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Dissecting policies and practices, offering solutions informed by scholarship and lived experience.

THE BIG PICTURE

When Black-owned businesses fail, it hurts everybody

Breaking the cycle of failed, sputtering Black businesses needs an all-hands-on-deck approach

Breaking the cycle of failed, sputtering Black businesses needs an all-hands-on deck approach.H. Hopp-Bruce/The Emancipator/Nadia Snopek/Adobe

Linda McGill Boasmond’s road to becoming the only Black woman in America to own and run a chemical manufacturing plant didn’t look like the path most other entrepreneurs have taken.

Boasmond, the owner of Chicago-based Cedar Concepts Corp., always had the same drive, ambition, and natural interest in her field as others who have started successful businesses. But as a Black woman born and raised on Chicago’s South Side, she also knew her passion for science and her professional experience — she worked for a number of Fortune 500 firms before becoming the operations manager and then partner of a small chemical company — didn’t mean she was on an even playing field.

Linda McGill-Boasmond is the owner of Chicago-based Cedar Concepts Corp.olivia obineme/Olivia Obineme

“People talk about the gentleman who started Whole Foods. Well, look who his father was,” Boasmond says, speaking of Whole Foods founder John Mackey’s father Bill Mackey, who was CEO of a healthcare company he sold for $1 billion. “Now, if you look at my father and his father, there’s a big difference. A humongous difference!”

Her father, who worked at a chemical plant, instilled in her the value of hard work and a love for math. He and her mother, who ran their home, supported her ambitions fully. But they could not provide what so many White entrepreneurs’ families can: the collateral of generational wealth.

“I can step out there boldly if [Bill Mackey] is my dad because what happens if I fail in that scenario, when you have those kinds of resources behind you?”

Boasmond’s Black entrepreneurship story is one about beating odds that were against her from the start. Even before the pandemic, eight out of every 10 Black businesses failed within the first 18 months. U.S. Census data show 58% of Black business owners describe the health of their businesses as “at risk” or “distressed.”

And when Black businesses fail, are unable to get off the ground, or underperform, it doesn’t just add to the racial wealth gap — it costs all Americans money. A McKinsey study found that if existing privately held Black-owned businesses had the same revenue averages as White-owned firms, it would pump an additional $200 billion into the economy. The loss due to Black businesses that never got off the ground is incalculable.

Data show Black entrepreneurs are far less likely to secure business capital than their White counterparts, and when they do, that capital comes in much smaller amounts and with much higher interest rates.

That’s for those who are able to access it at all.

When the opportunity to buy the chemical company where she worked presented itself, Bosamond turned elsewhere — forging connections within her circle and the local Chicago community, including local bankers. She found enough capital there to make an offer and buy the company.

But an organization like that needed more investments, and more money, to grow and thrive.

So from there she turned to other sources. Through one, the Local Initiatives Support Corporation’s Entrepreneurs of Color Fund, from which Boasmond was able to secure a $1.1 million loan for equipment upgrades, she was able to grow the company and complete construction on one of the few new chemical manufacturing facilities built in Chicago in more than 50 years.

That success put her in a position not only to create jobs for Chicagoans but also help pique young women’s interest in STEM fields by helping to develop the Girls 4 Science program for students ages 10 to 18.

“People become what they see,” Boasmond says. “Especially in underserved communities, you don’t find people in STEM fields.”

Other racial disparities in a host of financial systems — from student loans that disproportionately bury Black borrowers in debt at the beginning of their entrepreneurial journeys and a credit reporting system that unfairly penalizes Black consumers, to a lack of access to other forms of funding — lead more Black would-be business owners to turn to high-interest credit cards and other more expensive means to hang their own shingles. In fact, according to the U.S. Small Business Administration, more Black firms turn to personal credit cards as a source of startup capital (17.6%) than to bank loans (15.2%).

How to level the playing field

Breaking this cycle to give Black entrepreneurs the same shot at success requires intentional efforts by the public and private sector.

Increase federal, state, and local government investment in marginalized, disadvantaged, and destroyed Black business districts. Generations of redlining and other legalized discrimination and segregation place the government at the front of the line when it comes to responsibility for rectifying the Black-business equity gap.

The infrastructure law passed last year and touted by the Biden Administration for its $1 billion investment in Black communities torn apart by midcentury highway construction projects is a drop in the bucket in terms of the investment needed in those communities. But it can serve as a model for the state and federal government to directly invest in Black business districts that were decimated by racism.

