For centuries, small businesses owned by people of color have contributed to the fabric of innovation and economic growth in this country. Between 2007 and 2017, businesses owned by people of color grew 10 times faster than the overall growth rate of U.S. small businesses during the same period, and today entrepreneurs of color operate more than 8 million businesses. But despite the huge impact this community has on local and national economies, small business owners of color have faced unique challenges when trying to start and grow a business due to discrimination in our system. banking and society at large – issues that have been dramatically exacerbated by the COVID-19 pandemic. Without a concerted federal effort to truly invest in a diverse and equitable business ecosystem, entrepreneurs of color will continue to face systemic barriers and will not survive the next crisis.
It’s no secret that black and Latino-owned businesses have not only suffered the brunt of lost revenue and business closures, but have found it harder to access federal government programs. emergency aid like the Paycheck Protection Program (PPP) and received less funding than their white counterparts. This is due to long-standing inequalities in our traditional banking system, a process that favors large corporations over small businesses owned by women and minorities.
For example, while black-owned businesses are more likely to apply for bank financing, less than half of those applications are fully funded. Lenders demand that businesses provide overwhelming, sweeping, and archaic collateral for loan applications, making it difficult for small businesses to get a traditional loan without additional help and resources. In fact, before the pandemic, women and minority-owned businesses received just over 4% and 5% of conventional loans, respectively.
These challenges in turn enabled predatory lending practices that have plagued minority-owned businesses in plain sight for years. Unlike payday loans for consumers, online finance companies and other alternative small business finance companies operate in an almost entirely unregulated market where it is legal for bad actors to hide their fees or not provide these fees. information.
Expanding access to responsible credit and capital would help prevent these unfair lending practices and create a level playing field for all small businesses. Too many entrepreneurs of color have shared their stories of crushed dreams due to a desperate need for an injection of cash to avoid an indefinite shutdown. That’s why we need more federal grants and low-cost loans for businesses owned by people of color that have been left behind by federal relief efforts, as well as the federal government’s adoption of the Small Business Lending Truth Act, which would require more transparency. and commercial loan fairness to combat blatant predatory lending practices.
Another injustice facing small business owners of color is access to affordable, quality health coverage. More small business owners of color have recently identified obtaining health insurance coverage as a challenge during the pandemic than white business owners. Access to affordable health care has historically been uneven in communities of color, and some companies have been forced to make tough decisions between paying or cutting health care benefits during the pandemic. It is clear that small business owners of color would benefit from smart healthcare policies, such as the expansion of the Affordable Care Act and the continued premium assistance provided by the American Rescue Plan, which would guarantee affordable, accessible and equitable quality health care.
Healthcare costs can be overwhelming for small business owners of color, but establishing a strong and reliable local business mentoring culture specific to a minority business is a unique barrier to success. Entrepreneurs of color thrive when there is an abundance of social capital to help grow their business. They rely on community organizations and state and federal agencies to access essential business support and education. Since some businesses of color have historically seen less investment in their communities, Congress should provide the funding and resources to support free, low-cost training that will help minority business owners build their financial literacy. , their credit and their procurement opportunities.
The importance of creating a solid financial foundation and building a successful business model goes beyond the surface of a brick and mortar; building generational wealth is often the primary goal of entrepreneurs of color and their motivation to do what they can to keep their doors open. After all, entrepreneurship is the best way to build wealth after home ownership. But for too long, people of color have been discouraged from pursuing entrepreneurial dreams because of policies in place that are unfair and racially motivated. Now that we look forward to a post-pandemic economy, we must prioritize legislation that will better position minority owners to withstand the next crisis.
While Congress can quickly turn the page to the next issue, moving on isn’t that easy for small business owners of color. Let’s build long-term financial sustainability, promote a level playing field for minority-owned businesses, and recognize that predatory lenders often target communities of color. It starts with supporting policies that will fill these gaps and foster meaningful, long-term relief for small business owners of color chasing the American Dream.
Sarkash Director of Government Affairs for Small Business Majority.