Serious help may be underway for black American entrepreneurs
BLACK OF ENTREPRENEURS face a bitter struggle. African Americans make up about 13% of the country’s population but only 2% of its business owners. Their businesses only earn 0.3% of total business revenue. Minority-owned businesses are less profitable than comparable white-owned businesses and have much higher failure rates.
The pandemic has hit these companies particularly hard. Black-owned businesses were almost twice as likely to close (in August, more than two-fifths had done so) due to covid-19 than small businesses overall. Emergency aid often does not reach them, in part because the Small Business Administration (SBA) did not order the banks to prioritize loans to these companies as Congress intended.
Black entrepreneurs can now have two reasons to be happy. One is descending. Past efforts by the federal government to stimulate minority businesses, a mix of loan guarantees and quota systems, have failed. A recent analysis by McKinsey, a consulting firm, notes that although the SBA having awarded some $ 2.3 billion in federal contracts and guaranteed about $ 210 million in loans to underprivileged businesses in 2019, these programs have been “often imperfectly implemented.”
The incoming administration promises a big overhaul. Joe Biden promises to fund these companies to retain and rehire workers. After the pandemic, he wants to develop training, small business incubators and innovation hubs for “black and brown entrepreneurs”. He also promises to create a $ 30 billion small business opportunity fund and direct billions more to minority businesses.
But the playing field for black entrepreneurs is not level, argues Dana Peterson of the Conference Board, a business research firm: Access to credit is “too often determined by skin color.” Black households only have a tenth of white assets. Plus, notes Katherine Klein of the Wharton School, they tend to have lower credit scores. Black female entrepreneurs receive less than 1% of all venture capital.
So even a tenfold increase in government funding wouldn’t solve the problem, argues McKinsey’s Shelley Stewart, without bottom-up solutions as well. This indicates the second reason for joy. In the wake of the Black Lives Matter protests, corporate titans have made big commitments to boost black businesses. JPMorgan Chase, a bank in Goliath, says it will invest $ 30 billion over five years to boost black and Latino households and businesses. Citi, another giant bank, pledges to tackle the “racial wealth gap” with a pledge of $ 1 billion.
Skeptics fear this is just a “race wash” and that Mr. Biden’s efforts get bogged down in red tape. But if they take off, black entrepreneurs might finally have a chance to fight. If they could achieve income parity with comparable white-owned businesses, McKinsey estimates, it would increase their equity by $ 290 billion.
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This article appeared in the United States section of the print edition under the title “Capital punishment”