Resource Category: Business Ownership

Drawing on the Survey of Consumer Finances (SCF), Brookings’ researchers point out that much of the growth among Blacks and Hispanics occurred recently, when the policy response to Covid “reshaped much of the economy.”

Despite closing the racial gap in the rate of business ownership between 2019 and 2022, White owners still saw the most growth in average business value; while Black and Hispanic-owned businesses saw a decline in average value. This may be due in part to the fact that these businesses are relatively new.

Brookings calls on researchers and policymakers to continue studying these businesses to understand how they are growing, whom they are employing, and whether policy efforts can help.

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.