What if you heard that there's an easy way to create a million businesses, and those businesses could add 9 million jobs and $300 billion in worker income to the U.S. economy? Exciting news, right?
According to a new report from the Center for Global Policy Solutions (CGPS), that 'easy way' is right under our noses. The projections are based on what would happen if minorities (people of color, non-white) owned businesses in proportion to their share of the labor force. The study, The Color of Entrepreneurship: Why the Racial Gap Among Firms Costs the U.S. Billions, analyzed data from the Census Bureau's most recent survey of business owners.
Sadly, projections aren't dollars. But numbers are color blind, and the message is clear. By 2050, there will be no racial or ethnic majority in the United States, and as of now, the number of minority business owners lags far behind what will be needed for the U.S. to remain a global leader with a vibrant and sustainable economy.
Minority business ownership on the rise
Minority business ownership is growing. The CGPS report also reveals that firms owned by entrepreneurs of color--both male and female-owned businesses--played a key role in getting the U.S. economy back on its feet after the recent recession, and in fact were a critical contributor to business and job creation between 2007 and 2012. Privately held minority businesses added 1.3 million jobs to the American economy during those years.
Asian-American, Hispanic and black women-owned businesses grew faster than almost every other demographic group during the same period. Although they are in the minority, the study does not include non-minority women business owners; their numbers increased by nearly 27 percent between 2007-2012.
Yet another study, this one from the National Minority Supplier Development Council (NMSDC), reports that minority businesses now produce upwards of $400 billion in annual revenue, and employ 2.2 million people. Add in local state and federal taxes of $49 billion, and it translates to minority-owned businesses contributing more than $1 billion in revenue, per day.
But it's not enough, say experts.
"The economy at large suffers as a result of the underrepresentation of people of color among business owners with employees relative to their share of the labor force," said Algernon Austin, the report's author and a Senior Research Fellow at CGPS. "Interest in entrepreneurship among people of color is quite strong, but access to the resources to do it successfully is often a challenge. If we help create the economic and social circumstances for these individuals to start and grow their businesses, society overall can benefit from more jobs, less poverty, and greater economic output."
Equal access to capital
The Minority Business Development Agency (MBDA) is a federal agency dedicated to the growth and global competitiveness of U.S. minority-owned businesses. Currently, says the MBDA, just 21 percent of all U.S. firms are owned by minorities, yet minorities represent 35 percent of the total population.
Despite the rising rate of ownership, minority-owned firms fall short in terms of revenue and profit growth when compared to the overall success of non-minority businesses. Access to capital--whether for start-up costs or working capital for growth--remains a barrier for minority business owners.
A recent survey from Biz2Credit, a minority-owned small business lender, talked to more than 1,500 minority business owners--Hispanics, South Asians, African Americans and East Asians--about the economy and their perceived prospects for success in 2016. Their greatest concern is adequate funding.
Their worries are legitimate. They aren't looking for charity, just equal access. Minorities are three times as likely be turned down for a loan than non-minorities. The boom in online lending is helping change that situation, because it eliminates potential biases, putting a greater emphasis on business performance.
Venture capital (VC) for start-ups is nearly non-existent for women (two percent) and minorities (39 percent), which results in a lack of founder diversity, particularly in the tech industry. The CGPS report recommends urging policymakers to come up with a tax credit to promote venture capital investments in minority businesses.
The future prosperity of the U.S. is directly tied to the growth of minority-owned businesses. The American economy will continue to be impacted, either negatively or positively, by today's level of commitment to creating more firms with minority owners who have access to the capital need to created jobs, wealth, and growth--to the benefit of all.