Small business

The Importance of Small Businesses

Small businesses are the fabric of a community. It’s a statement you may have heard many times over the years, but it continues to hold truth. Especially when it comes to historically underserved communities. Small businesses not only support families but also create jobs and opportunities for local economies. Indeed, small businesses are one of the key factors supporting economic development from the ground up and improving prosperity.

In contrast to larger corporations, minority communities are more likely to run into the following problems.

Small Businesses Benefit the Neighborhood

By employing local residents, small businesses encourage them to remain in and contribute to the local community. These businesses provide opportunities for those who may be seeking their first job or may speak English as a second language. Small businesses also bring good and services to a community that is underserved, services like plumbers or pharmacies.

Employees of these businesses can walk to work rather than spend money on gasoline or transit fares. So, in the long run, they are contributing to cleaner air and fighting climate change.

Small minority businesses also improve the quality of life in the community and generate revenue for the municipality. The money coming in via taxes can contribute towards improving local schools and educational opportunities for children in the area, infrastructure repairs, and maintenance of basic community services like garbage removal or street cleaning. Funds can even help build playgrounds and recreation areas.

Difficulties in Starting a Small Minority Business

Of the approximate 30 million small businesses in the US about 11 million were owned by ethnic or racial minorities. While this is an improvement over past decades, it’s hardly an occasion for celebration. The truth is that launching a new business involves large startup costs. And while larger non-minority businesses are able to secure bank loans and lines of credit, when minority businesses apply they may face a number of hurdles.

A business credit card or small business loan application can be intimidating for those who speak English as a second language. Even then, many of the financial practices we take for granted aren’t as familiar to people from different parts of the world. To complicate things further, predatory lenders or scammers tend to target these people, which can further sow distrust in financial institutions within these communities.

And just as employers require a stable employment history for jobseekers, banks look for prior banking or credit relationships. These qualifications are harder to come by in traditionally lower socio-economic communities. A viable option for some of these communities may be minority business loans to help meet their needs and launch businesses that solidify communities.

The Impact of COVID-19

Even when minority-business owners do succeed in launching their entrepreneurial dreams, they’re not immune to sudden disruptions or economic catastrophes. Take Covid-19 as an example. Black-owned businesses were found to take a bigger hit than others. The Federal Reserve Bank of New York found that 41% had to close their doors for good versus 21% of white-owned businesses. Even when the government enacted the Payment Protection Program (PPP) to help small businesses, many black-owned businesses lacked the established banking relationships it required.

In the face of fewer customers and slower business, virtually all small business proprietors had no other option but to scrape together what funds they could muster to keep their businesses going. But again, as the Federal Reserve Bank of New York found in their 2021 Report on Firms Owner by People of Color, the burden was heavier for black owners, 92% of whom said they had to use their savings while only79% of white business owners did the same.

The good news is that the country has begun its journey back towards economic health. And more and more minority business owners are striving toward building back bigger and better.