When Black-Owned Businesses are in high demand, businesses become more profitable and create business opportunities. Entrepreneurship promotes economic prosperity and serves as a bridge for low-income families to achieve middle-class status. Beyond slavery, we can trace the origins of today's racial wealth gap to Jim Crow-era practices, such as redlining, employment discrimination, and exclusionary legislation, that segregated African Americans from higher-paying jobs and homeownership opportunities that ultimately impeded wealth creation. For example, while the Social Security Act of 1935 is advertised as one of the first social safety nets in the country, it largely left out black citizens, as it did not cover domestic and agricultural workers, or low-level jobs with low or unofficial wages without payroll information.
Boosting Black Business Growth is broader than just providing capital. It will require leaders of financial institutions, philanthropy, government, corporations and investors to align and collaborate toward a clear set of objectives that address systemic barriers. From supportive policy to representative leadership, it is critical that we work together to build an economy that reflects the promise of America. At a Jan.
17 event that marked Martin Luther King Jr. Day, Treasury Secretary Janet Yellen said, “From Reconstruction to Jim Crow, to this day, our economy has never worked fairly for African-Americans or, really, for any American of color.” Yellen's comments were an acknowledgment that U. S. policymakers have established racially biased rules for the economy, prohibiting intergenerational wealth transfers among African-Americans, among many other harms.
Before shedding light on the lack of black-owned businesses in the U. S., the metropolitan areas and the structural reasons behind it, the interactive below presents the incomes, jobs, and salaries that places would earn if the percentage of black-owned employer businesses were on par with the share of the metropolitan area's black population. However, in absolute terms, there are more black businesses in other regions of the country. Table 2 shows the 10 metropolitan areas with the highest number of black businesses.
The Census Bureau collected these statistics before the COVID-19 pandemic, so many of the numbers presented here have undoubtedly changed. While we wait for updated data reflecting those changes, we can turn to qualitative sources to get an idea of how the pandemic has affected black businesses. According to the SBCS (Small Business Credit Survey), approximately 79% of Asian-American owned businesses and 77% of black-owned companies reported poor or fair financial standing, while only 54% of white-owned companies reported similar conditions. Nearly 75% of African-American and Asian-owned businesses reported difficulties paying their operating expenses, compared to 63% of white-owned businesses.
Black small business owners were also the most likely to experience difficulties accessing credit (53%). While PPP (Paycheck Protection Program) loans were an important economic buffer, key flaws meant that the program was largely regressive and was not aimed at businesses with the greatest needs, particularly in communities of color. One article estimated that “only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost their jobs, while “the balance flowed to business owners and shareholders, including creditors and suppliers of PPP receiving companies.” Black Business Owners' Perceptions of Their Pandemic Difficulties Realize Realities. According to the SBCS (Small Business Credit Survey), 46% of black business owners reported concerns about personal credit scores or loss of personal assets as a result of late payments - the highest share among homeowner groups by race.
By contrast, white business owners were the most likely to report that there was no impact on their personal finances. The use of personal stimulus checks for business start-ups and the fact that PPP funding does not reach black business owners are two sides of the same coin - both demonstrate that black business owners (like black consumers) generally struggle to access traditional lines of credit and capital, forcing them to seek funding outside of these institutional structures. While increasing black business ownership would certainly have a positive economic impact on black households and communities, renewed fiscal support from federal, state and local governments is needed to mitigate the racial wealth gap. Data and research show that on average black people have higher unemployment rates, lower incomes, lower rates of homeownership and pay more for credit and banking services - all factors that result from a history of structural racism and contribute to wide disparities in creation and accumulation of wealth between black households and white households.
There is a causal relationship between discriminatory policy and wealth accumulation - and there is a direct correlation between wealth and business development; business results reflect a racial wealth gap shaped by racialized policies including those created by the federal government. The Treasury Department must create inclusive and equitable policies before the next inevitable economic crisis - they must seek to build sufficient capacity among financial institutions serving black entrepreneurs; they must lead an inter-agency task force to pass between banked and unbanked black companies; they must allow these companies to receive financial services so they can participate in capital markets; they must assume their regulatory roles so major banks distributing PPP funds are prepared and willing to serve all types of black entrepreneurs; they must create change in tax codes so tax revenues are not lost at one end while those at higher incomes can hide or reduce tax liabilities; they must expand Minority Business Development Agency (MBDA) so minority owned businesses can access capital contracts and markets they need to grow; they must pass Infrastructure Investment & Employment Act which permanently authorizes MBDA & provides resources for minority owned businesses.