Supporting businesses owned by women and people of color is not only the right thing to do but also the smart thing. It’s an economic imperative that has far-reaching positive impacts on society as a whole. However, due to systematic discrimination, these businesses face more significant hurdles than those owned by white males. For example, access to capital is a major challenge for women and entrepreneurs of color. According to the Department of Commerce, minority-owned firms are more likely to be denied loans. Among firms with gross receipts under $500,000, loan denial rates were 42%, compared to 16% for non-minority-owned firms. When they do secure loans, minority-owned firms often face higher interest rates and more stringent lending criteria. In this blog, the National Bankers Association Foundation explores why supporting diverse companies matters and how it benefits both local communities and the overall economy.
Economic Empowerment
When diverse entrepreneurs secure opportunities and resources to start and grow their businesses, they increase their economic self-sufficiency within their communities, reducing income inequality. Dollars recirculate through local economies two to four times more than money spent at a non-local company. Moreover, research from the Brookings Institution has shown that entrepreneurship can be a pathway to wealth creation and can help reduce wealth and income disparities. Supporting businesses of color can contribute to a more economically just society.
2. Job Creation
Companies owned by women and entrepreneurs of color significantly contribute to job creation, especially in communities with historically higher unemployment. The 1.1 million minority-owned small businesses employ more than 8.7 million workers and generate more than $1 trillion in economic output annually. Women own nearly 300,000 of them, employing 2.4 million workers. Supporting these businesses helps to strengthen local economies, reduce unemployment, and enhance job growth opportunities.
3. Innovation and Creativity
Diversity fuels innovation and creativity. When people from different backgrounds come together, they bring unique perspectives and experiences to the table. According to Harvard Business Review, “diverse teams are simply smarter”. Diverse and inclusive teams bring a broad array of experiences, perspectives, skills, and networks. This expansive resource base allows them to execute on ideas more quickly, efficiently, and cost-effectively. Research by the Stanford Graduate School of Business found that diverse-owned businesses tend to be more innovative and are more likely to introduce new products or services to the market.
4. Community Development:
Businesses owned by people of color often reinvest in their communities. According to a report by the Federal Deposit Insurance Corporation, Minority Depository Institutions originate a higher share of their small business loans to LMI communities (30%) relative to community banks (20%) and larger banks (24%).
5. Consumer Preferences
A Nielsen report found that consumers increasingly prefer to support businesses that align with their values, including diversity and inclusion. Supporting businesses owned by people of color resonates with a significant consumer base especially younger buyers.
6. Increased Competition
A diverse business landscape encourages healthy competition, which ultimately benefits consumers by adding to the variety of products and services available. Competition drives companies to improve quality, lower prices, and innovate, creating a win-win situation for consumers and the economy.
7. Social Equity
Historically, women and people of color have faced significant systemic barriers that hindered their economic progress. Supporting diverse companies creates a more equitable playing field and can help to rectify some of the past social and economic injustices.
Conclusion
Advancing businesses owned by women and people of color isn't just a matter of social responsibility; it's a smart economic strategy. The benefits of empowerment affect all aspects of society, leading to economic growth, job creation, innovation, and social equity. That is why the presence of Minority Depository Institutions (MDIs) in these communities is also vital. 77% of MDIs are located in areas with a greater concentration of minorities and they originate a higher share of their small business loans to LMI communities. In many of these neighborhoods, MDIs are the only full-service financial institutions accessible to residents and businesses. Without their presence, minority-owned companies would face even greater hurdles. If our country wants to truly achieve equity rather than merely talking about it, each of us needs to play a part and that starts with ensuring the prosperity of diverse businesses.
To learn more about how the National Bankers Association Foundation supports MDIs, click here.
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