Empowering BIPOC Small Businesses in the Face of Adversity
As a young black man from North Carolina, I knew early on that the key to success in our society was wealth. That meant owning a house, getting a degree, or running a business. I wanted to choose my own path in life regardless of the color of my skin. Under capitalism, assets hold the key to success as they are critical indicators of value and worth. They are determinants of standing. While I often find myself at odds with such logic, I do believe that everyone, regardless of what they look like or where they come from, should have an equal opportunity at finding success within this system.
My hometown, Fayetteville, is a place in which the ghosts of the South’s past find solace. At the city center lies an old marketplace where my ancestors were sold into slavery centuries ago. Despite being plagued by a history of discrimination, my city harbors a promising future filled with opportunities for wealth and economic security for all. As of 2022, Fayetteville, NC has the highest percentage (11.2%) of black-owned businesses in the country. I got curious: how can we scale that success to a national level? In my view, it starts with giving everyone a fair chance at ownership of assets: a business, a dream, a passion, a means to attain wealth.
Building Pathways for BIPOC-owned Small Businesses to Thrive
Drawing from my experience as an economic equity summer associate at Greenlining, I’ve learned that effective advocacy is paramount to achieving our goal for a just future. This resonates deeply with the main objective of Greenlining’s small business work, which aims to create a just economy by promoting equitable wealth accumulation, expanding economic opportunities, and dismantling institutional obstacles for entrepreneurs and small businesses in BIPOC communities, especially those in formerly redlined areas.
In our 2021 POC Small Business Network Impact Report we advocate that state and federal programs establish an ecosystem with:
- Culturally relevant technical assistance paired with in-person outreach
- Relationship-first, intentional data collection with BIPOC small businesses and entrepreneurs
- Micro-grants that address immediate needs, paired with technical assistance that secures long-term funding
- Capital access that cuts the often lengthy processes, bakes in robust outreach to underserved areas, and redefines underwriting criteria to fit the local business context
These guidelines acknowledge the historical challenges faced by marginalized communities and recognize the potential for a more inclusive future. They provide a blueprint for equitable wealth-accumulation in communities of color.
Navigating the Landscape of BIPOC Small Business Initiatives
Current state and federal programs are largely limited in their capacity to specifically target underrepresented communities in their small business initiatives as a result of California Proposition 209 and potentially the recent U.S. Supreme Court Affirmative Action ruling. We also lack sufficient data that shows the ability of small business programs to benefit BIPOC small businesses, which presents obstacles for evaluating how Greenlining and other community stakeholders can work to promote equity in the small business policy landscape.
Additionally, of the programs and policies I have researched–The Dream Fund, Section 1071 rules, Expanding Venture Capital Access Program, Inclusive California Initiative, Emerging California Initiative, California Co-investment Initiative, Small Business Loan Guarantee Program, California Capital Access Program Collateral Support, State Small Business Credit Initiative–only two initiatives, the Expanding Venture Capital Access Program and the Dream Fund, are explicitly designed to foster small business equity on a statewide level. Just one policy, the implementation of Section 1071 of the Dodd-Frank Act, extends this framework nationally.
The Expanding Venture Capital Access Program is a relatively new initiative led by the California Infrastructure and Economic Development Bank, or IBank, that aims to explicitly support underrepresented venture capital managers, invest in underserved entrepreneurs and business owners, and direct investment towards socio-economically disadvantaged regions with limited access to venture capital funding. The idea behind the program according to Derrick Tang, Deputy Director of the Venture Capital Program at IBank, is that, “You’re more likely to get investment from someone who looks like you, than someone who doesn’t.” The program is investing $200 million into small businesses, and with its explicitly equity-based framework, it holds a lot of promise for small businesses of color and expanding capital access.
The Dream Fund was an initiative created in 2021 through California Senate Bill 151, that aimed to offer microgrants of up to $10,000 to promote entrepreneurship and stimulate the growth of small businesses within underserved communities.The California Governor’s Office of Business and Economic Development reported that as of February 10, 2023 the Dream Fund has provided $28,824,874.00 to 4,170 newly formed businesses, and was on track to expend all available funds.
My main takeaway from the Dream Fund was that while well-intentioned, the program struggled to effectively foster inclusion. The sentiment behind the program is commendable, yet I’m reluctant to call it a success for small businesses of color. In the same report done by GO-Biz, I learned that the program had issues supporting all of its applicants. Many small businesses who attended startup training and would have been eligible candidates for a grant ended up on waiting lists. Statistically, I found that the majority of the program’s total awardees were still white individuals, with African-Americans closely behind receiving $3 million less than white business owners.
Senate Budget and Fiscal Review 4.27.2023 SUBCOMMITTEE NO. 4
On a federal level, the Consumer Financial Protection Bureau has led efforts to diversify gaps in the collection of demographic data surrounding small business lending. Section 1071 of the Dodd-Frank Act mandates that, “financial institutions compile, maintain, and submit to the Bureau certain data on applications for credit for women-owned, minority-owned, and small businesses.” The outlook of this rule is promising as it serves to hold financial institutions accountable and reduce discrimination in small business lending. According to the National Community Reinvestment Coalition, “Implementation of the 1071 rule is likely to result in increased lending to underserved businesses as lenders will now have to annually report on their lending broken down by race, ethnicity, gender and sexual orientation of the business owners”.
