Business revenue: Race and gender should not hinder business success and growth.
Insights & Analyses
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Racial inequities in business revenue tend to be more severe among firms with paid employees than among sole proprietorship.
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Among firms with paid employees in 2017, average annual revenues for white-owned firms are about 2 times higher than for Asian-, Latinx-, and Pacific Islander-owned firms and 2.5 times higher than for Black- and Filipino-owned firms.
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Average annual revenues among Black- and Asian-owned firms with paid employees in 2017 were highest in the manufacturing and wholesale trade industries; they were highest in wholesale trade and management for Latinx-owned firms, utilities and management for Native American-owned firms, and utilities and wholesale trade industries for white-owned firms.
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Women-owned firms with paid employees had average revenues of about $1.3 million in 2017 compared with $2.9 million for men-owned firms. Among sole proprietorships, those owned by women had average revenues of $27,000 while those owned by men had average revenues of $56,000.
Drivers of Inequity
People of color are less likely than Whites to have access to capital and contracts to start and grow a business, due in part to historical policies such as redlining that denied home loans and wealth-building opportunities to people of color. Today, business loan denial rates for firms owned by people of color are three times higher than for firms owned by Whites. Business owners of color also pay higher interest rates and receive lower loan and equity investments. Although creditworthiness is a factor in loan denials, this metric does not reflect how reliably individuals pay their rent. Underrepresented groups also often face barriers accessing important networks and training programs.
Strategies
Grow an equitable economy: Policies to help small businesses grow and thrive
- Create dedicated technical assistance and business supports for underrepresented entrepreneurs in high-growth, innovation sectors.
- Direct economic development efforts to support the growth of existing businesses that provide jobs for low-income residents.
- Help growing companies owned by underrepresented entrepreneurs access affordable office and commercial space.
- Ensure underrepresented entrepreneurs have access to business opportunities created through public sector spending, anchor institution spending, and the supply chains of major corporations.
- Implement workforce development strategies that train youth and low-wage workers for jobs in growing companies and business sectors.
- At the federal level, target small and very small businesses in federal investment programs and set aside a share of public contracts for businesses owned by people of color to mirror area demographics.
Strategy in Action
Creative financing program helps small businesses in California thrive. Based in Oakland, California, ICA Fund Good Jobs uses a framework called the Good Employer Matrix (GEM), which measures good jobs based on providing livable wages and health benefits, minimizing barriers to entry, building strong and inclusive cultures, scheduling shifts fairly and reliably, and actively developing employees to help them advance in their careers. This hybrid banking institution/venture capital fund leverages its GEM tool for underwriting investments, and for providing financial incentives (such as interest rate reductions) for companies that hire from local workforce development partners and implement strategies that demonstrate improvement in their GEM score over time. Since 1996, the loan fund has worked with over 600 companies, 56 percent of which are owned by people of color and 39 percent of which are owned by women. Learn more.
Photo: Toa Heftiba on Unsplash
