Why Minority-Owned Businesses Are Important to Drive Innovation
The pandemic has made for a difficult landscape for most every small business owner but the challenges and impact on minority-owned businesses have been even greater.
“While the share of new Black entrepreneurs has steadily increased, the pandemic has dealt Black business owners, specifically, a blow that only magnifies the inequities built into the American economy,” writes Julie Scheidegger for the nonprofit Ewing Marion Kauffman Foundation.
Here’s a snapshot of the importance of the minority-owned businesses, the challenges they often face, and the ways business, government and nonprofit leaders are working to support these businesses, broadly and in their cities and towns.
“Whether it’s the lack of access to capital or more systematic issues, there are a lot of factors to unpack, says software developer and technical writer Nahla Davies in a SCORE blog post.
Covid Impact on Small Business
New and small businesses – long vital to the U.S. economy – have been at extreme risk since the Covid crisis began last year.
Since the Covid-19 pandemic began in early 2020, more than 41 percent of all Black-owned businesses in the U.S. have closed their doors for good, according to a National Bureau of Economic Research report.
“This comes at a time when the share of new Black entrepreneurs was increasing, despite the fact that for the past 20 years, the rate of new entrepreneurs overall has essentially been flat,” the report said.
Racial Inequities: Challenges and Opportunities
The increase in Black-owned businesses in the U.S. was achieved despite significant barriers to starting new businesses, particularly when it comes to access to capital.
To that point, Black entrepreneurs are three times less likely to have their loan request approved than their white counterparts, according to The Kauffman Foundation’s Capital Access Report.
The pandemic exacerbated the inequities and became even more clear after the first round of PPE federal funding. In response, some nonprofits, local governments, entities and private companies started identifying how they could help even the playing field when it comes to policies and funding for minority-owned small businesses and entrepreneurs.
Advocating for Small Business, Entrepreneurs
More than 150 entrepreneurship advocacy groups and organizations across the country have joined the Ewing Marion Kauffman Foundation in a coalition called Start Us Up, which urges policymakers to address the immediate and long-term needs of entrepreneurs.
The group calls for “radically reforming business licensing procedures to reduce red tape and designating a share of the federal bailout dollars for startups,” and more specifically to make entrepreneurship more accessible to those who have been historically denied the tools they need to start and grow a business.”
In Michigan, a $200 million Grow Michigan Fund II says it will allot half of the capital it raises toward financing minority-owned businesses in that state. The fund, announced in mid-December, is part two of a “mezzanine fund” formed in 2012 with the backing of state funding and investments from several banks, according to a MiBiz article by Mark Sanchez.
Funding has been cropping up in cities as well. The Kansas City Minority Business Resiliency Grant program, funded by the Kauffman Foundation, was created to help minority-owned Kansas City businesses that were left out of initial rounds of COVID-19 relief.
And big companies have been responding. JP Morgan said it’s adding more opportunities for loans to minority-owned companies.
“The pandemic has really exacerbated racial inequalities, and especially amongst historically underserved small businesses,” says Stephen Markwell, the head of treasury services product strategy for commercial banking at JP Morgan, in a post by The Guardian.
“I think businesses around the world are thinking about how we change that and how do we drive for equality,” he said in the article by small business owner Gene Marks.
“We’ve committed billions to help advance racial equality with one of the programs adding 15,000 loans to small businesses that are in the Black and Latinx communities.”
The Importance of Entrepreneurs
In addition to their key role in U.S. and local economies, entrepreneurs are important to local communities as they drive innovation and social change.
“We need entrepreneurs,” writes Davies in the SCORE blog. “We are a nation to be a global superpower with black and minority groups as the backbones of our communities. We need to continue to push and keep the entrepreneurial spirit strong.”