How Local Leaders Can Advance an Inclusive Recovery for Small Businesses and Entrepreneurs

Newsletter 9/12

Dear friends and colleagues,

Can you see them? The lights, perhaps… just maybe at the end of the tunnel?

As Americans’ vaccination rates increase and COVID-19 cases decline, city leaders across the country are cautiously looking ahead to lifting most or all pandemic restrictions. These are encouraging developments for all of us, no doubt, but especially for the country’s small-business community. Small businesses are the lifeblood of the American economy. They represent more than 99 percent of all businesses and employ almost half of all workers (PDF) in the private sector, all while contributing immeasurably to creative and vibrant communities. And they will be critical engines of recovery as our economy bounces back.

To unpack the opportunities ahead and understand how we can best support all entrepreneurs to thrive in a postpandemic economy, I talked with Brett Theodos, Urban Institute senior fellow in economic and community development, and Jeanique Riche-Druses, JP Morgan Chase & Co. vice president in global philanthropy. Both have spent a significant part of their careers advancing efforts to support entrepreneurs of color.

The state of small business in the US

The shock of the pandemic has profoundly affected small businesses across the country. Most of us know bars, stores, restaurants, and barbershops that have been struck by the downturn in economic activity. One national data source found small-business revenues are down more than 30 percent from prepandemic levels (with peak revenue drops reaching 50 percent in April 2020).

While many small businesses have been hard hit, not all the news is bad. Large-scale government relief (such as the Paycheck Protection Program) and supports like lender forbearance have helped many small business owners stay afloat. Over the past 13 months, the federal government has allocated more than $1.47 trillion for the small business sector (according to a recent estimate calculated by Theodos) to help cities and counties weather the pandemic. And more help is on the way as federal and state officials look to jump-start the businesses hardest hit by months of lockdown, quarantine, and social distancing.

But we still need to do more to drive an inclusive recovery

These policies represent important stabilizing successes for many small businesses. What they do not represent, however, are efforts that will drive more inclusive recovery, especially for business owners of color.

Before the pandemic, entrepreneurs of color grappled with policies, practices, and institutions fueled by centuries of systemic racism and inequality. This month marks the 100th anniversary of the Tulsa race massacre, when Black businesses in the thriving Greenwood district, known as Black Wall Street, were destroyed by mobs. And though it’s too early to be conclusive, the pandemic likely widened long-standing racial and ethnic barriers to capital and other resources essential to the health of small businesses. While there are early indications that recovery funding gave Black entrepreneurs much-needed confidence and capital to start new businesses, there are also signs that firms in sectors like food services, where entrepreneurs of color have a greater presence, fared worse during the pandemic.

For Black- and Latino-owned small businesses, the lag in readily accessible capital during the downturn compounds inequities. “It all comes down to the racial wealth gap,” Riche-Druses explains. “We’re dealing with low-wealth communities who didn’t have lots of money in the bank to weather this. If you have no blood flowing through your veins, you’re dead. If you have no capital flow into your business, if you have no cash flow, you’re dead. If your customers are gone, you can’t cover the cost of doing business, you can’t pay your employees, and you can’t get inventory.”

Moving from relief to recovery: How local leaders can support small businesses

In the coming months, federal funds will continue to cascade to the state and local levels to support the transition from relief to recovery. The Small Business Administration, for example, recently launched a new grant, open to state, local, and tribal organizations to pilot a community navigator program to reach small businesses owned by economically disadvantaged individuals, women, and veterans.

This is a unique moment, a critical moment for localities to consider innovations that put those dollars toward solutions that pay off in the long term, position themselves to enhance equity, and build resilience in historically disadvantaged communities.

So, what should local leaders keep in mind as we pursue a recovery that supports entrepreneurs of color?

Theodos says it is all about meeting businesses where they are. “Think of it like a pyramid,” he offers. “Some firms need a little bit of help, and some firms need a lot.” Firms that need light support might benefit from loan guarantees. Those needing slightly more support might benefit from loan loss reserves, for example. The key, he says, is that those needing even more help—including businesses overcoming historic wealth gaps—get access to more robust, flexible, and even creative means of support.

“This is a place where we can make some catalytic investments to build up the institutions and the ‘ecosystem’ that supports small businesses,” Theodos says. He points to shoring up alternative financing institutions, such as microlending, revolving loan funds, and community development financial institutions, as well as supporting organizations that provide business services or technical assistance, including marketing, website, bookkeeping, and business planning.

Theodos underscores the critical role of local governments for creative investing and policymaking. He offers Chicago’s Neighborhood Opportunity Fund as a promising strategy to overcome racial and ethnic inequities in capital access. The fund, created in 2016, links the wealth generated by developing the city’s downtown with small businesses in historically disinvested neighborhoods. Developers who request and receive floor-area bonuses in the city’s downtown area contribute to a fund that provides grants that businesses pair with loans.

Riche-Druses agrees with Theodos on the momentous opportunity to make catalytic investments, especially to support scale and innovation among community-rooted entrepreneur support organizations. Riche-Druses emphasizes the key role of these organizations in helping small businesses and microbusinesses build capacity and long-term health. She also points out that the pandemic also disrupted supply chains, providing opportunity for large companies to rethink how they source items. Through programs like Ascend, these companies can invest in the development of small, underserved businesses and connect with entrepreneurs to exchange best practices and increase market access opportunities.

Turn the crisis into opportunity

The bottom line is that we cannot afford to squander this moment. Without question, the billions of dollars pushed out to small businesses and entrepreneurs since the pandemic hit have been pivotal to keeping them afloat and protecting our overall economy.

But to drive a truly inclusive recovery, one that removes historic and ongoing barriers facing entrepreneurs of color, localities will have to think about a range of supports. Brightening the light at the end of the tunnel must include increasing access to flexible capital, but it also means investing in more intensive, customized capacity-building supports to help small businesses owned by people of color build momentum now and ultimately become sustainable, vibrant community fixtures in the long term.

Sincerely,
Justin Milner

 

The Urban Institute’s Collaboration with JPMorgan Chase
The Urban Institute is collaborating with JPMorgan Chase to inform and catalyze a data-driven and inclusive economic recovery. The goals of the collaboration include generating cross-sector, place-based insights to guide local decisionmakers, using data and evidence to help advise JPMorgan Chase on the firm’s philanthropic strategy, and conducting new research to advance the broader fields of policy, philanthropy, and practice. This newsletter series outlines what inclusive recovery means in light of the coronavirus global pandemic. Subscribe here to learn more about the cities/communities that have successfully applied the principles of inclusive recovery to the realities of pandemic response and ensured that those most harmed by the health and economic impacts of COVID-19 are ultimately those best positioned to frame the way forward.