BY: John Fleming
Small businesses, from mom and pops to manufacturers and exporters, account for two-thirds of net new jobs in the U.S., generating more than 40% of our nation’s economic output. So, when the number of small business owners declined by 20.2% between April 2019 and April 2020, the impact was significant. The highest declines were experienced by Black-owned enterprises – 37.6%.
With the pandemic ramping up, the hardest hit were still Black small business owners. They’ve begun to recover due to their resilience, but also thanks to COVID-related financial assistance programs such as the Paycheck Protection Program, the Restaurant Revitalization Fund, Shuttered Venues Operators Grants, and Economic Injury Disaster Loans.
Still, the opportunity gap is real: According to a Federal Reserve report, more than half of white-owned employers applying for non-emergency financing received most or all the capital they needed, while only 20% of Black-owned firms could say the same. Nearly two-thirds of Black-owned employer firms applying for financing received nothing or had financing needs but did not apply.
This is not unique to pandemic relief: FDIC data on commercial small business lending by regulated banks show a three percent decline (600,000 loans) in the proportion of loans under $100,000. This lack of small-dollar-loan appetite from lenders led to disproportionate impacts on minority businesses. Firms with non-Hispanic Black ownership and firms with $100,000 or less in revenues were only half as likely as firms with non-Hispanic white ownership to obtain bank funds.
The Biden-Harris Administration and the U.S. Small Business Administration are striving to balance the scales. We continue to offer an array of resources to help minority and underserved businesses reset and retool while doing more through policy and process to remove historic impediments. Under SBA Administrator Isabella Casillas-Guzman, the agency will continue to support small business owners and startups through our traditional lending portfolio (7a, 504, microloans), which had a historic year in FY21, and through accessing new opportunities, such as climate focused manufacturing, presented in President Biden’s Bipartisan Infrastructure Law.
The Infrastructure Plan will be big for small businesses. The federal government is the largest buyer of goods and services in the world. In FY 2020, 1.9% of federal contracts went to Black-owned firms while 2.1% went to Latinx-owned firms and 3.2% went to AAPI-owned firms, even though they represent 9.9%, 12.8% and 8.1% of all small businesses, respectively. For the first time, President Biden is directing that 11% of contracting dollars are awarded to small, disadvantaged businesses, up from the current statutory goal of five percent. This is a first step towards meeting the President’s goal of ensuring 15% of federal contracts go to SDBs by 2025.
Buying from small, disadvantaged businesses leverages the government’s purchasing power to reestablish domestic supply chains and “Made in America” products – using market growth opportunities to strengthen our nation’s industrial base. To ensure we’re hitting the mark, the SBA is dis-aggregating federal contracting data to track equity across racial and ethnic categories, and advancing reforms that will increase transparency, encourage accountability and, most importantly, drive inclusion in the U.S. government’s small business contracting system.
Achieving President Biden’s contracting goals will be a giant leap forward and make a big difference for many small businesses and communities across the country, putting an extra $50 billion into the hands of America’s small, disadvantaged businesses over the next five years. This will spur innovation, helping America’s entrepreneurs to develop and bring to market the products and services of the future.
(Fleming is the Mid-Atlantic regional administrator for the Small Business Administration and the former director of the SBA’s Delaware office)
