SPRINGFIELD, Mass. (WWLP) – As the economy slowly creeps back to life, a recent report shows shows Massachusetts needs to increase entrepreneurship among people of color to counteract decades long decline in the number of new businesses. But that isn’t easy.
“We face a lot more barriers in creating healthy businesses than White communities,” President and CEO for Black Economic Council of Massachusetts (BECMA), Segun Idowu told 22News.
The report by MassINC and the Coalition for an Equitable Economy found that minority owned businesses are on the rise but not at a fast enough pace to close the gap between non-minority owned businesses. “As the entrepreneurship levels are rising in communities of color, what’s going to be important is that we’re providing adequate resources,” Idowu continued.
Massachusetts workers self-employed full-time in incorporated businesses, 2010 and 2018
While minority businesses are on the rise, the report found White residents are still 2.5 times more likely to own a business than Black residents. Many experts in the field say the barrier to entry is the hardest obstacle.
“One of the things that we are still plagued with is the barrier of getting into these high tech, highly male dominated, White dominated industries,” Global Initiatives Director at Babson College’s Center for Women’s Entrepreneurial Leadership, Dr. Shakenna Williams told 22News.
Lack of access to funding, the racial wage gap, and biases in the business and banking world contribute to the inequality. According to BECMA, 90 percent of minority businesses didn’t get access to the first round of pandemic paycheck protection program.
“We know where the money resides, it’s just that the money does not get to us. We are not given the money and that’s due to a lack of trust in our communities and in our businesses,” Idowu explained. “We’re in a critical point in the life of the economy of this state, especially as demographics are shifting, it’s important that we are investing in communities of color.”
Lack of funding from multiple revenues contributes to the barrier to starting a business, especially for people of color who statistically receive less funding from lending industries.
“Funding is still an issue. We’re still receiving less funding from banks, Venture Capitalists and angel investors because there’s no representation across the table that looks like us,” Dr. Williams said. “They don’t understand our businesses so organizations, banks, VC’s are not employing people that look like us that can make those sound decisions.”
Even when the data shows that investing in communities of color is economically beneficial, there is less access.
“We see very very low levels of investment in Black and brown entrepreneurs despite the fact that all the data shows us that venture capital firms that invest solely minority entrepreneurs they overperform in comparison to their White counterparts,” Idowu explained.
Annual earning for wage and self-employed workers, 2018
Dr. Williams explained that nationally Black-women-owned businesses make an average of $24,000 a year, compared to non-minority owned at $218,000 a year. There are 2.6 million Black women owned business in the U.S. compared to 6.5 million non-minority owned. But that isn’t due to lack of interest in starting a business among those in the Black community.
“The [racial] wage gap is really limiting us on the additional resources that we have to invest in our businesses initially,” Dr. Williams explained.
“Minority businesses, we are resilient, and there is no dearth of the entrepreneurial spirit in our communities. But at the end of the day we’re starting from a different place,” Idowu continued when touching upon the unique barriers people of color face when starting a business. The racial wealth gap in the state puts people of color at a lower starting point with capital than non-minorities.
From speaking with Idowu and Dr. Williams, it was clear that banking is a large issue among communities of color who want to start a business, and trusting a bank at that.
“[Many] Black and brown entrepreneurs do not have business relationships with these commercial banks. They might have personal banking relationships but they don’t get loans at the same rate that White entrepreneurs do,” Idowu explained. “It comes with the dispersal of capital, investing in these businesses and not just White male owned businesses and it comes to doing business with our businesses.”
The advice that Dr. Williams gives is, “be really mindful of what bank you are putting your personal and also your business money into.” She also emphasizes the need to close the gap in access to entrepreneurial education speaking on how the Center for Women’s Entrepreneurial Leadership at Babson College and the Black Women’s Entrepreneurial Leadership Program that she founded, connects aspiring entrepreneurs with the resources to start successful businesses.
“It’s a benefit for the economy because we all win. We all win because if these businesses are viable it helps us with our taxes, and we can see different improvements in our educational system and to different things that can happen in our cities,” Dr. Williams explains.
Ultimately, it does not take fixing just one of the barriers to entry for people of color. All the barriers must be reduced or cleared completely in order to achieve equality and a more thriving economy.
“This study clearly shows that if we’re going to have a resilient economy, one that is inclusive of everyone, on that is heathy and strong, we need to ensure that we are investing in communities of color and making it easier for people of color to start and thrive in their own businesses,” Idowu concluded.
Minority-owned businesses employ 133,000 people in the state and generate an annual revenue of more than five billion dollars that goes back to the state.