Entrepreneurs have had a torrid time of 2020, with the coronavirus bringing a great many to the point of extinction as their cash flow rapidly dried up. Entrepreneurs are also crucial to the economic recovery after the pandemic, and it’s vital that the entrepreneurial world is able to call upon talent from all quarters.
I’ve written previously about the poor state of female entrepreneurship, so it’s interesting to see a new report from the University of Nevada, Las Vegas, on the current state of Black entrepreneurship in the United States, and in particular, strategies banks can deploy to improve matters.
“There are many advantages of entrepreneurship — one of them being it promotes substantial economic growth,” the researchers say. “According to the Survey of Business Owners, the existing number of Black-owned businesses have created over 1 million jobs and generated over $165 billion in revenue. Another important advantage of entrepreneurship is that successful business ownership is one mode for achieving personal wealth. The wealth differential between business owners and non-business owners is significant, and this wealth advantage is even more pronounced for minorities and women.”
Benefits of entrepreneurship
For instance, the authors state that the median net worth of Black business owners is around 12 times that of Black non-business owners. What’s more, the wealth gap between Black business owners and white business owners is narrower than for the general population. It’s clear evidence, the researchers believe, of the equalizing potential of entrepreneurship.
Despite this, Black entrepreneurs make up just 3.5% of all business owners in the US. The researchers believe that a part of this is due to poor financial literacy, with 82% of those African Americans surveyed lacking knowledge of things such as their credit score, or of the state agencies designed to help small businesses. Without this knowledge, it’s difficult to raise the startup capital to get a business going. While this isn’t a problem unique to Black youth, the researchers do nonetheless believe financial literacy does lag behind whites.
This lack of Black business ownership has a profound impact on Black communities, especially in sectors such as food and beverage, where food insecurity and food deserts are still an unwelcome presence in many Black communities. The prevalence of fast food outlets in such food deserts exacerbates many of the health problems highlighted during the Covid-19 pandemic.
Greater support
The report highlights the level of bias that still exists in the small business loan process, which the authors believe could be overcome by greater use of automation.
“By using an algorithm, the process is more objective and resistant to biases, which ensures compliance,” the authors say. “Furthermore, the entire process would now be more transparent, and business owners would have the ability to track each step of the process.”
That way, if an entrepreneur is denied a loan, they would at least have the insight provided by the explanation as to why they have been denied, and can then work on boosting their credit rating. This transparency also helps to build trust that is often lacking in institutions.
The report also suggests that banks can better support Black entrepreneurs by actively investing in institutions that support entrepreneurship in the Black community. Ideally, this investment would be in the form of mission-driven programs that provide startup capital to entrepreneurs.
Entrepreneurship is well known for the beneficial role it can play across society, both for the entrepreneurs themselves, and also society more broadly. We’re getting better at ensuring that no potential entrepreneur is left behind, but clearly more needs to be done to encourage and support entrepreneurs from the Black community. Hopefully this report will be another key step on that journey.
