We live in tumultuous times. Whether it is economic instability, racist violence, a deadly global pandemic, or supply chain disruptions, the challenges seem endless.

In response to these challenges, new openings have emerged. One of these is an unprecedented infusion of capital into small businesses. Yet capital is far more accessible for white, affluent, and well-established business owners than for others.

How can this paradox of capital availability without equitable access be resolved?

The three of us have been wrestling with this question for several years. We represent a small business technical assistance provider, a mission-based nonprofit lender, and a center that supports community wealth building and cooperative business development. Our short answer to a complicated question: capital systems must be restructured so that new resources that aim to boost business ownership and wealth building among low-to-moderate-income (LMI) households and Black, Indigenous, and people of color (BIPOC) communities actually do so.


Creating Opportunities through Business Ownership

For generations, owning businesses has been a pathway toward building community wealth. Over the past century, as political and economic barriers systematically locked people of color, religious minorities, and women out of opportunities for workforce participation, entrepreneurship provided an alternative pathway to financial security. Even today, people of color and women who own businesses experience higher household net worth than non-business owners. As reported by the Association for Enterprise Opportunity, the median net worth of business owners is almost 2.5 times higher than that of non-business owners. For Black women business owners, the difference is more than 10x than for Black non-business owners. For Latinos the equivalent ratio is 5x.

While businesses in the US are typically owned by one or a few individuals, more democratic structures of business ownership are increasingly prominent. Worker-owned cooperatives, for example—traditionally defined by shared ownership, shared governance, and shared equity—give communities an alternative way to build wealth collectively through democratic management and profit-sharing. Small business ownership, including cooperatives, has been shown to generate wealth that stays in the community, creates a significant proportion of our nation’s new jobs, and helps maintain communities’ unique cultural identities.

As we rethink our small business ecosystem to build community wealth, we have an opportunity to imagine the world we want to live in:

Imagine a community where people, institutions, and systems work in synergy for mutual benefit; a place where individuals can make a living wage by using their knowledge, skills, and abilities to fulfill their passion and unique potential. Imagine people of all backgrounds have access to responsible capital in the form of grants, equity, and loans to stabilize and grow their businesses. Imagine that cities acknowledge the powerful impacts that their homegrown microenterprises and small businesses have on the local economy and prioritize them for local contracts, helping them stabilize and grow. And imagine organized workers having the social and financial capital to start their own worker cooperatives and/or acquire the businesses where they work, with the ability to build those business by, for example, fulfilling large local procurement contracts to meet institutional needs.

Imagine that we can spend our money locally to purchase the goods and services we want and need, and our dollars are reinvested in our communities through investment circles and public banking. Imagine that we can make this happen by reducing barriers and increasing economic opportunities for all, especially for those who have been historically excluded from business ownership and community prosperity.

Legislation such as the American Recovery Plan Act (ARPA) and other pandemic-era relief bills have made new sources of capital available. Will this opportunity be seized and lead to lasting, thriving, and diverse small business ecosystems?


Understanding the Barriers

Inadequate capital has been and continues to be one of the largest barriers for LMI and BIPOC business owners, whether they are starting new businesses or seeking to expand existing ones. Even prior to the pandemic, access to affordable capital had been limited in LMI and BIPOC communities. As published by the Minority Business Development Agency, loan denial rates for BIPOC-owned firms were about three times higher than for white-owned firms. For high-sales firms, the rate of loan denial was almost twice as high for BIPOC-owned firms as for white-owned firms.

At best, the lending process is difficult and intimidating; at worst, it is inaccessible and exclusive. Access to capital counterintuitively requires financial resources. People who lack personal savings, generational wealth, and a strong credit history are often denied business loans. This is a predictable outcome of the entrenched racial and economic inequality that led to a lack of savings and credit history in the first place. The result: many LMI and BIPOC business owners are unable to access startup financing, often stopping business development prior to launch. Disappointingly, implementing a cooperative model to combine members’ capital faces an additional challenge: the requirement that an individual or group of individuals provide a personal guarantee as collateral to cover loss if the business itself is unable to repay. In many cases, LMI and BIPOC business owners lack the ability to provide such collateral, effectively cutting the business off from the capital it needs.

This common inability to access affordable capital is compounded by a lack of support systems and technical assistance for small businesses and worker cooperatives to launch and grow. Many LMI and BIPOC entrepreneurs start their businesses out of necessity by maximizing their skills and abilities, but some may lack crucial business knowledge and, importantly, access to the social networks that are often vital to growing a business. This second point bears emphasis: just as it takes money to make money, it takes elite connections. Such connections do not form by themselves, and indeed, LMI and BIPOC business owners often lack this critical business development ingredient unless a technical assistance provider helps them overcome that disadvantage.

