The big economic impact of black-owned small businesses

February is Black History Month, honoring the legacy of Black Americans and their vast contributions to American society. African Americans have contributed greatly to the fields of science, arts, politics, and architecture, as well as in their local communities.

One area where Black people are contributing greatly is to the economy through the creation of their own businesses. According to 2021 Census data, 161,031 U.S. businesses were Black-owned. Black-owned businesses in the U.S. generated $206 billion in annual revenue and supported 3.56 million U.S. jobs.

In 2017, there were an estimated 124,004 U.S. firms with a majority Black or African American ownership, showing a 23% growth rate between 2017 and 2021, according to the Census Bureau’s Annual Business Survey. The Census Bureau also highlights the $141.1 billion in annual receipts, 1.3 million employees, and around $42.2 billion in annual payroll.

Pew Research Center conducted surveys to pinpoint how to honor and uplift Black communities. Around 40% of Black adults say that businesses in Black communities should be Black-owned. But despite the impressive growth in Black-owned businesses in recent years, they still face many hurdles that other businesses don’t.

Housing disparities

The historical practice of redlining directly hindered Black America’s ability to move up in American society, often pushing people of color into poorer communities. This has been followed up with gentrification which has targeted Black and Brown communities, often by purchasing housing units and remodeling them to sell them to wealthier, whiter clients. The Bronze recipient of the 2023 Barlett and Steele awards highlighted this very issue in their investigative series American Dream for Rent. 

Predatory lending also hindered Black Americans in their quest for upward mobility as U.S. banks denied mortgages to Black applicants and other racial/ethnic minorities. The consequences of these racist tactics still remain as is clear from the disparities in wealth and homeownership between white and Black Americans. According to 2021 census data, homeownership among White householders was 71% in contrast to 46% for Black Americans. Additionally, non-Hispanic white householders had a median household wealth of $187,300, in contrast to $14,100 for Black householders.

Housing Matters, an Urban Institute Initiative, suggests a number of steps to increase Black homeownership such as increasing building permits, expanding affordable housing, encouraging changes to credit scoring, providing accessible down payment assistance (DPA), and better targeting local resources. Additionally, policy measures can protect Black communities and ensure affordable housing remains viable, according to Next City.

Executive action to advance Black businesses

The National Bureau of Economic Research studied the link between federal relief payments and their distribution, highlighting the presumable role that debt relief payments played in the growth of new firm formation in Black neighborhoods “which might otherwise have been constrained by discrimination.”

Additionally, President Biden signed Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, on his first day in office. Its key provisions are creating a new annual process to strengthen racial equity and support for underserved communities, strengthen community partnerships, improve economic opportunities in rural areas, and invest in underserved communities. 

The Executive Order pledged to increase the share of federal contracting dollars awarded to small disadvantaged business by 50 percent by 2025, “and instructs agencies to expand procurement opportunities for small disadvantaged businesses through grants from the Bipartisan Infrastructure Law, Inflation Reduction Act, and other investments and programs,” according to the The White House Fact Sheet.

Black History Month celebrates the successes of Black America and highlights where more work needs to be done. The growth of Black Businesses has profound impacts on American society and the economy, but the disparities in wealth and housing remain.