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Though the racial wealth gap continues to persist, overwhelming evidence has shown that fostering and supporting entrepreneurship is one of the most effective ways to close it, per Forbes.
Data from the Congressional Black Caucus Foundation (CBCF) shows that Black business owners have a median net worth that amounts to 12 times more than those who don't own a business. More, while white people hold 13 times more wealth than Black Americans, the median wealth gap between white business owners and Black business owners decreases to three times.
Owning a business is beneficial for Black entrepreneurs, but it also helps generate economic activity in the surrounding community, which has the potential to create generational change, Forbes reports. According to the CBCF study, Black-owned businesses have produced over 1 million jobs and $165 billion in revenue. While the statistics are promising, closing the racial wealth gap hasn't proven to be as simple as increasing the number of Black businesses and the consumers who support them, per LISC.
Less than 5 percent of Black small businesses have a cash buffer longer than two weeks, which means 95 percent of these businesses are living "paycheck to paycheck," per a 2017 Small Business Labs report. Without a cash buffer, Black entrepreneurs are more susceptible to economic shocks, less likely to have the means to expand their businesses, and less likely to receive grants, loans, and other forms of traditional financing. According to LISC, this leaves Black-owned businesses without the financial strength and sustained growth that is needed to substantially close the racial wealth gap.
However, equity-like investments and other forms of growth capital can help put owners in a position to weather economic hardships and expand their businesses in a way that could move the needle. On an individual level, continue to use your spending power to support Black businesses as it has proven to help, but consider how backing these entrepreneurs could help even further close the gap.
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