Black Entrepreneurs Are The Key To Reducing Wealth Inequality

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This week all across America, people are celebrating “National Small Business Week.” It’s the perfect time to remind people that entrepreneurism is a powerful vehicle for economic change, one that can and does make a difference for many communities-- including the Black community.

Recently, my organization the Association for Enterprise Opportunity released a new report: “The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success.” Funded by the W.K. Kellogg Foundation, the report set out to analyze the strength and potential of America’s 2.58 million Black-owned businesses, identify challenges and opportunities facing Black business owners in a variety of industries, and understand how to increase the effectiveness of programs designed to support Black entrepreneurship. We wanted to reframe the conversation about Black-owned businesses to replace negative narratives with the knowledge that there is untapped economic potential and power in America’s black business owners and aspiring entrepreneurs.

Business ownership is the greatest equalizer in wealth disparity. In our study, which took more than a year to complete, researchers found that the gap in average wealth between Black and White adults decreases from a multiplier of 13 to 3 when you compare the wealth of business owners by race. That is a phenomenal reduction, one that benefits everyone regardless of race. Most Black-owned businesses are microbusinesses, typically defined as businesses with fewer than five employees. Microbusinesses represent more than 90 percent of all the businesses in this country. AEO found that if Black-owned firms were able to employ the same number of people that all privately-held firms employ on average (11 versus the current 9) almost 600,000 new jobs would be created and $55 billion would be added to the U.S. economy. A rising tide lifts all boats.

So what keeps Black-owned businesses from fulfilling that potential?

Effective solutions need to address the interplay of three persistent obstacles that face Black entrepreneurs: The Wealth Gap, Credit Gap, and Trust Gap. The Wealth Gap means fewer assets and less disposable income or money from friends and family to invest in business. The Credit Gap translates to decreased access to formal credit and high denial rates from traditional banks. The Trust Gap is a result of institutional Bias that Blacks have experienced, which inhibits them from taking actions such as applying to financial institutions for capital to expand, or creating partnerships in order to get bigger contracts, or even networking to meet people who can open up new opportunities. The environment created by the vicious cycle of these gaps working together results in fewer Black establishments reaching maturity, and for those that do survive, limited ability to grow and hire.

Georgia-based Ardina Pierre is an example of the type of “opportunities for success” the title of our report refers to. A registered nurse for more than a decade, Ardina was inspired by her love of natural products to purchase a local herb shop for $30,000, twenty years ago. Her store, Nature’s Own Herb Shop did moderately well, however, the catalyst for greater success came in the form of a non-profit community lender, Access to Capital for Entrepreneurs (ACE). Through them, Ardina was able to obtain a loan to add refrigeration to her store, so she could open the juice bar that increased foot traffic and revenues. She purchased the mini-mall that housed Nature’s Own Herb Shop, and obtained another loan to renovate the energy systems in all of the spaces, raising the attractiveness of the space for renters. Her annual revenues are expected to surpass $1 million dollars this year, and she credits ACE with giving her both much needed funding to grow her business initiatives as well as professional mentorship and support.

How can we help people like Ardina continue to launch, stabilize, and grow their businesses? One thing we definitely need to do is make sure we’re not going backwards. Success stories like Ardina’s are made possible by community lenders like ACE, yet the Department of Treasury’s Community Development Financial Institutions (CDFI) Fund, which helps community lenders, is now in danger of being eliminated by the administration. This is a setback for entrepreneurship in America, especially for Black business owners, many of whom rely on non-traditional financial organizations for capital. Instead of eliminating programs like the CDFI Fund, we need to be expanding them and finding more ways to innovate in capital products that can provide crucial start-up funding for Black owned businesses. Investors, policymakers, and entrepreneurship organizations must also find ways to develop and fund vocational training for students and adults that assists with business start-up and continuing education credentialing, licensure, and degrees. New sustainable systems must be created to provide support and mentoring to Main Street businesses. Solutions like these can only serve to maximize the potential of Black-owned businesses not just for success but for exponential growth.

Most Black-owned businesses are small businesses, which often hire from the communities they serve.

Assuming these firms hired mostly Black people from those communities, it could reduce the rate of Black unemployment to about 5 percent. That would give even more people the chance to provide financial stability for their families, positioning them for success in life, while strengthening areas that need an economic boost the most. Entrepreneurship mustn’t be stifled, but rather nurtured and supported. It’s the pathway to the kind of change that can transform entire communities.

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