Equity Gap and Small Business Ownership Alabama Microenterprise Network (AMEN) August 28, 2018 Nancy S. Lee Interise © 2017, Interise. All rights reserved. Permission required for reproduction and distribution.

Small Business Ownership AGENDA Racial Wealth Gap Small Business Ownership Discussion of Alabama Small Business Ecosystem 2

Whites have 10x more wealth than African- Americans and Latinos Wealth Gap Statistics Whites have 10x more wealth than African- Americans and Latinos Over 25% of African-Americans have no or negative wealth The gap is more pronounced in urban areas Median wealth of white households in Boston is $247,500, while it is almost zero for African-Americans By 2046, the wealth of African-American and Latino households could be 1% of white households 3

Wealth a Common form of Capital for Small Business Owners Sources of capital for small business owners Personal savings Home equity Family and friends Personal credit cards, loans Lines of credit 4

Comparison of Wealth Gap and Income Gap Median income for African-Americans and Latinos is half that of whites Median wealth for African-Americans and Latinos is one-tenth that of whites The Income Gap worsens the Wealth Gap over one’s lifetime and inter-generationally. 5

Homeownership as a Form of Wealth 68% of whites own homes 42% of African-Americans own homes 43% of Latinos own homes Black and Latino homeowners are more likely to be underwater due to subprime lending 92% of African-American wealth is in their homes compared to 58% of white wealth 6

Trust Gap and Capital Gap Leading to a Trust Gap, minority business owners are more likely To be declined a loan To receive a smaller loan amount To pay higher interest rates African-American business owners are 3x as likely to report lower profits due to limited access to capital 7

Bootstraps are Not Enough Median Household Wealth Comparisons 8

Small/Micro Enterprises in Alabama 58,000 employer small businesses in Alabama (fewer than 500 employees) 26% have 10 or more employees 74% have 1-9 employees 52% have <5 employees Disparity in Business Ownership and Population 12% are minority-owned 31% of population are racial minorities 1% of businesses is Latino-owned 4% of population identify as Latinos Source: 2012-2016 ACS 5 Year Estimates and 2016 Annual Survey of Entrepreneurs 9

Size of Minority Owned Businesses in Alabama Over 80% have 9 or fewer employees Over 60% have 5 or fewer employees Source: 2012-2016 ACS 5 Year Estimates and 2016 Annual Survey of Entrepreneurs 10

© 2016, Interise. All rights reserved. There is good news: Building capacity among minority business owners helps close the racial wealth gap.

Outcomes for Business Owners African-American business owners have 12x more wealth than non-business owners Businesses create local jobs Minority business owners are more likely to hire minorities Interise impact data shows minority alumni grow revenue and jobs at a higher rate Businesses stimulate the economy in low- and moderate-income communities 12

Capacity Building and Training Capacity building programs Provide fundamental business knowledge Impart understanding of strategy Change CEO behavior over time Term comes from international development Move communities from “aid” to “trade” Training build skills and technical assistance addresses a specific issue 13

Procurement and Business Growth Contracting with anchor institutions, corporations, and government can lead to business growth Supplier diversity programs SBA 8(a) Business Development Program US Dept. of Commerce Minority Business Development Agency (MBDA) Interise Leadership in Local and Equitable Anchor Procurement (LLEAP) 14

Establishes a common goal and builds trust LLEAP Systems approach to increasing mutually beneficial contracting opportunities Establishes a common goal and builds trust Business owners Anchor procurement leadership and staff Capital providers Capacity builders Surface mental models (deeply held beliefs) that become leverage points to realign the system 15

Common Procurement Mental Models MWBEs are unknown quantities/too small. I’m judged on short term results of best product, best price. Small Business Why do anchors need my financials/so much paperwork? Because the company is certified, it should be awarded contracts. Multiple Stakeholders Don’t tell me what to do. It’s always been done this way. 16

2 workshop series with commitments to change the system Boston Pilot Piloting LLEAP 2 workshop series with commitments to change the system Boston Pilot Meet the anchors where they are for change Boston higher education anchors The Boston Consortium Dallas on March 20, 2019 Systems Thinking Training Observe LLEAP in practice 17

Questions and Discussion slide title Questions and Discussion Nancy S. Lee Sr, Manager Research & Evaluation nlee@interise.org 617-350-6316 Bernard Johnson Director National Partnerships bjohnson@interise.org 617-350-6334 © 2016, Interise. All rights reserved. 18