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By Charlie N. Jones

May 2022

 

The Black descendants of enslaved Africans in the United States view entrepreneurship more broadly than just owning a business or pursuing the famous American dream. To them, entrepreneurship is the ability to participate in local, regional, and global markets, representing a dream deferred by systematic racism and discrimination. We can only demonstrate that America is a land of opportunities by allowing black business ownership.

This article aims to provide proof that black businesses can greatly grow the economy if supported by key economic players with the capital that black entrepreneurs need to start, grow and maintain their businesses. These economic players include financial institutions, corporations’ money, and even political leaders’ support. Keep reading to find out how. 

Why Invest in Black-Owned Businesses?

  • To Bring About Racial Equity.

The rise of the Covid-19 pandemic saw a painful exposure to structural racism. The initial round of paycheck protection program (PPP) loans which were part of the CARES act from the federal COVID-19 relief package, was meant to give relief only to employer firms. The framework disproportionately excluded black businesses, because of the fact that 95% of black companies in the US are non-employer businesses compared to 78% of white companies. There was also bias in the geographical coverage of subsidies. Bloomberg analysis indicates that 27% of companies in districts with most white people received loan subsidies. In comparison, only 17% of companies in communities that make up minority races received loan subsidies.

We can improve this outcome by preventing these cases of discrimination within the economic markets. McKinsey and company have taken a step to look for ways that will help in building a supportive ecosystem for black businesses in the US. Investment opportunities in black industries will be a game-changer in bridging the racial wealth gap and bringing about racial equity. The steps by fortune 100 companies in committing billions to fight racial equity will ensure that money is open to black proprietors and black businesses. The availability of this money to black companies will help the development of the black lead investment firms, which will help to grow wealth for the black race, which is vital in bridging the racial wealth gap.

  1. To Strengthen Local Economies

Communities will start flourishing when the local small businesses start blossoming. Unfortunately, banks cripple the efforts of these small businesses to thrive by discriminating against African Americans and other minority groups seeking business loans.

 A study done by the National Community Reinvestment Coalition reveals that banks are twice likely to provide loans to white applicants than Black Americans. This study shows that banks are more likely to follow up loan meetings with white borrowers than with more qualified Black borrowers. When banks support Black businesses, they support families, employees, and other business owners. Supporting Black companies help in the attraction of community investors who can provide loans to these businesses. 

  1. To Foster Job Creation

Most Black businesses are likely to be sole proprietorships. The Business Owners’ Facts survey indicates that 4.2% of black companies have employees. This is compared to 20.6% of companies owned by whites that have employees. If Black companies can post a similar number of employees like that as non-Black businesses, we can realize significant economic growth. Another study revealed that black companies are more likely to hire black workers. This study also confirms that black unemployment is on the rise, which hinders the development of jobs in black communities.

Studies by the Census Bureau indicate that Black companies can create ten jobs for every farm compared to the 23 jobs created for every farm by non-black firms. Suppose the average number of employees that black businesses can accommodate on every farm can increase to 23, just like non-black companies. In that case, there will be approximately 1.6 million jobs.

  • To Grow the Total Revenue Base

 A study by the Census Bureau indicates that the US economy is losing billions of dollars in revenues for underrepresenting black businesses. The US population has 14.2% of black people, yet Black businesses are only 2.2% of the US’s 5.7 million employer businesses. On average black businesses bring in $1,031,021 while white businesses bring in $6,485,334. An increase in the average income of black businesses to match that of non-black businesses will increase the total US revenue in black-owned businesses by $676,356,621,618. It is important to note that the gains in black business revenues do not come at the expense of the non-black businesses.

  • Increasing The Total Wages of The Black Employees

Black companies pay their staff $29,882 compared to the $51,357 that non-black businesses spend annually on their employees. If black businesses can reach this parity of $51,357 with the non-black businesses’ employees in black companies, we’ll see an increase in pay by approximately 25 billion US dollars.

Conclusion

Structural racism is one of the hindrances to black business growth, and as a result, both the white and the black population suffers from an underperforming economy. The only way to develop a steadily growing economy is by building an all-inclusive community when it comes to business. An all-inclusive economy means black businesses reach parity with the non-black companies in terms of the number of black businesses, the total revenue generated, the number of jobs created and the actual wages paid.


Investing in black businesses will grow the total revenue base by a huge margin and it will foster job creation with millions more opportunities for our youth to work and earn a living. Additionally, investing in black companies will help solve problems in education, housing, criminal justice transportation, and other fields that may indicate racial disparities.

Removing the systemic discrimination is the only sure way to ensure we are investing explicitly to increase the number of black business returns. This will work greatly towards solving underlying conditions that create racial disparities and undue suffering that the black communities are experiencing. Investing in black businesses is a collective responsibility for the growth of the US economy.

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