Want to address inequality in America? Nurture more diverse entrepreneurs.
That’s the key recommendation behind the Ewing Marion Kauffman Foundation’s new four-part strategy for reducing barriers to entry for entrepreneurship and creating new jobs. The Kansas City, Missouri-based nonpartisan nonprofit that works to strengthen entrepreneurship released the proposal, dubbed “America’s New Business Plan for 2022,” in mid-May.
Numerous groups have already praised the plan, including U.S. Black Chambers, a Washington, D.C-based organization that works to develop and grow Black enterprises. “Black entrepreneurs continue to face disproportionate challenges in their journey to becoming a business owner,” Ron Busby, senior president and CEO of U.S. Black Chambers, said in a statement. Busby continued that the plan “recognizes this fact and proposes state and local coordination to advance Black business ownership around the country.”
Here are suggestions in four core areas that the plan seeks to improve:
1. Access to opportunity
Besides systemic issues that prevent underrepresented people from launching startups, red tape and other regulatory requirements can also play a role.
- To help address this, the business plan proposes local, state, and federal governments work to expedite the process of starting a business. That could involve trimming paperwork and fees as well as simplifying local processes to obtain permits and licenses.
- The plan further suggests expanding access to the digital economy, such as increasing access to broadband networks, which can assist those living in areas without strong internet access.
2. Access to funding
Access to capital remains a common obstacle for entrepreneurs, according to the Kauffman report. Eighty-three percent of entrepreneurs don’t have access to bank loans or other forms of capital, like private equity, when first launching a business.
- The Kauffman strategy points to a 2020 report from Brookings, which shows that the median net wealth of a White family was $171,000, as opposed to $17,000 for Black families. The plan suggests addressing inequality early on with the creation of a “baby bonds program,” where investment accounts are created for newborns by the federal government–the amount of the grant would scale with a family’s overall wealth, in which a low-income family would receive a larger grant. The idea here is to start young so that the playing field is leveled for future founders.
- Community development financial institutions (CDFIs) and minority depository institutions (MDIs) are important resources for new and small businesses–particularly in low-income communities. Removing some of the capitalization challenges faced by CDFIs and MDIs, plus expanding community deposit programs, could spur greater investments in communities.
- Ask Congress to make permanent the State Small Business Credit Initiative, a funding program that aims to broaden access to capital for underserved communities. And modernizing the Community Reinvestment Act could also drive entrepreneurship. That law prevents redlining and encourages banks to lend to those of all income backgrounds within their communities. Bank regulators are currently working to reform the law, proposing, among other things, to adapt to advancements within banking (think online and mobile banking) and provide greater clarity for community assessments to ensure banks are meeting their obligations in addressing inequities with credit access.
3. Access to knowledge
A proper business education can pay dividends too.
- Kauffman suggests starting with investing in schools (both traditional and trade) to allow students to explore different paths, such as through work-based learning.
- Policymakers can step up by providing incentives to mentor resource partners. This could help increase the number of entrepreneurs from underrepresented backgrounds. Mentorship improves the chances of stronger employment and revenue growth for business owners, according to the plan.
4. Access to support
Taking the leap to become an entrepreneur comes with unparalleled risk, but having a strong support system (and access to that support) makes that risk easier to shoulder. Expanding access to caregiving and health care options and providing student debt relief are some suggestions on how to support those who are managing other constraints of everyday life.
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