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Abstract
Racism may be a devastating experience. Its been a source of pain and suffering for generations in the United States. To maintain racial segregation and a sense that people of color are less than others, disparities in race and ethnicity have been utilized as weapons. Since slavery was abolished in 1865, we still retain racist attitudes today (Sun et al., 2018). Discriminatory practices, regulations, and laws have been painstakingly layered on top of one another to construct oppressive regimes. As a consequence, intergenerational trauma and its detrimental health effects have persisted.
For both company owners and the people they represent, innovation and business ownership are critical means to build communal prosperity. With a projected $1.1 trillion to $1.6 trillion in annual economic losses, addressing the Black-white wealth gap in the United States might be a significant component (LüdekeFreund, 2020). Black-owned firms have been further squeezed by the COVID-19 situation, which might deepen the racial wealth divide. Black and white-owned firms have a $295 billion and increasing chance to improve overall wealth by reaching revenue parity and giving financial assistance to small and medium-sized businesses (SMBs), those with less than 550 workers, with nonwhite owners (LüdekeFreund, 2020). This is one of the ways that will make black-owned enterprises receive the much-needed liquidity injection to help realize a paradigm shift eventually.
Introduction
Businesses owned by people of color have suffered disproportionately as a result of the economic slump linked to the pandemic, in part because they are more likely to be in a precarious situation and to be situated in areas where the business climate is more likely to generate poor business results. Before the epidemic, around 59% of Black-owned firms were in financial jeopardy, as opposed to 28% of those owned by whites (Bates et al., 2018). 42 percent of Black-owned US companies closed between February and April 2022 because of the epidemic. Surveyed in May by the National Association for Business Ethics, more than half of the owners of Black-owned businesses said they were worried about the future of their companies. The COVID-19 problem may have contributed to this anxiety, as 37 percent of Black company owners in the poll stated they had difficulty obtaining loans, as contrasted to 28 % of all participants (Bates et al., 2018). There has never been a level playing field when it comes to business entrepreneurship for black Americans. White Americans make up roughly 16 percent of the total population, while just about 6 percent of Black Americans have any stock in a corporation.
There has never been a level playing field when it comes to business ownership for black Americans. Black Americans have barely 6% of the company equity that white Americans possess. The typical Black Americans company equity is worth around 50 percent of the typical Americans and a third of the typical white Americans. Additionally, black-owned firms tend to have lower sales than their white counterparts in most areas and are heavily represented in fields like food service and lodging (Leslie, Stout, & Tolbert. 2019). More than 10 times as many white families have more money than do black families and this discrepancy in economic activity add to a lower degree of prosperity for black families. Its a wasted chance for the US economy as a whole that this discrepancy exists. Existing Black-owned firms might generate an extra $195 billion in GDP in 2019 if they achieved the same annual value as their white-owned sector peers, an increase of around 1 percent.
Barriers to Business Building for Black Entrepreneurs
When it comes to starting and growing a company, African-American entrepreneurs encounter a variety of obstacles stemming from the countrys history of racial discrimination. Disempowerment and the consequences of poor beginning capital are economic hurdles that affect people, families, and whole communities. Often, hurdles to market entry are the consequence of unmet demands, such as difficulties in obtaining cash, skills, and services. Black businessmen are more likely to be denied access to social capital, such as the useful ties that make up corporate networks, as a result of sociocultural restrictions (Bates et al., 2018). Last but not least, Black-owned firms face institutional impediments, which include things like their locations.
In addition, black entrepreneurs may not have access to the networks and connections that may help them make the best business choices. Founders who are mentored by high-performing businessmen are three times more likely than their peers to become high-performing entrepreneurs themselves, according to research on New York-based start-ups. Knowledgeable contacts may assist entrepreneurs in making choices like whether to acquire a franchise or establish their own company without the need for upfront funding (LüdekeFreund, 2020). Black businesses, in particular, have more difficulties in securing funding and obtaining loans. Small company owners of color and other historically underserved groups have a far lower success rate in obtaining bank loans, even with excellent personal credit. Even close relatives and friends may be unable to assist financially (Bates et al., 2018). The majority of Black families polled indicated they had no one they could turn to get a $3,100 loan.
