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Startup Capital and the Native American Entrepreneur

Kauffman researcher Emily Fetsch highlights the financing challenge among many Native American entrepreneurs in the third part of her four part series.

This is the third blog post in a series on Native American entrepreneurship: the background, the challenges, and the potential solutions. Review the first post and the second post, which address the state of entrepreneurship among Native Americans and the challenges they face.

Lack of capital, a problem for all entrepreneurs, proves especially difficult for Native American entrepreneurs.

Major reasons for the financing challenge include lack of assets, unavailability of banks, credit issues, discrimination, and equity challenges.

Photo courtesy of Elizabeth Haddad.

Entrepreneurs finance their ventures in many ways including personal savings, credit, and venture capital. Personal savings continues to be used most commonly among entrepreneurs to fund their startups. Two-thirds of Inc. magazine’s survey of fastest-growing firms say they use their personal savings as a source of funding.  

Many Native Americans do not have the assets needed to self-fund their entrepreneurial venture. Native Americans are nearly twice as likely to live in poverty as Americans overall (28 percent vs. 15 percent). The median income for Native American households is $35,062, compared to $50,046 for American households overall.

They are also less likely to own their own home. In 2010, only 54 percent of Native Americans owned their own home compared to 64 percent of Americans overall. Lack of assets makes it more difficult for individuals to enter into entrepreneurial ventures.


Not many banks are located on reservations. For the banks that are on reservation land, they are unlikely to:

“…offer affordable financial services and products tailored for Native American entrepreneurs. In addition, they may charge numerous fees for their services (such as check-cashing fees) and high-interest rates for loans. As a result, Native entrepreneurs are often dependent on the available high-cost financial services or products or, worse, find themselves with bad credit because they have a high-fee banking account they cannot maintain in good standing or are unable to pay back a high-cost loan.”  

Banks outside reservations may lend to Native American entrepreneurs, but likely with high-interest rates. This is due to a variety of factors including discrimination, a lack of knowledge of how reservations and Native communities work, and distrust that they will make money off the deal.


Because reservation banks tend to have high interest rates, many potential entrepreneurs are disincentivized from taking out bank loans. Also, potential Native American entrepreneurs may suffer from the consequences of previous loans with high interest rates and no longer have good credit in which to qualify for loans.


Unfortunately, financial discrimination against all minorities continues to be a problem in the United States. Research shows that:

“Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied. Further, minority-owned firms are found to have less than half the average amount of recent equity investments and loans than non-minority firms even among firms with $500,000 or more in annual gross receipts, and also invest substantially less capital at startup and in the first few years of existence than non-minority firms.”


One way entrepreneurs can overcome bank financing obstacles is through equity investment. Equity financing is better suited for firms intended for high growth. However, equity investors often find entrepreneurs in who to invest through their networks.

Minority angel investors make up just 3.6 percent of total angel investors. Because Native Americans, especially those residing on reservations, tend to be geographically isolated, they are unlikely to have connections to potential equity investors.

In addition, equity investors prioritize high-growth companies to capitalize on their investment, which often does not match up with Native American businesses, most of which are not created to become growth businesses. Enticing investors to consider the economic opportunity presented by Native American entrepreneurs can help encourage entrepreneurs to pursue their business ventures.

Final Thoughts

Overall, the lack of collateral, poor or no credit histories, as well as geographical isolation from mainstream financial institutions” strongly affects Native Americans’ ability to engage in entrepreneurship. My next blog post will examine potential solutions to creating a stronger, more nurturing, environment for Native American entrepreneurs.