Coloured entrepreneurs are central to our financial restoration from COVID-19
For centuries, small colored-owned businesses have contributed to the fabric of this nation’s innovation and economic growth. Between 2007 and 2017, colored businesses grew 10 times faster than the overall growth rate of U.S. small businesses over the same period, and today colored entrepreneurs run more than 8 million businesses. But despite the huge impact this community has on the local and national economies, black small businesses have faced unique challenges when trying to start and grow a business because of discrimination in our banking system and society at large – problems that get through the COVID-19 pandemic. Without concerted efforts by the federal government 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 not only faced lost revenue and business closings, but also faced greater challenges and fewer funding than their white counterparts in accessing federal emergency programs like the Paycheck Protection Program (PPP). This is due to long-standing injustices in our traditional banking system, a process that favors larger companies over smaller women and minority owned companies.
For example, while black-owned companies are more likely to apply for bank funding, fewer than half of those applications are fully funded. Lenders require companies to provide overwhelming, extensive, and out of date collateral for loan applications, making it difficult for smaller businesses to obtain a traditional loan without additional support and resources. In fact, before the pandemic, women and minority-owned businesses got just over 4 percent and 5 percent of traditional loans, respectively.
These challenges, in turn, have enabled predatory lending practices that have been plundered by minority-owned companies for years. Unlike consumer payday loans, online and other alternative small business finance companies operate in an almost entirely unregulated market where it is legal for malicious actors to disguise their fees or not provide this information.
Widening 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 colored entrepreneurs have shared their stories of shattered dreams in dire need of an injection of cash to avoid a permanent shutdown. Because of this, we need more federal grants and low-cost loans for businesses owned by colored people who have been left behind by federal relief efforts, as well as the passage of the federal law on small business lending, which would require more transparency and fairness in commercial lending, to combat egregious predatory lending practices.
Another injustice that black small businesses face is access to affordable, quality health insurance. More small business owners with color recently identified getting health insurance as a challenge during the pandemic than white business owners. Access to affordable health care has historically been unequal in colored communities, and some companies have been forced to make difficult choices between paying payroll or cutting health benefits during the pandemic. It’s clear that small businesses of color would benefit from smart health policies – like the expansion of the Affordable Care Act and the ongoing provision of premium assistance through the American Rescue Plan – that would ensure that quality health care is affordable, accessible, and equitable .
The cost of health care can be overwhelming for small businesses of color, but establishing a strong and trustworthy local mentoring culture on-site that is specific to a minority business is a unique barrier to success. Colored entrepreneurs thrive when there is an abundance of social capital to develop their business. They rely on community-based organizations and state and federal agencies for access to critical business support and education. As some black businesses have seen less investment in their communities in the past, Congress should allocate the funds and resources necessary to support free, low-cost training that will help minority owners increase their financial literacy, credit education, and procurement opportunities.
The importance of building 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 main goal for colored entrepreneurs and their motivation to do whatever it takes to keep their doors open. After all, entrepreneurship is the best way to build wealth after owning a home. But for far too long, unfair and racially motivated politics prevented People of Color from realizing their entrepreneurial dreams. Now that we look forward to a post-pandemic economy, we need to prioritize legislation that will better enable minority owners to withstand the next crisis.
While Congress may be quick to turn the page to the next issue, it’s not that easy for small paint companies to keep going. Let’s build long-term financial sustainability, promote a level playing field for minority-owned businesses, and recognize that predatory lenders often target color communities. This starts by supporting guidelines that fill those gaps and promote meaningful and long-term relief for small business owners of color pursuing the American Dream.
Sarkash Government Affairs Director of Small Business Majority.