested directly into business starts or used as collateral to obtain business loans. Do immigrants and minorities differ in rates of home ownership and do these differences have any impact on differences in rates of business formation?