Minority-owned businesses face uneven recovery; an underfunded federal agency could change that

The United States is experiencing a troubling and inequitable economic recovery. A survey found that more than a quarter (27%) of small minority-owned businesses remained closed, compared to 18% of other small businesses. Meanwhile, the unemployment rate for black Americans rose to 8.8% in August, nearly double the 4.5% unemployment rate for white Americans.

These results are rooted in long-standing disparities, such as unequal access to capital and collateral. White-owned startups are still seven times more likely to get loans than black-owned startups in their founding year. Throughout the pandemic, businesses owned by people of color have not enjoyed equitable access to federal aid through the Paycheck Protection Program (PPP), although they have been hit hardest economically.

The Minority Business Development Agency (MBDA) could provide a lifeline for these small businesses and help build a more equitable economy. To do this, it needs an expanded budget and permanent federal funding.

The MBDA is the only federal agency dedicated to improving the economic well-being of people of color. It was established in 1969 but its effectiveness was limited by a lack of funding. The $ 1,000 billion bipartisan infrastructure bill currently includes the Cardin-Wicker Amendment, which would more than double MBDA’s funding and make it a permanent part of the federal government, instead of an existing agency. at the discretion of the current administration.

These measures are long overdue, especially since COVID-19 has had a disproportionate impact on people of color, both from a health and economic standpoint. Congress must pass the Cardin-Wicker Amendment and provide legislation authorizing the MBDA for the first time in its history. Once enacted, there are three critical areas where this funding could be used to facilitate a more equitable recovery.

  1. Support small businesses excluded from pandemic aid

In the first round of the PPP, only 12% of black and Latino business owners who applied for federal help received it. This is indicative of the long-standing disparities these business owners face. The MBDA could use its funding to support small business owners who have been left behind and those in dire need of it as the Delta variant stifles economic recovery. In August, the confidence of small business owners in the US economy fell to its lowest level since March. Without support, these companies could be forced to lay off more employees or shut down altogether.

Access to capital remains one of the biggest obstacles to the success of small businesses, especially for minority-owned businesses. Significantly, many minority-owned businesses are unable to obtain funding from Small Business Administration loan programs, due to strict requirements regarding past income, credit scores, personal guarantees. , background checks and the “no credit elsewhere” test. These factors have been shown to exacerbate systemic inequalities and have an additional impact on the ability of minority-owned businesses to succeed. By expanding funding for MBDA, we could take steps to equalize financial access by providing targeted funding to those who need it most.

  1. Stimulate job growth by empowering the next generation of entrepreneurs

New businesses are essential to create new jobs and fuel economic recovery. A report by Gusto, who works with 200,000 small and medium-sized businesses, found that business owners of color drive new business creation. Entrepreneurs who identified as Black, Hispanic or Latino fell from 8.8% to 20.5% between 2017 and 2020. Another study found that entrepreneurship was strongest in black communities between 2019 and 2020 .

MBDA funding could help support the next generation of business leaders and restore jobs to the 8.7 million Americans who remain unemployed. Beyond capital and guarantees, the MBDA provides important resources to new business owners, such as technical assistance, assistance in creating a business plan, and assistance in navigating through federal programs. The agency also provides business owners of color with connections and federal contracts to support their businesses. Currently, only 10 percent of total federal agency contracts go to minority-owned companies. These resources can help entrepreneurs of color overcome long-standing barriers to entry and boost our economy at a time when the recovery remains uncertain.

  1. Help small businesses go digital

Access to fast and reliable internet continues to be a problem for small businesses and their customers. In a joint survey between Gusto and the National Association of Women Business Owners (NAWBO), 50% of business owners said they needed a more reliable and affordable internet to help their business grow.

Many companies have added digital and e-commerce options to stay afloat as physical stores have been forced to close during the pandemic. This option should be made available to all businesses. The infrastructure bill plans to invest $ 65 billion in extending broadband networks to those who cannot access or afford them; 19 million Americans still do not have Internet access, and black and Hispanic adults in particular are less likely to have high-speed Internet access.

The MBDA could channel this investment in broadband 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 Delta coronavirus variant. For business owners of color, that uncertainty extends to whether they will have equal access to the resources they need to keep their staff employed and their doors open. It is high time to tackle economic disparities head-on by providing MBDA with ongoing and expanded funding. As the Delta variant threatens economic recovery, investing in small business resources has never been more important. Congress must give minority-owned businesses and the more than 7 million Americans they employ a fair chance.

Jeanette Rapide is responsible for compliance and public policy at Enthusiasm, a payroll and benefits service that works with 200,000 small businesses. Previously, she served as Senior Legal Counsel to the US Senate Banking Committee, where she was Senior Advisor on Consumer and Small Business Finance.


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