The Need for Equitable Small Business Recovery Strategies
Small, locally owned businesses are in many ways the backbone of communities across the country. They offer entrepreneurs, especially immigrants and others who face economic barriers, with opportunities to make a living and to build wealth, and in so doing generate tax revenues to support critical municipal services. Especially in the case of Main Street establishments, they provide essential products and services that bring neighbors together. And they have an outsized impact on the U.S. workforce: prior to COVID-19, small businesses were responsible for the majority of new job growth in the U.S.1
COVID-19 has had a devastating impact on small businesses, with potentially lasting effects. At some point since February of 2020, between a quarter and a third of all U.S. small businesses were closed, according to some estimates.2 Lost revenues and ongoing disruptions may lead to a wave of permanent closures, or a restructuring that further favors larger firms and reduces opportunities for local economic development and wealth building.
Small businesses in general need support in the months ahead, but more intentional, equitable recovery strategies are truly essential. This is because, like so many other aspects of the pandemic, the burden on small businesses fell disproportionately on people of color. In its first months, the number of active Black-owned businesses fell by 41%, and the number of Latinx-owned businesses fell by 32%, or approximately 1.5 to 2 times the overall closure rate.3
While not every closure was permanent, centuries of exclusion from wealth and opportunity meant that entrepreneurs of color often entered the pandemic in a weaker position than white small business owners, as described below. Because businesses owned by people of color are more likely than other firms to hire employees of color, their struggles ripple throughout communities of color.4
The pandemic has laid bare not only the greater challenges small Black, Indigenous, and People of Color (BIPOC)-owned enterprises face, but also the profound differences in how they have been supported by federal policies and local action.
Inequities in the Paycheck Protection Program (PPP), the federal government’s forgivable loan program, illustrate this starkly. In its early rounds, only about 1 in 10 Black-owned and Latinx-owned businesses that applied received the assistance they requested, and 41% were not awarded any funding at all.5 The program favored businesses with established banking relationships, from which many Black-owned businesses have been excluded, and, in its first round, excluded sole proprietorships, which comprise the vast majority of Black-owned businesses.6 Recognizing these discrepancies between small business realities and program requirements, the Biden Administration revised the program’s guidelines, but the delayed support was too late for many entrepreneurs of color who had already ceased operations.
The Role of Local Government in an All-Hands Approach
Government cannot act alone to support an equitable recovery, because recovery is driven by factors beyond its direct control. Entrepreneurs need access to capital, affordable real estate, and customers.
Given these realities, many local governments are eager to promote a more equitable recovery among small businesses or mid-sized firms.7 And especially with federal funds now being channeled to states and localities, they have an opportunity to both promote economic recovery and close longstanding wealth gaps. But it is also true that government cannot act alone to support an equitable recovery, because recovery is driven by factors beyond its direct control. Entrepreneurs need access to capital, affordable real estate, and customers. They also need skilled workers, who themselves require access to training and employment networks that lead to better jobs within small businesses. Addressing this breadth of needs requires recovery strategies that engage many sectors, including banking, community development financial institutions (CDFIs), commercial real estate, business-supporting nonprofits, and workforce development agencies.
Local government, therefore, may need to play a convening role in an all-hands approach, working with citywide, regional, and community partners to ensure efforts are aligned. In this spirit, LISC partnered with Next City to develop a playbook for equitable small business recovery that is tailored to government audiences in different kinds of economic and regional contexts both urban and rural contexts. In developing the playbook, LISC first conducted a literature review and held a series of interviews with national policy experts on equitable small business recovery strategies. Through this research we defined both promising strategies being implemented before and around the pandemic, and important contexts for their deployment. This contextual approach is important to the playbook. Recognizing that local governments are not all alike, we intentionally encouraged diversity in the settings from which we drew cases, including large, coastal cities; rural communities; small to mid-sized cities; and older, industrial areas. After the literature review and interviews were completed, we identified and convened cohorts of practitioners who represented different elements of this all-hands, multisectoral approach, such as public officials, organizations that provide small business development services, CDFIs, and local and ethnic chambers of commerce representing BIPOC entrepreneurs themselves. Cohorts met multiple times and were drawn from each of these contexts (rural areas, industrial cities, and larger and smaller urban markets). In addition to these regional cohorts, we also convened cohorts of topical experts from around the country, who focused on capital access strategies, workforce and business development efforts, and the connection between local and federal policy.
All in all, this process yielded not only promising local responses that can be tailored to diverse contexts, but also policy reform needs that speak to the emerging priorities of the Biden Administration.
Our Framework: Equitable Pathways to Recovery
This playbook describes actions that can be taken around three core topics critical to small business success: (1) accessing capital, (2) building business and workforce capacity, and (3) securing affordable commercial space. Promising practices within each topic are illustrated by case studies and a guide laying out considerations for implementation in different contexts. A concluding section presents policy recommendations for local governments and partners as they advocate for federal resources and allocate federal funds to promote an equitable recovery. Because each of the cases described is rich and nuanced, we include links within the document so that practitioners can learn more about them. And because we acknowledge there are multiple recovery and action guides available covering various related topics, at the end of our playbook we also include links to other materials, including many developed by cohort participants themselves.
