City Hall report finds small businesses facing critical gaps

John Barros, Chief of Economic Development for the City of Boston. John Tlumacki/globe staff

Many of Boston’s 40,000 small businesses, particularly those owned by women and minorities, are struggling to grow because of city red tape and a lack of access to capital and professional expertise and services, according to a city-commissioned study released Tuesday.

The report, prepared over the past year by Roxbury-based Next Street Financial LLC and Cambridge research company Mass Economics, was ordered by the administration of Mayor Martin J. Walsh. Researchers at the firms collected economic data and interviewed dozens of small business owners, plus lenders, city officials, and other experts.

The analysts found that more than 95 percent of businesses in Boston have fewer than 50 employees or less than $5 million in revenue, forming the backbone of the city’s economy. Collectively those companies generate around $15 billion in revenue annually and employ 170,000 workers — or about 44 percent of total employment by private, for-profit businesses in Boston.

But the study also found troubling disparities, painting a picture of an economy sharply segregated along lines of race, gender, and neighborhood.

“It was particularly troublesome to see how bad minority- and women-owned businesses were doing in a majority of the categories” measured in the report, said John Barros, Boston’s chief of economic development. “It speaks loudly to some of the structural issues. We need to do a better job . . . making sure everyone has a fair opportunity.”

Just 13 percent of small businesses owned by minorities had growth in employment from 2009 to 2012, compared to 68 percent for white-owned firms in the same industry segments, the study found. Women-owned firms didn’t fare much better, with only 16 percent showing employment growth in that three-year period, compared to 61 percent of all small businesses in equivalent industries.

Small businesses located in the downtown business district, the Seaport, and Allston received far more loans than those in Dorchester, East Boston, Hyde Park, Mattapan, Roxbury, and other neighborhoods. Those “loan-scarce” areas received 23 percent fewer loans than would be expected based on the number of businesses there. Businesses in these neighborhoods turn to online lenders or use credit cards to finance operations, paying higher interest rates as a result.

“Cash flows are a big issue for me,” one small business owner quoted in the report said. “I don’t have enough capital, I can’t join programs because I’m not big enough yet, and when I go to the bank, they turn me down for loans because I don’t have enough experience.”

The report found that the same neighborhoods that lack access to capital also suffer from a dearth of so-called business service organizations — private and public groups such as accelerators and business associations that provide marketing, networking, mentoring, and other services to small businesses.

Those groups are highly concentrated near downtown, the report found, and many small business owners surveyed weren’t even aware of their services.

“We found there were a lot of resources out there for small businesses, but also a great disconnect,” Barros said. “People told us, ‘I don’t know where to go for a loan, I don’t have a lender in my network.’ ”

Many businesses also complained that landlords and property managers ask too much for vacant space; moreover, some report there is no easy way for them to find suitable vacant space.

“There is absolutely no systematic way to identify available office, retail, or other commercial spaces that are on the small side,” a real estate broker said in the report. “All of the online systems that are available are very incomplete and constantly outdated. You have to know a guy who knows a guy to get what you want.”

The consultants recommend many changes in how City Hall should help small business owners, including:

■  Opening a new “Small Business Center” that would serve a single gateway to city services and resources, including a website offering direct access to permitting, licensing, and zoning functions, tools to find vacant commercial space and service organizations that offer training and talent.

■  Creating an Office of Small Business Development by consolidating existing agencies with overlapping responsibilities. It would take charge of all outreach to small businesses. Barros said the department would be established by July 1, when the city’s new fiscal year begins.

■  Convening lenders and business organizations to share data, refer borrowers to each other, and fill gaps in the capital market.

■  Allowing businesses owned by women and minorities to lease underutilized city property and space in new publicly owned developments at lower rates.

■  Expanding We BOS, a city program for women entrepreneurs, and creating networks of minority and immigrant business owners and entrepreneurs.

Barros argued many of the ideas would cost little or nothing to implement, as the city would only be a facilitator. Other proposals, however “raise budget questions,” Barros said.

“This plan lays out a road map,” Barros said. “It’s up to us to figure out how to implement it.”