Policy Spotlight: Supporting Black entrepreneurs to close the racial wealth gap

Recent research suggests policies that support Black business owners can be especially powerful in advancing racial wealth equity. This National Black Business Month we explore some of them.

The Black entrepreneurs who we coach — working together to chart and achieve personal finance goals from optimizing debt and strengthening credit to building savings — are inspiring, and on the front lines of closing racial wealth gaps nationwide. In 2021, 45 percent of our clients overall identified as Black or African American; 54 percent of them as business owners, compared to 36 percent of our white clients.

Pre-pandemic, the median wealth for a white family was $188,200 in 2019, compared to $24,100 for Black families and $36,100 for Hispanic families. The wealth gap among business owners is smaller suggesting successful business ownership can be one especially powerful lever to pull in advancing racial wealth equity. As UNLV political science professor and recent Congressional Black Caucus Foundation senior research fellow Dr. Tiffany Howard notes, business ownership “more so than even education…is a tangible pathway for African Americans to achieve economic parity and close the racial wealth gap.”

But, systemic racism and COVID-19 are powerful headwinds, shuttering Black-owned small businesses at more than twice the rate of white businesses at the onset of the pandemic. 41 percent shuttered from February to April 2020, part of the largest dip on record, when the number of active business owners dropped 3.3 million or 22 percent. White-owned businesses declined 17 percent during the same period.

What would equity in racial business ownership look like? What should the public and private sectors do?

According to Andre Perry and Carl Cromer, writing for the Brookings Institution, if Black businesses accounted for 14.2% employer firms (equivalent to the Black population), there would be 806,218 more Black businesses, which would fuel an expansion of the economy. “The underrepresentation of Black businesses is costing the U.S. economy millions of jobs and billions of dollars in unrealized revenues.”

To unlock these gains, the authors suggest, local, regional, and national actors should rally behind policies that support the following goals:

[Black] Home ownership: Most people start their firms using their personal wealth — most often, the equity in their home.

Black-owned employer firms in high-growth industries: Special attention should focus on increasing the number of Black-owned firms in the utilities, wholesale trade, and manufacturing sectors which demand larger sums of startup capital.

Investments in top industries for Black businesses: Health care and social assistance businesses are particularly primed: The COVID-19 pandemic will continue to take significantly more lives than it has already claimed, and the need for workers and firms in those fields will remain.

Place-based investments: The devaluation of housing and businesses in Black neighborhoods warrants a series of incentives for consumer-facing firms and high-growth businesses to operate in Black neighborhoods.

Relationships between Black businesses and banks: Black businesses were five times more likely to not receive PPP funding compared with white-owned businesses, reports the Washington Post, exposing a critical gap. “We need goals to decrease the number of Black businesses and Black households that are unbanked.”

Procurement: Setting goals to increase the number of Black businesses that qualify for government and large corporate contracts can accelerate growth among Black firms. For example, New Orleans’ regional transit authority chose to invest simultaneously in its infrastructure and business owners of color by pledging that a minimum of 31% of its federally provisioned grants would go to contracts with certified minority-owned businesses in the area.

Perhaps Ashleigh Gardere, Executive Vice President, PolicyLink, sums up the private-sector needs best:

“We need racial equity standards in the private sector: from greater access to capital beyond traditional debt to new and reparative financial products, from private sector business opportunities to narrative change strategies that center and celebrate Black businesses.”

Together these recommendations offer a powerful agenda for the public and private sector to advance racial wealth equity by supporting Black entrepreneurs while growing the economy overall.