An important contributor to economic inequality in the United States is the wide and relentless racial and ethnic disparity found in small business ownership. According to the Small Business Administration’s report on Latino Business Ownership, blocked opportunities for minorities to start and grow businesses create losses in economic efficiency, especially through their effects on limiting job creation, wealth accumulation, innovation and local economic growth.
How do you stabilize and accelerate equitable small business recovery, and stimulate opportunities for long-term growth for Latino businesses and entrepreneurs? The Aspen Institute’s Latinos and Society research found that there are five key areas:
- Supplier Diversity: Aligning procurement with diversity goals.
- Entrepreneurial Support: Business support groups are needed to help formation and growth.
- Capital Access: Entrepreneurs need a continuum of funding for their products and services.
- Commercial Corridors: Foster local geographies and communities that can be leveraged.
- Sector Growth & Diversification: Create economic development strategies that foster strong sector diversity.
Latino-owned businesses is an untapped market. According to the same research by Aspen, 18% of the U.S. population is Latino (60.5 million), and they are projected to make up 26% by 2050 (100 million Latinos). Yet only 5% of employer businesses are owned by Latinos, and they are smaller in revenue size. If these businesses grew as fast as the U.S. average, they could add $1.4 trillion to the U.S. economy (adding 8% to the $18 trillion U.S. economy).
This is a moment for leading big change because business ownership is a critical way to build community and individual wealth. Yet, there are significant ethnic gaps in the business ecosystem, and COVID-19 hit Latino-owned businesses harder.
According to the 2021 Small Business Credit Survey by the U.S. Federal Reserve, the COVID-19 pandemic has deeply impacted communities of color and small businesses of color, in many cases to a greater extent than their white counterparts. Roughly about 30% of Latino-owned businesses remain closed to this day as a result of the pandemic.
For both Latino- and white-owned businesses, those led by women are most negatively impacted by the pandemic. The Aspen Institute found that twice as many Latina-led companies experienced closure compared to Latino-led businesses (30% versus 16%). Layoffs were also higher for Latina-led companies (17% versus 12%). This gender gap holds among woman-owned businesses (WOBs) as well. Only about 1 in 10 Latina-owned businesses have enough cash on hand to survive beyond six months compared to two in 10 Latino-owned businesses. This gap is less pronounced for WOBs.
Growing Latino-owned businesses can reduce the ethnic wealth gap in three key areas:
- Job Opportunities: Evidence shows that Latino-owned businesses hire mainly Latinos.
- Individual Wealth: Latino business owners have more wealth than their counterparts who are not business owners.
- Social Mobility: Entrepreneurship is considered a vehicle for upward social mobility, with entrepreneurs experiencing higher upward mobility than workers.
These stubborn statistics have not improved in many decades, and they require every partner in all levels of power within economic development to make a serious commitment to a diverse, equitable and accessible entrepreneurial resource ecosystem. Government-funded agencies like the Small Business Administration and local business nonprofits will need to look closely at how to close the gap through their offerings and create a real sustainable, resilient and inclusive path to create more intergenerational wealth for all communities of color.
EDGAR RAFAEL OLIVO is a bilingual business educator, economic advisor, and contributor for several media outlets. He’s a nonprofit executive who is passionate about education. He is certified in finance and data analytics and holds a business degree from Arizona State University.
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