Starting a firm and keeping it running profitably should be the primary goals of the start-up and maintenance periods, however, because of their personal experiences and the countrys long history of racial injustice. Black entrepreneurs may be reluctant to tap into resources that may be available to them elsewhere because of their distrust of organizations (Morrish et al., 2020). A lack of formal and physical ties to these resources, particularly venture capital networks, might separate Black entrepreneurs from possible sources of assistance (LüdekeFreund, 2020). Please check the sidebar for a summary of the public sectors efforts to bridge the gap across Black- and white-owned enterprises. Even while 21% of Black Americans start companies, just 5% of Black American enterprises survive the start-up stage (LüdekeFreund, 2020). Debt and obtaining financing and a lack of supportive contacts in the business sector continue to be major issues for Black-owned enterprises even if they make it through the start-up phase (Bates et al., 2018). Respondents in focus groups have said that they believe that loan officers are reluctant to lend to them because of their color, age, and gender. These hurdles make it more difficult for Black-owned companies to thrive and expand.
Business networks may aid Black entrepreneurs, but they are less likely to be aware of these networks and how they might support and market their enterprises. Even though participants in focus groups stated they wanted to interact with a range of business experts and mentors, it is possible that Black entrepreneurs would be excluded from obtaining information about high-potential prospects (Hwang et al., 2019). Since banks and venture capital firms arent included, there will be fewer links to and from informal networks. This gap may be seen in corporate and government procurement initiatives that target black-owned firms being underutilized. A 2018 study by the Minority Business Development Agency (MBDA) revealed that white-owned firms in the same industry used their resources more efficiently than Black-owned enterprises (LüdekeFreund, 2020). Five main industries, architecture and engineering, construction, goods and supplies, professional services, and other service providers, awarded 4 to 43% of their available contract dollars to Black-owned firms, compared with 48% to 63% for white-owned enterprises. ( LüdekeFreund, 2020). These statics show the distinguishable disparity that exists between black-owned businesses and white-owned businesses.
Interventions
Due to a lack of resources such as finance, education, and assistance
Many Black entrepreneurs are unable to advance their careers or build wealth for their families and communities. Efforts to address these hurdles would need a review of present business ecosystems and the creation of new ones that are more supportive and fair for Black company owners. Hospitals and universities, which serve as important local anchor institutions, may play an important role in coordinating the efforts of various governmental and non-profit groups (LüdekeFreund, 2020). The Small Business Administration, the MBDA, and other government entities such as the Small Business Administration are already involved in these initiatives.
Making investments in more equitable and healthier business sectors will provide dividends for anchor organizations in the long run because of their linkages to their local communities. This job requires not just ensuring equal access to finance but also implementing policies that result in more fair results. Positive experiences and the building of Black entrepreneurs confidence in organizations and environments that have felt exclusive may be aided by the participation of black leaders (LüdekeFreund, 2020). Additional support for Black-owned firms should come from the commercial and public sectors. More mentoring (advice) and sponsorship (advocacy) possibilities for Black entrepreneurs may strengthen links with other players in existing organizations.
Implement policies that produce equitable outcomes
It is possible to remove institutional hurdles for Black-owned firms in all three areas of society. Legal, policy, and practice reforms might be made to guarantee that everyone has equal opportunities and results (Bates et al., 2018). Inequitable procedures and results may be prevented by the enforcement of laws and rules by industry organizations, affinity groups, and other coalitions of stakeholders. Anti-discrimination rules may need to be updated after an assessment of existing laws and regulations and their consequences. Stakeholders might establish or support domestic and foreign watchdog groups committed to providing research on equality in the processes and effects of policy. Black-owned firms might benefit from changes in procurement procedures at anchor organizations and major enterprises. Large corporations might streamline their minority-supplier certification procedures to take on new vendors more rapidly and allocate funding for purchasing from Black-owned companies (LüdekeFreund, 2020). Supplier-development initiatives that aid Black-owned suppliers in their integration into supply chains should be given priority in the budgets of organizations as well.
An organizations procurement expenditure should be tracked and made publicly accessible after its supplier programs have been created to measure progress and encourage accountability (Hwang et al., 2019). As an example, a North American bank has pledged to keep track of its expenditure with multiple suppliers, the number of minority-certified suppliers it uses, and the number of requests for information and bids from these suppliers, among other metrics. Organizations with a stake in preserving robust business ecosystems may be in a better position to spearhead this endeavor, given the urgency of the current pandemic-related economic crisis.
