Statistics show that “minority-owned” businesses in the nation are on the rise and according to the Small Business Administration (SBA), “…nationwide, 29% of businesses are majority-owned by minorities, and this share is quickly increasing.”
However, despite these trends, minority-owned businesses trail behind their white counterparts in several key categories. For instance, Non-Hispanic whites own 71-percent of all businesses. That said, the trends for minority-owned businesses are positive for growth.
Over the last 10 years, minority business enterprises accounted for more than 50 percent of the two million new businesses started in the United States and created 4.7 million jobs. There are now more than four million minority-owned companies in the United States, with annual sales totaling close to $700 billion.
The COVID-19 pandemic has hit minority-owned businesses particularly hard, especially service-driven businesses, like restaurants and transportation services which operate on thin margins even during the best of times. Decimated by lockdown and forced closures, there is a significant risk of default or bankruptcy. The Paycheck Protection Program and other government assistance programs require a level of financial literacy that are challenging for many minority-owned businesses. A capital cushion is a luxury many small businesses cannot afford and access to capital is limited, especially for small businesses located in urban areas.
Trends show that the pre-dominance of minority-owned businesses consist of African-Americans and Hispanics – with a much smaller share of Asian-owned businesses. This is partially based on the fact that these demographics have shown major growth in the U.S. The SBA reports, “… while the Black/African American population increased by 6%, their business ownership increased by an impressive 34-percent.”
Minority-owned businesses also have shown “disparity” — a ratio between a minority group’s share of sales or employment and its share of businesses, according to the SBO report. For example, while Hispanic-owned firms represent over 12% of all businesses, they only account for 4% of all sales and employment. “All minority businesses have sales and employment disparity ratios under 100%, and therefore have larger shares of businesses than of sales or employment,” reports the SBA.
Another trend is that minority-owned businesses are not large employers. The size of the business is such that it is oftentimes managed and operated by the owners who do not significantly hire from the outside. The SBA reports that this is an area where Asian-owned businesses lag behind other minority groups, with an average of 7.4 employees per firm, compared to about 8.1 for Hispanic-owned and 8.9 for Black/African American-owned businesses.
An explanation for this may be represented in the SBO’s industry section – that states in general, minority-owned businesses may be in industries that simply do not lend themselves to generate employment.
In terms of business industry sales receipts, “Businesses’ sales receipts vary widely depending on the industry in which they operate,” cites the SBO report. “The lowest 20 industries tend to be service industries such as child day care services, taxi service, and personal goods repair.”
In conclusion, the outlook for minority-owned businesses may be positive for growth but it is not without its challenges. The SBO reports that a “…disproportionate amounts (of minority-owned businesses) are in the lowest 20 industries in terms of sales…with 58.9% of all African American-owned businesses in the 20 lowest sales-generating industries, as are about 44.5% of all Hispanic-owned businesses.”
A new report by the Center City District (CCD) and Central Philadelphia Development Corporation (CPDC), Getting More Philadelphians Back to Work: Business Density and the Role of Black and Minority Owned Businesses, examines the disparities between the number of Black-owned and white-owned businesses in Philadelphia compared to other East Coast cities.
Access to capital is the biggest challenge for minority-owned businesses and a consequence of inadequate capital is too much debt — a crippling disability in the current economic climate. There are ways for ordinary people to make a difference. By patronizing local minority-owned businesses, residents in our Philadelphia apartments can help these businesses make it through these difficult times and encourage other minority entrepreneurs to take the big bold step to help Philadelphia recover from the current economic and health crisis and emerge stronger in the coming year.