Minority-owned businesses face an unequal recovery; an underfunded federal agency could change that
The United States is seeing a disturbingly inequitable economic recovery. One survey found that more than a quarter (27 percent) of minority-owned small businesses remained closed, compared to 18 percent of other small businesses. Meanwhile, the unemployment rate for Black Americans increased to 8.8 percent in August, nearly double the 4.5 percent unemployment rate for white Americans.
These outcomes are rooted in long-standing disparities, like unequal access to capital and collateral. White-owned startups are still seven times more likely to obtain loans than Black-owned startups during their founding year. Throughout the pandemic, businesses owned by people of color did not receive equitable access to federal aid through the Paycheck Protection Program (PPP), despite being hit harder economically.
The Minority Business Development Agency (MBDA) could provide a lifeline for these small businesses and help build a more equitable economy. To do so, it needs an expanded budget and permanent federal funding.
The MBDA is the only federal agency dedicated to improving the economic wellbeing of people of color. It was established in 1969 but its effectiveness has been limited by a lack of funding. The $1 trillion bipartisan infrastructure bill currently includes the Cardin-Wicker Amendment, which would more than double the MBDA’s funding and make it a permanent part of the federal government, instead of an agency that exists at the whim of the current administration.
These measures are long overdue, especially as COVID-19 has disproportionately impacted people of color from both a health and economic standpoint. Congress must pass the Cardin-Wicker Amendment and provide authorizing legislation for the MBDA for the first time in its history. Once passed, there are three crucial areas that this funding could be used for to facilitate more equitable recovery.
- Support the small businesses left out of pandemic aid
During the first round of the PPP, only 12 percent of Black and Latinx business owners who applied for federal aid received it. This is indicative of the longstanding disparities these business owners face. The MBDA could use its funding to support small businesses owners who have been left out and those who urgently need it as the Delta variant stifles economic recovery. In August, small-business-owner confidence in the U.S. economy dropped to its lowest levels since March. Without support, these businesses could be forced to lay off more employees or close altogether.
Access to capital remains one of the most significant barriers to small business success, particularly for minority-owned businesses. Significantly, many minority-owned businesses are unable to obtain financing from Small Business Administration loan programs, due to strict requirements around previous revenue, credit scores, personal collateral, background checks, and the “no credit elsewhere” test. These factors have been shown to exacerbate systemic inequalities and to further impact the ability of minority-owned businesses to succeed. By expanding the MBDA’s funding, we could take steps to equalize financial access by providing targeted funding to those that most need it.
- Bolster job growth by empowering the next generation of entrepreneurs
New businesses are essential to creating new jobs and fueling economic recovery. A report from Gusto, which works with 200,000 small and medium businesses, found that business owners of color are driving new business creation. Entrepreneurs who identified as Black, Hispanic or Latino increased from 8.8 percent to 20.5 percent between 2017 and 2020. Another study found that entrepreneurship was strongest in Black communities between 2019 and 2020.
Funding the MBDA could help support the next generation of business owners and bring back jobs for the 8.7 million Americans who remain unemployed. Beyond capital and collateral, the MBDA provides important resources for new business owners like technical assistance, support in creating a business plan, and help navigating federal programs. The agency also provides business owners of color with connections and federal contracts to support their businesses. Currently, only 10 percent of federal agencies’ total contracting dollars go to minority-owned businesses. These resources can help entrepreneurs of color overcome long-standing barriers to entry and boost our economy at a time when recovery remains uncertain.
- Help small businesses go digital
Access to fast and reliable internet continues to be a pain point for small businesses and their customers. In a joint survey between Gusto and the National Association of Women Business Owners (NAWBO), 50 percent of business owners said they need more reliable and affordable internet to help their businesses grow.
Many businesses added digital and e-commerce options to stay afloat while brick-and-mortar stores were forced to close during the pandemic. This option must be made available to all businesses. The infrastructure bill is set to invest $65 billion in extending broadband networks to those who can’t access or afford them; 19 million Americans still lack internet access, and Black and Hispanic adults in particular are less likely to have access to high-speed internet.
The MBDA could channel this broadband investment to small business owners to give them equal access to customers, suppliers and partners. Historically underserved businesses must be empowered to compete and modernize in our digital economy.
Business owners face continued uncertainty due to the coronavirus Delta variant. For business owners of color, that uncertainty extends to whether they’ll receive equal access to the resources they need to keep their staff employed and their doors open. It’s past time to address economic disparities head-on by giving the MBDA permanent and expanded funding. As the Delta variant threatens economic recovery, it’s never been more important to invest in small business resources. Congress must give a fair shot to minority-owned businesses and the more than 7 million Americans they employ.
Jeanette Quick is head of compliance and public policy at Gusto, a payroll and benefits service that works with 200,000 small businesses. Previously, she served as senior counsel to the U.S. Senate Banking Committee, where she was lead advisor on consumer and small business finance.