While the COVID-19 pandemic is causing a nationwide economic slowdown, it has hit small businesses particularly hard—especially those owned by low-income entrepreneurs and entrepreneurs of color. Vulnerable microbusinesses faced more closures early in the pandemic than did their larger counterparts, and the number of Black business owners fell by 41% from February to April. With entrepreneurship among disadvantaged groups under threat, more government action is needed—both short-term relief for COVID-19 in the next stimulus package and longer-term supports to boost entrepreneurs’ financial stability.
Today, Prosperity Now is releasing a new policy brief, Making Entrepreneurship a Viable Path to Prosperity, that explores how small businesses and entrepreneurship benefit financially vulnerable workers. Small businesses are a key part of the American economy, and they fuel job creation in disadvantaged communities. Entrepreneurship can even narrow the racial wealth gap. However, many entrepreneurs of color and those with lower incomes face barriers to starting and growing a business. These include lack of access to capital, low levels of business savings and racial discrimination in lending, among others.
The COVID-19 crisis has only added to these challenges. As part of the government’s earlier COVID-19 relief efforts, the Small Business Administration (SBA) implemented the Paycheck Protection Program (PPP), which offered loans to help small businesses keep employees on their payrolls. However, because of high demand and structural inequities in the program, many of the smallest businesses and those owned by people of color were unable to access these funds. In the second round of PPP funding, SBA set aside $10 billion to be lent exclusively by community development financial institutions (CDFIs), which provide more targeted support to vulnerable businesses. However, given the magnitude of the economic crisis—and the challenges small businesses faced even before COVID-19—more funding is needed to support them in the short- and long-term. That’s what Prosperity Now is advocating for through our partnership with the Page 30 Coalition.
Fortunately, policymakers have proposed legislation that not only addresses COVID-19’s impact on small businesses, but also aims to bolster their financial stability in the long run. The Jobs and Neighborhood Investment Act (S. 4255 and H.R. 7709), introduced by Sens. Mark Warner (D-VA), Cory Booker (D-NJ), Kamala Harris (D-CA) and Charles Schumer (D-NY), as well as Rep. Gregory Meeks (D-NY-5), would provide a $17.9 billion investment into low-income areas and communities of color. The legislation, which has bipartisan support, offers capital, liquidity and operational capacity to CDFIs and minority depository institutions (MDIs). This would enable CDFIs and MDIs to expand lending to small businesses and lower-income borrowers. The specific provisions of the bill include the establishment of a Neighborhood Capital Investment Program and Neighborhood Loan Program, as well as an allocation of almost $3 billion to the CDFI Fund.
As detailed in our policy brief, there are additional supports that the government should extend to financially vulnerable entrepreneurs. For instance, we urge the Consumer Financial Protection Bureau (CFPB) to implement Section 1071 of the Dodd-Frank Act, which would centralize the reporting of small business lending data. Currently, the collection of this data is spread across several federal agencies, and the data itself is not widely available to the public. This makes it difficult to determine where lending discrimination may be occurring. Section 1071 would require financial institutions to report small business lending data, which the CFPB would then publicize. Most importantly, the Bureau should not delay rulemaking on Section 1071 because of COVID-19, given small businesses’ increased need for credit access during the pandemic.
Finally, Congress should establish a New Entrepreneur Tax Credit (NETC) to help small business owners build savings and manage cash flow challenges. Even though savings is critical for maintaining and growing a healthy business, entrepreneurs often have little money set aside for the short- or long-term. The NETC would be available to new small business owners who earn less than the median income, and it should be fully refundable to benefit the lowest-income entrepreneurs.
To learn more about how these proposals can support lower-income entrepreneurs and business owners of color, check out our policy brief. Please contact your legislators today and ask them to co-sponsor The Jobs and Neighborhood Investment Act. COVID-19 has dealt small businesses an unprecedented shock, and the government must act now to avoid similar consequences in the face of a future crisis. Not only do vulnerable entrepreneurs need short-term COVID-19 relief, but they also need longer-term supports to survive and prosper in the long run.
Originally posted by Prosperity Now on 2020-09-15 19:00:00