Funding creativity, fueling small business growth: Bridging the capital gap in the creative economy

The creative economy is one of the world’s fastest growing sectors, representing $2 trillion in economic activity globally and potentially comprising 10% of GDP by 2030. In the U.S., arts and cultural production make up over 4% of the economy, reaching over $1 trillion in 2022.

Small businesses are a major driver of this growth. Start-up costs in creative sectors tend to be relatively low, making it easier for entrepreneurs to get started. Smaller firms generally innovate more quickly and know what their communities will value better than larger firms.

At the same time, small business owners in the creative field — often referred to as “creative entrepreneurs” — face unique and often steeper challenges compared to other types of small businesses, from their higher vulnerability to inflation to a complicated funding picture. The impact of a creative entrepreneur closing shop can also extend well beyond the jobs lost, given there can be strong linkages between their products and the local community’s culture and identity.

Bearing in mind creative entrepreneurs’ critical importance to local communities as well as the overall economy, Mastercard Strive USA recently convened a roundtable discussion in partnership with Etsy to explore how ecosystem actors can help creatives grow their businesses and strengthen their resilience. The participants included community financial development institutions (CDFIs), business support organizations working directly with creative entrepreneurs, government agencies supporting small business, impact investors, and other organizations that touch the creative economy.

The unique challenges facing creative entrepreneurs

The roundtable opened with a consensus: while macroeconomic challenges impact all entrepreneurs, creative entrepreneurs can be particularly vulnerable.

“Creative entrepreneurs have been hit harder by inflation than other businesses we work with. Sales are down, costs are up, and supply chain disruptions have really affected what they can do,” said one participant from a community development organization that provides financing and support to underrepresented and undercapitalized entrepreneurs. “They are really strapped today compared to where they have been historically.”

The overall financing environment is also particularly challenging. With fewer community banks, creative entrepreneurs have lost a key financial lifeline because community lenders once intimately knew their businesses and could advocate for them. Relatedly, investor mindsets that consider a creative business as a “lifestyle business” and not a “real” business also complicates the funding picture.

“Banks today don’t understand these businesses. They just know that half of small businesses will fail within five years and hence they are very conservative, even if a local community is supporting that business,” said a senior leader at a fintech company that works closely with small businesses.

Another challenge relates to the size of many creative businesses — oftentimes considered microbusinesses, operating on an even smaller scale than the traditionally-defined “small business”. As a result, access to technical resources such as financial education can be transformative, helping entrepreneurs generate their first financial statements and disentangle personal finances from the economics of the businesses, a requisite to applying for a loan.

Strategies and tactics for supporting creative entrepreneurs

Creative entrepreneurs face many unique challenges but the benefits of supporting them are often significant — both economically and culturally.

“Culture is why people choose to live where they live and how they feel connected. Artists are a huge part of creating that culture. It is not just about the bottom line,” said one state economic development official who implements place-based strategies. “For that reason, in our place-based work, we always try to incorporate an artist perspective from the beginning of a project, such as considering whether a new building might benefit from a mural.”

A first step is often making the business case to investors about creative businesses, starting with their own portfolios.

“Some investors we work with had already invested in creative businesses but didn’t realize it, and so by naming and framing these investments, we were able to bring more investors into the space,” said one participant who works at the intersection of impact investing and artistic disciplines.

A related step is shifting mindsets from thinking of creative businesses as “small” and “less professional” to recognizing them as highly entrepreneurial.

“Many investors see a business with one or two people as a deficit,” said one creative entrepreneur who also provides technical assistance to other small businesses. “But these people are literally doing everything and can adapt to changing conditions quickly. A team of one should be seen as a strength, not a weakness.”

Strengthening organizations that support small businesses more broadly such as CDFIs and technical assistance providers can also help provide direct benefits to creative entrepreneurs. For example, technical assistance programs focused on financial health, online tools such as e-commerce, and marketing can enable creative entrepreneurs to grow their businesses. Investments in automation and technologies such as AI can also free up more time for lenders to spend with creative entrepreneurs, which can lead to more understanding and a stronger relationship. Spending more time with creative entrepreneurs can also help build trust, which all participants agreed remained a huge challenge.

“Organizations that support creative entrepreneurs need to go into the community to offer products and to educate,” said one participant towards the end of the discussion, “but if that small business doesn’t trust that organization, they are not going to work with them. So focusing on building and strengthening trust with these communities is perhaps the most important step we can take to strengthen the creative economy.”

By fostering trust, expanding access to capital, and continue to shift perceptions about the value and viability of creative businesses, we can unlock the full potential of the creative economy. Creative entrepreneurs are not just business owners — they are cultural stewards, community builders, and economic drivers. Strengthening the ecosystem that supports them is not just about ensuring their survival; it’s about fueling innovation, preserving cultural identity, and driving economic growth.