Entrepreneurs of Color Fund

Minority entrepreneurs are far more likely to rely on self-financing as opposed to having access to commercial lending. As a result, they are historically under-capitalized which affects the number of businesses founded and their survivability. This policy would allocate significant funding to provide grants, rather than loans, to entrepreneurs of color to help start small businesses. Additionally, the policy targets specific reforms to programs and regulations that would create a more equitable finance landscape. The set of policies are aimed at bridging the startup capital gap and eliminating the racial wealth gap through business ownership. 

Entrepreneurs of color are historically undercapitalized and under-resourced as compared to white entrepreneurs (Austin, 2016). For example, Black entrepreneurs typically start with a third of the capital with which white entrepreneurs begin. This reality is further compounded by a range of institutional and cultural barriers to entry

Entrepreneurs of color are historically under-capitalized and under-resourced as compared to white entrepreneurs (Austin 2016). For example, Black entrepreneurs typically start with a third of the capital with which white entrepreneurs begin. This reality is further compounded by a range of institutional and cultural barriers to entry faced by these entrepreneurs including predatory lending, institutional discrimination, and lack of network access (McKinsey 2020). With each successive downturn in the economy, firms owned by women and people of color disproportionately suffer negative impacts (Klein 2017). Just two months into the COVID pandemic, nearly half of Black businesses had been closed by the economic fallout. Even after recovering, the losses were twice as high as the number of white-owned businesses that sufferance the same fate (Sasso 2020).   

This disparity illuminates the dire need for a capital infusion for entrepreneurs of color on a massive scale to address decades of disinvestment and to eliminate the racial wealth gap. Undercapitalized minority firms are disproportionately sole proprietorships and as such, they are less likely to have employees as compared to white-owned firms. Addressing their capital needs can spur not only business growth but also spur job creation in communities of color.  

Generally, the policy has been proposed as a federal-level intervention, although the ability of such a fund to be established at local, state, and federal levels speaks to its adaptability.  The growth in private sector funds of this type is further testament. The policy faces significant opposition politically. Organizationally, it would not necessarily require the creation of new structures or major reforms since infrastructure exists at the federal as well as local levels (although potential expansion would be necessary).