Resources | ESG and Diversity | February 27, 2023

4 Reasons Why You Should Support Diverse-Owned Businesses

These companies are making a huge difference despite an uneven playing field.

group of diverse people walking together

These companies are making a huge difference despite an uneven playing field.It’s one of the most inspiring — and frustrating — things about the US economy. 

Over the last several years, diverse entrepreneurs have launched businesses at a rapid rate, offering valuable goods and services while creating jobs and opportunities for communities that have historically been overlooked. 

Minority businesses account for roughly 20% of US employer companies and employ millions of workers.

In many cases, these businesses struggle to access working capital. That’s a big problem because, without ready access to cash, diverse-owned businesses find it harder to grow and have more difficulty surviving setbacks.

Your support can help make a difference in allowing these enterprises to thrive. Here are four reasons why doing business with diverse entrepreneurs is essential and beneficial for your community. 

Diverse-owned businesses help build wealth for minorities 

According to the Federal Reserve, the median net worth of white households was $188,200 in 2019, compared to $24,100 for Black families and $36,100 for Hispanic families.

The wealth gap has real-world consequences. Minority households have fewer resources to invest in economic opportunities, such as paying for college, buying real estate or starting businesses. There is less to pass down to future generations, and when misfortune strikes in the form of serious illness or job layoffs, minority households don’t have as much money to fall back on. 

JPMorgan Chase researchers weren’t able to find clear proof that business ownership can erase the racial wealth gap. White entrepreneurs start with financial advantages that minority business owners lack, and that leads to unequal outcomes in business, too. 

But generally speaking, owning a business does lead to higher wealth than what the owners had before going into business — about four times higher, according to one report

Diverse-owned businesses create job opportunities

Even during a time of record-low unemployment, Black and Hispanic workers are more likely to face higher rates of joblessness.

In January 2023, the unemployment rate was 3.4% overall, but 4.5% for Hispanic people and 5.4% for Black people.

The good news is that diverse-owned companies can help push back against discrimination and a lack of opportunity by creating jobs. 

  • On average, the typical Black employer business creates 10 jobs, the Brookings Institution reported. Research also has found that Black-owned companies are more likely to hire Black employees.

  • Hispanic-owned businesses, meanwhile, employ about eight people on average, according to the Stanford Latino Entrepreneurship Initiative’s most recent State of Latino Entrepreneurship Report. They’re also more likely to have Latino executives: 98% said they had Hispanic leadership beyond the company’s owner.

Diverse businesses boost their local economies and communities

Diverse-owned companies can contribute significantly to their communities’ quality of life. After all, a neighborhood isn’t just houses and apartment buildings — it’s also the stores and restaurants that operate there.

Whether you need tires or a haircut, local businesses make life more enjoyable and convenient. That’s especially true for minority-owned businesses, which often provide food, goods and services that white-led businesses don’t offer.

These companies make a financial impact, too. For every dollar spent with a locally owned small business, about 67 cents stays in the community, American Express reported. Of that, 44 cents goes to the owner or toward payroll and benefits. About 23 cents gets spent with other local businesses.

That reinvestment means a stronger, healthier local economy with more opportunities for all. 

Diverse-owned businesses could be making an even bigger impact

As impressive as these contributions are, it’s important to note that minority-owned businesses could be doing even more. Unfortunately, they’re often held back by unfair policies and historical inequities.

Case in point: 14.2% of the US population is Black, but only about 2.2% of employer firms are Black-owned. If that number were proportional to the number of Black Americans, there would be more than 930,000 additional Black-owned businesses in operation today.

One of the biggest obstacles for diverse entrepreneurs is access to capital.

As noted earlier, Black and Hispanic households have less wealth than white ones. When diverse businesses seek bank loans, they are much less likely than white-owned businesses to receive the amount they requested. (About 70% of the funding for Hispanic-owned businesses comes from personal savings, while 6% is in the form of commercial loans.)

Having less money makes it harder for those businesses to hire staff, buy equipment and expand their operations — or even just survive when tough times hit.

The good news is that policymakers, nonprofits and other organizations are waking up to this need and looking for new ways to empower these diverse businesses.

At C2FO, for example, our team has created a suite of solutions that make it easier for minority- and women-owned businesses to get paid faster on their outstanding invoices, which boosts their access to working capital at low cost.

And we’ve just announced a new initiative with the Schultz Family Foundation to provide access to lines of credit with fewer roadblocks than traditional lenders, and we encourage small and diverse businesses to apply. 

The bottom line

Diverse businesses are economic engines for their communities, creating wealth, jobs and a higher quality of life. To reach their full potential, though, those engines need fuel in the form of working capital.

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