For several decades, small businesses have played a major role in generating wealth for the US economy, many of them being run by people of color and women. Though the United States takes pride in being a land of equal opportunity for business owners to become successful, the truth is there’s a lot of inequality in our institutions, allowing for gender and racial disparity to affect small business owners negatively.
Now, those same businesses that are run by women and BIPOC (Black, Indigenous, and People of Color) are getting hit the hardest by the COVID-19 pandemic, forcing many of them to shut down. According to a recent study, the small business owners that were impacted the most by the pandemic were:
- African American (41%)
- Latino (32%)
- Asian (26%)
- Immigrant (36%)
- Female (25%)
Why the Disparity
These stats also highlight an important question — why aren’t white-owned businesses impacted as heavily compared to those that are minority-owned? Economists and other experts may suggest that it comes down to white-owned businesses showing more “potential” for growth and profitability, but there are many institutional limitations that come into play for MWBE (minority- and women-owned business enterprises). Oftentimes, it’s not about potential — it’s about privilege.
Large banks typically approve about 60% of loans sought by white small business owners, 50% of loans sought by Latino or Hispanic small business owners, and 29% of loans sought by Black small business owners.
Due to a long history of systematic racism and discrimination, a variety of factors limit women and people of color as they consider starting and growing their own small business, including having trouble achieving higher education, personal wealth, and having access to capital for a start-up — obstacles that many white business owners have no trouble overcoming.
According to data from the Small Business Credit Survey, large banks typically approve about 60% of loans sought by white small business owners, 50% of loans sought by Latino or Hispanic small business owners, and 29% of loans sought by Black small business owners. In many banks and institutions, white-owned businesses aren’t required to show previous financial records to qualify for a loan, but some banks may require those records when dealing with MWBEs.
Historical discrimination has impacted minority-owned businesses for years. One study shows that many highly-rated businesses in Black-majority neighborhoods earn less revenue than businesses with similar ratings outside of Black neighborhoods.
These sort of racial disparities are not only causing the failure of millions of new small businesses, but also an estimated annual revenue loss of 3.9 billion dollars!
The incredible factor to take away from all this is that when it comes to potential, it’s women and people of color who truly have the best qualities needed to become an entrepreneur.
For example, many people of color attend college/university to take an entrepreneurial route and become self-starters. They are very driven to start their own business and not have to rely on some other company’s paycheck. In the US today, 17% of Black women are in the process of starting or running new businesses. That’s compared to just 10% of white women, and 15% of white men. However, despite the drive and initiative, only 3% of Black women end up running a long-term, sustainable business. This drop-off is also created by institutional barriers that revolve around race and gender.
Due to these inherent limitations in our society, 61% of Black women self-fund their total start-up capital. This is even though only 29% of Black women entrepreneurs live in households with incomes over $75,000, compared to 52% of white men. This result, along with the fact that most Black people take on a higher level of debt to go to college and are less likely to own their own home, suggests that educated Black entrepreneurs are burdened with debt and have fewer personal resources to rely on.
In the US today, 17% of Black women are in the process of starting or running new businesses. That’s compared to just 10% of white women, and 15% of white men. However, despite the drive and initiative, only 3% of Black women end up running a long-term, sustainable business.
However, even without all the privileges granted to white-owned businesses, minority and female business owners still show the drive and perseverance that is essential to entrepreneurship. From one perspective, the face of female entrepreneurship is becoming a lot less white. Black women represent 42% of new women-owned businesses, which is three times their share of the female population, and 36% of all Black-owned employer businesses. High levels of educational achievement, coupled with overcoming barriers to corporate advancement, have prompted Black women to pursue entrepreneurship, where they’ve become a potent economic force.
Level the playing field
Key resources for entrepreneurship are unevenly distributed in the US, but there are ways that we can level the playing field to support more diversity and equality in our economy. For starters, the public and private sectors — and even local communities — can all do their part to help remove institutional barriers for Black-owned businesses. Stakeholders could ensure that laws, policies, and practices are designed to produce equitable opportunities and outcomes. This also means creating equitable access to capital for all SMBs.
We can also create a bridge between governmental policies and local initiatives to help MWBEs prosper and grow. Small business relief funds and technical assistance providers at the local level can help maximize the chances that entrepreneurs connect to national stimulus.
Stakeholders could ensure that laws, policies, and practices are designed to produce equitable opportunities and outcomes. This also means creating equitable access to capital for all SMBs.
We can also build out rapid response solutions that involve local leaders, community-based organizations, and entrepreneurs to build a longer-term infrastructure to support businesses owned by women, minorities, and people of color.
Spreading knowledge — whether it’s through local outreach or established organizations, schools, and communities — is also key to helping entrepreneurs overcome sociocultural barriers. We also want you to know that there are online resources out there, like HUUB, that are dedicated to helping underrepresented business owners. From funding opportunities, live workshops, to free government & partner programs, platforms like HUUB are here to help you gain access to resources you need to create a solid, sustainable foundation for your small business.
Spreading knowledge — whether it’s through local outreach or established organizations, schools, and communities — is also key to helping entrepreneurs overcome sociocultural barriers.
Considering small businesses are the backbone of our economy, propelling female-owned and minority-owned businesses toward success will not only help close the racial disparity gap — it will create more opportunities to build generational wealth among diverse communities, strengthen our local economies through revenue and job creation, and enrich our culture as a whole.