As the nation continues to work toward economic equity and the demographics of the United States continue to change, the necessity of supporting the recovery of small businesses of color (SBOCs) becomes imperative. SBOCs are important contributors to the national economy. Between 2014 and 2016, the number of businesses in the United States owned by people of color grew 11 percent, compared with a 1 percent increase in non-SBOCs.1 Nationally, SBOCs account for about 19.8 percent of all small businesses, and research has found that SBOCs can significantly reduce the racial wealth gap while simultaneously reducing the unemployment rate of people of color.2
The Atlanta and Kansas City Feds have published the Small Businesses of Color Recovery Guide to assist communities throughout the nation in supporting SBOCs as they recover from the economic crisis caused by the COVID-19 pandemic. SBOCs were vulnerable prior to the COVID-19 pandemic, and the resulting downturn has had a disproportionate negative effect on them, including increased closure rates. Dell Gines and Steve Shepelwich of the Kansas City Fed and I coauthored the guide.
The comprehensive recovery guide covers three major areas. The first part shares the economic climate of U.S. small businesses owned by people of color and discusses the state of SBOCs before the COVID-19 pandemic to provide a historical context for the challenges these businesses face. The second section provides recommendations for communities that seek to support the recovery of SBOCs and their long-term sustainability. It offers recommendations in the areas of credit and capital, education and training, policy, and community support. The final section shares tools for communities to develop an entrepreneurship ecosystem focused on SBOCs, representing an active, rapid strategy to initiate recovery and support.
The guide concludes that a broad range of national and local actions needs to occur to help SBOCs recover. These include improved access to various forms of credit and capital that are designed to meet the specific needs of SBOCs. In addition, new or expanded forms of education and training, better policy solutions, and increased community support will need to occur. Because the challenges faced by SBOCs are holistic and systemic, identifying the local gaps and areas that need to be strengthened in SBOCs’ local ecosystems are critically important during the recovery.
The information in this guide was derived from a wide variety of sources, including existing research and insights from outreach calls and surveys of small business support providers from across the nation. For more information and to download the Small Businesses of Color Recovery Guide, visit kcfed.org/SBOCRecovery.
Looking ahead, on January 14 at 11 a.m. (ET), the Atlanta Fed will host a virtual webinar focused on supporting small businesses to help facilitate an inclusive and resilient recovery. The session will offer perspectives and strategies from leading voices who are working to bolster recovery and long-term resilience of small businesses. The presenters will discuss emerging strategies and approaches to support an inclusive recovery in the Southeast.
Here are some end-of-year considerations for small businesses of color and small business support providers during the pandemic and economic recovery:
- The Main Street Lending Program is designed to help credit flow to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 crisis, but now need loans to maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic. The Main Street special purpose vehicle will cease issuing commitment letters as of December 23, 2020.
- In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to compile, maintain, and submit to the Consumer Financial Protection Bureau (CFPB) certain data on applications for credit for women-owned, minority-owned, and small businesses. The CFPB recently released its Outline of Proposals under Consideration and Alternatives Considered for Section 1071 governing small business lending data collection and reporting.
By Janelle Williams, senior CED adviser
2 Stoll, Michael A., Steven Raphael, Harry J. Holzer. (2001, August). “Why Are Black Employers More Likely Than White Employers to Hire Blacks?” Institute for Research on Poverty discussion paper 1236-01.