Giving Compass' Take:
- Geroge Ashton writes that BIPOC businesses aren’t closing the wealth gap, and that the need for growth capital, more than upstart costs, is what is holding them back.
- What does growth capital look like? How can donors contribute to BIPOC growth?
- Learn about new impacting investing models that can contribute to BIPOC capital.
What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
Yes, startups led by Black, Indigenous and people of color-owned need growth capital. But meeting the growth and operating capital needs of established BIPOC businesses is also key to closing the racial wealth gap.
For years, overwhelming evidence has pointed to community-based businesses as one of the most effective tools to close the racial wealth gap. The economic activity generated by entrepreneurship, including increased community access to jobs and opportunity, has the potential to enact self-sustaining and intergenerational change in communities.
The good news is that the number of minority-owned small and medium-sized businesses increased by 79 percent from 2007 to 2017, and they accounted for more than 50 percent of new business ventures over the last decade.
And yet, the wealth gap continued to widen. The gap between Black and White families, for instance, grew from a median of about $100,000 in 1992 to $154,000 in 2016. Latin families have also seen persistent gaps, holding just 21 cents for every dollar of White wealth in 2019.
So, why is there no correlation between an increase in the number of minority-owned businesses and a decrease in the racial wealth gap?
The answer can be found in the details of the data. The average annual revenue for Black-owned businesses is $1 million, in comparison to $6.4 million for White-owned businesses, according to a 2017 Small Business Labs report. Even more eye opening is this: less than 5 percent of Black-owned small businesses have a cash buffer greater than two weeks (compared to 35.9 percent of White-owned small businesses), meaning 95 percent of Black-owned businesses are living “paycheck to paycheck.”
This makes Black-owned businesses more vulnerable to economic shocks, less able to expand during times of opportunity, and less likely to receive traditional financing. They can’t build the kind of financial strength and sustained growth needed to help shrink the racial wealth gap.
Read the full article about BIPOC growth capital by Geroge Ashton at LISC.