We saw how this works in the pandemic. For example, many microenterprises and small businesses, especially BIPOC firms, found it difficult to access Paycheck Protection Program (PPP) forgivable loans, particularly in the critical early months of the economic shutdown. These conditions, compounded by scams, have a lingering effect in the field, leading many BIPOC firms today to be risk averse, which has negatively impacted their ability to stabilize and grow.

Unfortunately, COVID-19 relief, even when well intentioned, was not designed to correct the oppression embedded in our systems. In fact, the influx of capital and sense of urgency in deploying relief funds has only amplified inequities. Many LMI and BIPOC businesses continued to face significant barriers to accessing subsequent rounds of relief dollars, even when state and local governments attempted to correct for original failures. Attempts to address gaps have still been largely inadequate because simply pumping more money into businesses without disrupting existing systems of oppression is not the solution.


Working Towards Solutions

To build an inclusive economy, the small business ecosystem must be thoroughly reconstructed to make it as accessible and impactful as possible in terms of building community wealth. Achieving this goal requires a multifaceted approach. Some of these measures may require public or philanthropic funding. In other cases, industry norms need to change.

One important intervention involves fundamentally changing how the banking industry interacts with LMI and BIPOC business owners. Banks can change their own processes and policies to improve LMI and BIPOC business borrowers’ access to capital through building trust. When blocked by regulators, banks can respond by partnering with community development financial institutions (CDFIs), which offer capital on-ramps, character-based lending opportunities, and other critical resources. These mission-based lenders have the flexibility to minimize or remove barriers to help business owners grow to the point of being able to access bank capital.

A second key intervention is to restructure capital to better meet LMI and BIPOC business owner needs by matching capital terms to the phase of individual businesses. Loans (debt) are not always the best form of capital. At early stages, for example, small grants or forms of lending that keep repayment requirements in abeyance until the business can afford to pay are often more appropriate. Such tools are invaluable for microenterprises and small businesses which are not yet loan ready. In addition, partially forgivable capital structured as loans can create a debt repayment history that positively impacts credit scores, improving the likelihood of accessing traditional bank loans in the future.

A third element of the mix is to help BIPOC firms tap working capital, giving small businesses and cooperatives the cash flow they need to take on larger contracts with anchor institutions or other large customers so they can withstand inflexible payment terms without hurting their businesses. Accessing the appropriate type of capital will reduce the risk for small businesses, as well as the large institutions that want to give smaller, local businesses an opportunity to become one of their suppliers.

A fourth critical element is for communities to develop strong ecosystems of entrepreneur support organizations (ESO) and community development leaders to strengthen the internal systems of small businesses and cooperatives. These organizations can serve as powerful partners to government agencies by providing culturally relevant business support and investing in diverse mentorship opportunities. On-the-ground experience can be leveraged to build trust to broaden community beliefs about who can be a business owner. Importantly, capacity building services should be offered throughout the life of the business, not just upfront. Additionally, ESOs can build impactful coalitions with government to support the equitable deployment of micro- and small business relief funds. These activities can make the process of seeking support more approachable and easier to access.


Call to Action

Evidently, as noted above, systems change requires a range of interventions. The current lack of opportunities impacts everyone, not just LMI and BIPOC communities. Nobody can do everything, but everyone can do something. Below are some steps that key actors in the small business ecosystem can take:

Public and Nonprofit Institutions

  • Financially support ESOs and mission-based lenders to make capital accessible to BIPOC and LMI business owners.
  • Be intentional about building a local entrepreneurial pipeline among LMI and BIPOC communities through on-the-ground outreach.
  • Offer training, technical assistance, and mentorship that is tailored and culturally relevant at every stage of business ownership.
  • Prioritize small businesses in your supply chains by revising RFP [request for proposal] requirements to shift contracting to support local LMI and BIPOC businesses.

Federal, State, and Local Government

  • Support and design loan guarantee programs that assist historically marginalized groups and employee-owned businesses.
  • Prioritize small businesses in the business contracting process by revising RFP requirements to ensure that they are not exclusionary.
  • Align policy to create a public bank.
  • End subsidies for big box stores and use those resources to support small business development in LMI and BIPOC communities.


  • Build trust with LMI and BIPOC communities.
  • Revise business practices to better serve LMI and BIPOC communities.
  • Financially support ESOs and mission-based lenders to fill gaps.

Small Businesses Owners

  • Do business with other local, small businesses—thereby creating a network of support amongst peers.
  • Mentor newer small business owners to build the network and advocate for supportive local policy.

The need to build a more economically and racially just small business ecosystem is urgent; such an ecosystem would benefit millions of people in our nation’s BIPOC and LMI communities. Implementing these recommendations across a range of institutions can make a vital difference in community well-being.

Of course, equitable access to capital cannot take place in isolation. Rather, it must occur alongside the meeting of other vital community needs, such as access to housing, education, transportation, quality employment, and community supports. The path to an economy that supports small business owners in BIPOC and LMI communities is not easy. But by adopting a systemic approach, it becomes possible.