Resource Category: Business Ownership

Despite this growth, Brookings’ analysis also finds that the typical Black-owned businesses still has far less value than a typical White-owned businesses. One likely explanation for this is that the Black-owned businesses tended to be newer businesses with less time to scale.

It will be crucial, Brookings researchers say, to continue to track Black- and Hispanic-owned businesses to understand whether they endure. Indeed, “Entrepreneurship and the Racial Wealth Gap” found that Black businesses, in comparison to White businesses, fail at much higher rates. It remains to be seen, then, whether these new businesses will become sustainable engines of wealth creation.

Perez argues that while there is clearly a moral justification for trying to diversify the upper strata of business ownership, it is unlikely to happen given the head start that’s been given to white families in the United States — and the increasing barriers to entry their enterprises have formed.

Perez goes further than this practical argument, however, ending the piece with this: “Even if promoting Black capitalism could close the racial wealth gap, is our vision of a just society in the US simply one where the top one percent is roughly 13 percent Black, 18 percent Latinx, six percent Asian, and 1.5 percent Native American—ie, one where the elite looks more like the mass of workers it exploits? Is massive wealth inequality justified so long as it is not racialized?”

The authors find that, almost invariably, entrepreneurs of color have a harder time obtaining financial support than White entrepreneurs. This remains the case regardless of nominal risk levels. And when entrepreneurs of color receive financing, they often receive far less than the levels they need to succeed.

Historical programs such as redlining that have limited the ability for families of color to buy homes and accumulate wealth also mean business owners from those families cannot invest that wealth to start businesses. As a result, entrepreneurs of color have less capital, and a growing body of research shows they are more likely to get less favorable treatment from small business loan officers.

Putting these elements together creates a cycle: businesses with less capital and less access to financing are less likely to become profitable and more likely to fail, further eroding wealth and perpetuating inequity.

The report concludes by suggesting several Massachusetts-specific strategies for ameliorating this capital gap. Two of these include establishing: 1) a state fund to provide credit enhancements — lowering the risk of borrowing — to small business entrepreneurs of color; and 2) a venture development fund explicitly focused on providing funds to high-growth firms owned by entrepreneurs and business owners of color.