A clear example is Tulsa, Oklahoma, which was home to what was known more than a century ago as the economically thriving Black Wall Street, destroyed in a race massacre. Conservative estimates of the damage done, in modern sums, exceed $200 million. That should serve as a floor for federal and state money earmarked for Black business grants in the area. And lawmakers must demand studies to determine the amount of federal and state grant funding for other Black business districts that fell victim to race-based destruction.

Similarly, federal programs aimed at helping businesses have historically underserved Black founders. A key example is the Paycheck Protection Program designed to help keep businesses afloat during COVID-era pandemic restrictions that shuttered Main Street doors for months or more. Not only were the vast majority of Black-owned firms — some 95% — shut out of the program’s crucial early round, but those that did receive funding had to wait much longer for it. The government has long demonstrated how to get investment in Black businesses wrong. It’s time for it to prioritize getting it right.

Change how banks lend

Boost character-based reparations lending. Banks make business-lending decisions that penalize Black business owners and entrepreneurs based on systemically biased policies that have disadvantaged them for generations. We’ve already examined the racially disparate impact of credit scoring. Those negatively impact Black business owners as well by putting the business capital needed to start, scale, and succeed out of reach of most founders.

One solution is to give Black-owned businesses the same century-old advantage their White counterparts have enjoyed: character-based lending.

“In the ‘50s and ‘60s, character-based lending meant, ‘We are only going to lend to White people,’” says Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America, which has launched a new initiative to provide “economic justice loans” to minority-owned businesses at a 3% fixed interest rate with no fees or closing costs. Lending decisions will be made by a peer committee of community members without consideration of credit scores or other factors that are not predictive of business success.

“We don’t look at credit score; we look at people’s payments that they can control,” says Marks, whose work to force banks to modify terms of the predatory subprime mortgages that helped create the 2007 housing crisis led to him being named the Boston Globe’s Bostonian of the year. He based the business loan program on the same approach.

“If someone has debt due to an unaffordable medical bill, that’s not a reflection of whether they are ready for homeownership or business ownership,” Marks says. “It just means we have a dysfunctional, unaffordable health care system.”

Marks developed the program with former U.S. Comptroller of the Currency Gene Ludwig, chair of the Ludwig Institute for Shared Economic Prosperity. He says such programs are key to drawing major banks to invest in local Black businesses. Again, when Black businesses thrive, it benefits everyone, including their lenders and investors.

“It’s good business,” Ludwig says. “To the extent that communities survive and are filled with people with an excitement for building their businesses, that’s good for everybody, including the mainstream banking organizations.”

Invest in Black people

Put more money in the hands of Black lenders and funders. Again, those who best understand the needs, financial and otherwise, of Black business owners should be in a greater position to evaluate and assist them, and that includes investors.

Melissa Bradley, founder of 1863 Ventures, an accelerator program for minority-owned businesses, says her focus isn’t just getting businesses funding, it’s getting them ready.

“It’s about understanding the right kind of capital you need to run your business,” Bradley says of 1863 Ventures, which serves what she calls “New Majority” businesses to account for the national demographic shift toward a White plurality. Her program aims to create $100 billion in new wealth for BIPOC Americans by 2030. “Don’t just look for capital. Be ready to receive the capital. Be brutally honest about what you want to do.”

The police murder of George Floyd and the focus on racial justice it sparked across the country has created a surge in Black funders seeking to invest in Black businesses, Bradley says, so the opportunity to seek out Black funders is greater than ever. Now, it’s important that Black funders remain a permanent part of the Black business ecosystem.

“We started this six years ago, and then, there was nobody checking for Black and Brown entrepreneurs to run an accelerator program,” Bradley says. “Now there are more organizations like ours that are specifically providing not only funding but training Black and Brown entrepreneurs.

“Black and Brown entrepreneurship is not the same as White entrepreneurship. It’s not the same lesson plan. Cultural competency is crucial.”

Kimberly Atkins Stohr is The Emancipator’s senior columnist, and a senior opinion writer and columnist at The Boston Globe. She may be reached at kimberly.atkinsstohr@globe.com. Follow her on Twitter @KimberlyEAtkins.


Kimberly Atkins Stohr is a columnist for the Globe and The Emancipator. She may be reached at kimberly.atkinsstohr@globe.com. Follow her on Twitter @KimberlyEAtkins.