Enable equitable access to capital
Black-owned SMBs require direct investment or in-kind equity inputs, such as grants, incentives, loans, and revenue-participation agreements, to overcome economic obstacles. The Paycheck Protection Program has approved $658 billion for SMBs, and an extra $7.8 billion to $15.6 billion in liquidity for Black-owned SMBs in the 202022 time frames may safeguard 465,000 to 825,000 employments, an average of $9,425 to $33,578 per job (LüdekeFreund, 2020). Providing grants and loan deferrals to small businesses has been a top concern for both the governmental and commercial sectors throughout the COVID-19 economic crisis (Crittenden et at., 2019). To improve the experience of company owners and refill the pipeline of expanding companies, boosting the access to financial resources, especially start-up and growth capital, for Black entrepreneurs is essential. For example, banks, traditional and social impact investors, charities, and government initiatives might increase the amount of financing accessible to Black-owned enterprises.
Programs that lessen the risk of lending money to Black-owned firms include those that guarantee to fund and assist entrepreneurs from underrepresented groups in developing their skills. Bias may be mitigated by doing fewer face-to-face interactions in the lending process (Cho et al., 2019). Even if their ethnicity is less obvious, Black businesses are already more likely to take out loans online. Investing in high-growth small enterprises and providing them with finance and R&D financing might also help boost the development of Black-owned companies that own intellectual property and encourage Black entrepreneurs in high-growth sectors. Professional services providers and coaches might assist Black-owned companies in managing the process of obtaining loans, grants, and other cheap funding, especially from big corporations and non-profit groups, via a network of volunteer professionals and coaches. There is a need for cross-sector organizations to assist and organize a consortium of Black fund managers who can engage in the issue and management of debt and equity investments in small enterprises (Crittenden et al., 2019). The SBA has previously licensed small-business investment entities that guarantee funds that invest in SMBs. Increase the percentage of Black fund managers in this program while concurrently investing in the private sectors pipeline of Black managers.
Build business capabilities and facilitate knowledge sharing
To overcome market hurdles, Black-owned SMBs require assistance in developing their capacities and sharing their expertise. These activities may be led by black service providers who are funded by groups that advocate equality in entrepreneurship. This effort would safeguard and strengthen Black-owned firms and create business connections with Black-owned SMBs as the centers. Small enterprises owned by people of color may benefit from resources provided by the private and public sectors, especially anchor organizations, such as assistance in workforce development and up-skilling employees. During the epidemic, a major social media network, like Facebook, created a resource center with information tailored to certain industries. On-the-job training and free online courses, meanwhile, are tools that numerous firms may readily share (MacDowell et al., 2018). Providers of business services may also assist organizations in making the most of new prospects presented by the digital age.
Finally, digital skills will raise the proportion of prospects for Black entrepreneurs, but the associated business services have been unmet for a long time. It is difficult for many Black enterprises to afford providers that can help them modernize their operations, but private and social sector groups can give free technological services and managerial aid (Crittenden et al., 2019). As a result, Black-owned firms will be better equipped to share their digital expertise with other Black-owned enterprises in their areas, which will benefit everyone.
Expand opportunities for mentorship and sponsorship
Black entrepreneurs can overcome certain social hurdles by participating in networking, mentoring, and sponsorship initiatives. Creating more diverse teams should be a top priority for the commercial sector (Bates et al., 2018). To combat the impacts of systemic racism, managers at all levels should intentionally nurture and encourage the careers of more Black leaders. At the same time, there arent many Black firm CEOs on the current Fortune 100 list and even fewer Black department heads who are responsible for profit and loss, jobs that are more likely to advance a persons career. In addition, human beings tend to be drawn toward coaching and sponsoring those they perceive to be similar to themselves (Crittenden et al., 2019). A variety of community-based initiatives may assist aspiring Black company owners in finding mentors and allies in the business world, which can boost their sense of self-worth and motivation. For example, the corporate and social sectors might help established enterprises and start-ups connect and collaborate.
Conclusion
To conclude, some of the potential $1 trillion to $1.5 trillion in yearly GDP might be unlocked by investing in more entrepreneurial environments that provide Black company owners equal opportunities and resources. More importantly, stakeholders may correct the distrust that has evolved between Black business people and organizations by making socioeconomic institutions more supportive of a broader range of individuals. In addition to the economic benefits, that rehabilitative impact might be a stride forward for the United States.
Reference List
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