Other programs such as the Small Business Loan Guarantee Program have made progress in efforts to foster inclusion (demonstrated by an increase in the number of Hispanic recipients); however, a large majority of loan recipients are predominantly male (68%) and white (43%).
In a 2019 study done by the National Community Reinvestment Coalition, researchers utilized matched-pair testing to assess branch level treatment of BIPOC small business loan borrowers at 60 different locations throughout 32 banks. The study found that Black and Hispanic testers were questioned disproportionately about their education and credit history compared to their white counterparts. Only 29% of Black testers and 20% of Hispanic testers received information on loan fees as opposed to 64% of White testers. Reports done by Bain and Mckinsey showed that Latino-owned businesses are underfunded across all types of capital compared to their white peers, despite starting the most businesses per capita of any racial group, illustrating that more emphasis needs to be placed on underserved communities.
Furthermore, tech literacy and accessibility remain crucial barriers for small businesses of color seeking to access funds offered by state programs. Throughout the course of my research, I found that a key obstacle facing small businesses of color is the overly complex process of applying to and navigating state programs. The majority of resources offered by programs through state agencies, such as IBank and GO-Biz, are digital, presenting a significant challenge to communities without proper internet access. The lack of in-person assistance and culturally relevant peer-to-peer support pose significant access barriers to communities plagued by the historic effects of systemic racism.
Race-Based Programs Under Fire: Exploring the Future of Small Business Equity
However, the biggest challenge facing small businesses of color may be yet to come. The recent affirmative action ruling by SCOTUS established that race-based decision making models in the admission process for most institutions of higher education are unconstitutional. The ruling covers all colleges that participate in federally funded programs, such as Pell grants. While the ruling does not explicitly apply to small business equity work, this new legal precedent could have broader implications for race-conscious programs in general.
Earlier this year, the city of Alexandria, Virginia ended its BIPOC Small Business Grant Program, which served to alleviate the impact of the COVID-19 Pandemic on small businesses of color, due to a lawsuit claiming it was discriminatory against white business owners. The plaintiff, Tridentis LLC, argued that the city’s requirements for the program dictated that applicant’s businesses had at least 51% BIPOC ownership essentially excluding anyone who was not a person of color. While affirmative action policy does not deny white students from applying to a particular school, Alexandria’s case indicates a pre-existing culture of scrutiny when it comes to race-conscious decision making. The main concern here is that the SCOTUS ruling will empower opponents of racial equity and encourage a so-called colorblind approach to policy work.
As we’ve seen before in states like California, which outlawed affirmative action programs in government with the passage of Prop 209, legal bans on some race-conscious policies can lead to hesitancy to implement them at all for fear of potential legal challenges. This SCOTUS decision could similarly impact DEI initiatives led by state governments, including equity-based small business programs in California.
Efforts to integrate a clearly defined equity framework into capital access and loan guarantee initiatives, like the Small Business Loan Guarantee Program and the State Small Business Credit Initiative, might come to a halt as state agencies seek to protect themselves from legal challenges. For many hardworking BIPOC business owners, the loss of these vital resources would leave them without the much-needed support to overcome systemic racist barriers to growth. These initiatives represent more than just financial assistance; they symbolize hope, resilience, and the chance for a brighter future –which is why their continuation is truly essential.
Outlook
We have yet to see how or if the death of Affirmative Action will affect small business equity work. Nonetheless, it is important for government officials and racial equity advocates to continue strengthening existing state programs, while staying nimble in light of future potential challenges. Within California small business policy and beyond, stakeholders should promote a framework centered around accessibility and inclusivity. Here’s how they can make that happen:
- Improve the accessibility of state and federal small business programs for BIPOC entrepreneurs: State and federal small business agencies can meet these goals by offering technical assistance and educational resources. Programs should include application support and accept physical as well as digital applications. Additionally, culturally relevant peer-to-peer support is essential for helping owners navigate systemic challenges impeding their business’s growth and success. Digital resources should be offered in-person, and should strive to clearly and plainly communicate how programs work.
- Adopt more robust outreach initiatives in GO-Biz and IBank programs: GO-Biz and IBank should specifically conduct outreach to business owners that are underrepresented in their respective programs. Marketing programs explicitly focused on uplifting businesses of color directly to people of color is the name of the game here. In-person small business workshops are a great way for state agencies to connect with communities of color and foster relationships.
- Promote a strong ecosystem for small businesses of color: Advocates and policymakers should seek opportunities to expand and strengthen pathways for equity-building in the small business landscape. This includes Greenlining’s work on capital access, providing small businesses of color with alternative routes of acquiring state funds through microgrants and underwriting, and building partnerships with government agencies.
Looking Forward
In an evolving landscape of policies and challenges, the imperative to uplift BIPOC small businesses stands resolute. As historical inequities persist and legal shifts loom, it remains essential to support these businesses in pursuance of an inclusive economic future. The continuation of these efforts is not just financial assistance; it’s a beacon of hope, resilience, and the promise of a brighter tomorrow for all.