The most recent jobs data for the U.S. highlight a tale of two economic recoveries.
While the national unemployment rate is falling, dropping to 4.2 percent in November, it is much higher for Black Americans at 6.7 percent. In short, the U.S. economy is steadily reviving after the slowdown sparked by the COVID-19 pandemic, but for Black Americans, the recovery is stubbornly slow.
One powerful way to address the disparity while building in long-term growth is to encourage higher levels of entrepreneurship and small business development among Black people.
The sweeping benefit of small businesses is well documented. They are “the lifeblood of the U.S. economy: they create two-thirds of net new jobs and drive U.S. innovation and competitiveness,” the U.S. Small Business Administration states.
Small businesses already have had an enormous impact on Black communities. A report last year sponsored by the Congressional Black Caucus Foundation and Bank of America found that the number of Black businesses increased by 35 percent between 2007 and 2012 and that at present there are an estimated 2.6 million Black-owned businesses in the U.S.
“With the total combined revenue of all Black-owned businesses (sole proprietorships plus employer firms) exceeding that of $150 billion — a nearly 10 percent increase over a 10-year span (2007-2017) — Black business ownership is on the rise and continues to trend in a positive direction,” the report found.
Success has come despite obstacles. For example, minority-owned businesses historically have less-developed relationships with banks than their White counterparts – a legacy of banks refusing to lend to people in communities of color. The shadow of that legacy persists for Black entrepreneurs. The National Association for Economic Research found that “black-owned startups are about three times less likely than White-owned startups to report that their loan requests are always approved.”
So how to build on the success of existing Black-owned businesses and encourage new entrepreneurs while ensuring minimal obstacles to success?
The first part of the solution involves providing Black communities with increased skills and resources related to finance to improve overall creditworthiness. Deep knowledge about financial management, budgeting, and investing is a critical foundation for creditworthiness, which has a direct impact on access to capital.
Another aspect of the solution is ensuring access to financing for qualified entrepreneurs while mitigating any institutional discrimination. This can be achieved through what is known as Community Development Financial Institutions.
The CDFI designation from the U.S. Treasury Department is for certain banks, credit unions, venture capital providers, or microloan providers whose job is to foster economic opportunity in low-income areas and revitalize neighborhoods.
The Urban Institute stresses that CDFIs “are playing an increasingly important role in the financial, economic and social health of low- and moderate-income communities, financing businesses owned by people of color, women, or residents of rural areas and supporting communities devastated by the financial and housing crises of the past decade.”
A third piece of the puzzle is providing communities with the knowledge base to nurture Black entrepreneurs. That’s where local economic developers play an essential role. Our organization, which represents economic development agencies across the nation, teaches the teachers. We provide the skills for local officials to collaborate directly with entrepreneurs and small businesses and foster growth and wealth creation in underserved regions.
With support from groups including the Rockefeller Foundation, the Kauffman Foundation, Bloomberg Philanthropies, we are also developing a pilot program that zeroes in on strategies to boost small businesses and investment specifically in communities of color, such as encouraging local businesses to set up mentoring programs for Black and Latino entrepreneurs.
“Healthy Black-owned businesses could be a critical component for closing the United States’ Black-White wealth gap,” a recent McKinsey report opines.
But first, the nation must pull together to improve the conditions for success. The country is at its best when all businesses thrive.
