Across the United States, small businesses are a significant source of employment and provide a variety of goods and services. For those who are fortunate enough to own a small business, they can also offer a pathway to wealth building and prosperity. Unfortunately, the ownership, profitability, and even presence of small businesses are grounded in differences in capital finance and unevenly distributed by race—especially when comparing Black and white communities.
While Black Americans make up 13 percent of the U.S. population, they own less than 2 percent of small businesses with employees.1 By contrast, white Americans make up 60 percent of the U.S. population but own 82 percent of small employer firms.2 If financial capital were more evenly distributed and Black Americans enjoyed the same business ownership and success rates as their white counterparts, there would be approximately 860,000 additional Black-owned firms employing more than 10 million people.3
Small business disparities are caused by stark and persistent inequities in wealth and access to capital.4 While the federal government has largely perpetuated rather than mitigated these challenges, it nonetheless has an important role to play in creating a more equitable business environment.
A future presidential administration could meaningfully reduce small business disparities by revamping a long-neglected agency housed within the U.S. Department of Commerce: the Minority Business Development Agency (MBDA). As the only federal agency created specifically to foster the establishment and growth of minority-owned businesses in the United States, the MBDA has a 50-year record of working in and for communities of color. While the MBDA’s effectiveness is currently limited by narrow authority and meager funding, its unique history and structure would allow a future administration that is dedicated to addressing racial inequality to expand the agency’s activities without new authorizing legislation. Under the current congressional appropriations, the president need only include language in his annual budget proposal asking for a significant increase in funding, which then could be used to:
- Initiate an economic equity grant program that would fund municipal projects that foster wealth creation, opportunity, and minority business development in Black communities.
- Launch a minority-serving institution (MSI) business center initiative within the MBDA, located in historically Black colleges and universities, tribal colleges and universities, and other MSIs, that would provide substantial grants to operate business incubators and accelerators at every MSI in the country. These business centers would provide startup capital, technical and legal assistance, and other support for current students and community members interested in starting or expanding their own businesses.
- Create an office of research and evaluation charged with studying barriers to wealth and business development in Black, Indigenous, and other communities of color and providing other MBDA offices and initiatives with technical assistance. Research activities would include conducting pilot and demonstration projects grounded with capital finance based on new and proven program concepts, such as baby bonds or debt-free college, to evaluate their effect on racial disparities in business development.
- Allow the MBDA to lend low-cost, government-backed capital to licensed minority business investment companies to invest in brown- and Black-owned businesses.
- Establish an office of advocacy and intergovernmental affairs to score the effects of proposed legislation and regulations on barriers to minority-owned small business creation and success; advance the economic concerns of Black, Indigenous, and other communities of color in front of various government bodies; and coordinate interagency efforts to support minority-owned businesses.
The effectiveness of these and other similar programs will ultimately depend on the amount and sustainability of federal funding. However, if crafted the right way—and if well-funded—revamping and reimagining the MBDA could help meaningfully reduce the racial wealth gap and increase the creation and success of Black-owned businesses over the coming years.
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