To frame the playbook, all of the strategies are supported by a series of five mutually reinforcing principles that we call “equitable pathways to recovery.” A thread throughout the playbook, these principles can be seen as touchstones to support more equitable program development and implementation, more broadly. They are:
- Being intentional, defining local small businesses and their needs
- Being inclusive in strategy development and implementation
- Ensuring program accessibility, by addressing barriers to access
- Leveling the playing field, by accounting for capacity needs in deployment
- Setting up a monitoring process with accountability mechanisms
Our Framework
1 Being intentional Defining focal small businesses and their needs
2 Being inclusive In strategy development and implementation
3 Ensuring program accessibility By addressing barriers to access
4 Leveling the playing field By accounting for capacity needs in deployment
5 Setting up a monitoring process With accountability mechanisms
Being intentional: Define focal small businesses and their needs
Practitioners and public officials from around the country emphasized that initiatives designed for a "typical” small business in fact exclude a large segment of the BIPOC- or women-owned small business or entrepreneurial community. For example, even though PPP was designed to help small businesses cover payroll costs, its early rounds did not consider that the vast majority of BIPOC enterprises (81%) are non-employer businesses that hire additional help only when needed.8 Being intentional means acknowledging that “generic” programs or strategies will likely not reach businesses that face the greatest challenges. It requires identifying which local businesses are struggling the most, assessing their needs, and crafting a program designed to meet those specific needs. While quantitative analyses of local industries may offer some guidance, in program design, local government can engage the local business community and the organizations closest to their work that can lay out their needs, as described in the next pathway.
Being inclusive: Identify and engage planning and implementation partners
Cohort members felt that government often develops small business programs without involving the communities or groups these programs are meant to serve. The best way to identify specific needs and craft responsive solutions is to engage BIPOC entrepreneurs and the organizations working most closely with them, from the early design stage. Other important stakeholders include mission-driven financial institutions and technical assistance providers such as CDFIs, small business development (SBD) organizations, ethnic chambers and local community development corporations (CDCs), as well as commercial corridor management organizations like Main Street organizations and/or Business Improvement Districts (BIDs). Another dimension of inclusive strategy development and implementation involves investing in the staff people who administer small business programs and workforce development initiatives. Cohort members emphasized how these individuals not only need industry-specific knowledge, but also must be effective trainers, coaches, and liaisons with local businesses. This was especially true for street-level workforce development staff, who have the challenging work of understanding the needs and lived experiences of workers while building relationships with employers. As a cohort member said succinctly, “You need to Invest in the staff who work with the clients.”
Ensuring program accessibility: Identify and address barriers to access
As part of the stakeholder engagement process, local government should identify the specific historic and contemporary barriers that prevent local small businesses from accessing funds or services. For example, in the case of capital access, a multi-generational history of racialized disinvestment and exclusion means that many entrepreneurs of color have not had the opportunity to build credit or obtain collateral that most banks require for loans, and are more often denied loans and pay more in interest and fees when approved. The experience of discrimination, poor treatment, and a lack of products to meet their needs can lead to a mistrust of financial institutions. Therefore, governments and their partners need to pursue alternative lending requirements that allow greater access, as described below, and work to rebuild trust and relationships with BIPOC entrepreneurs. And because of the racial wealth gap, many have not had the opportunity to build credit or obtain collateral that most banks require for loans. Therefore, governments and their partners need to squarely address historical mistrust of banks, and pursue alternative lending requirements that allow greater access, as described below.
Leveling the playing field: Identify and account for capacity needs in deployment
Public officials and community practitioners emphasized that providing the support needed to overcome deep-seated inequities takes more time and resources than small business programs often anticipate. For example, assisting entrepreneurs without financial records in applying for small loans or grants requires a level of individualized technical assistance that is often not fully covered by many small business programs. Similarly, shifting to character-based lending or other alternative risk assessments (rather than relying on credit scores or personal loan guarantees that frequently exclude entrepreneurs of color) requires rigorous business plan evaluation and coaching throughout the life of the loan to ensure successful repayment. Cohort practitioners emphasized that when developing support programs, government should be mindful of the more extensive programmatic resources needed to provide tailored support and should fully fund these services.
Setting up a monitoring process: With accountability mechanisms
In the views of cohort participants, too many government programs and strategies intended to support BIPOC-owned small businesses fail to do so. (Procurement programs meant to promote greater access were especially singled out by participants for lacking monitoring and accountability.) Equitable recovery requires intentionality in identifying who accesses opportunities, and establishing mechanisms for program correction. This includes discussions between government and its partners on target goals and especially on accountability measures and correction processes. At the same time, reporting burdens on governments’ nonprofit or business partners must not become a barrier to program adoption, so the co-design of these measures, or selection from a menu of possible reporting metrics, may give providers flexibility while also promoting accountability and progress.
