You’ve probably heard a politician or journalist call small businesses “the backbone of our economy”. What exactly does that mean? In California, it means that small businesses make up more than 99% of all businesses in the state, employ nearly half of all private sector employees – that’s 7.2 million Californians – and create about two-thirds of new jobs. Locally owned businesses keep dollars close to home, circulating three times more money back into the local economy than absentee-owned firms or chain businesses.

Equally important, if less quantifiable, is the contribution that local small businesses make to the character and culture of a neighborhood. A chain restaurant in Novato will be virtually the same as one in San José – or Omaha, for that matter – but not so an independently owned cafe. Local small businesses are a reflection of their communities’ histories and needs. They foster belonging and in some cases create multi-generational family legacies.

Small businesses are an important driver of economic mobility and equity, especially for people of color, immigrants, and women. One telling statistic: in 2008, nationally, Black business owners were on average more than seven times wealthier than their wage-earning peers, and Latinx business owners held roughly four times as much wealth as non-business owners.

Photo courtesty of Mission Asset Fund                    

Despite all they bring to our region, small business owners and entrepreneurs do not have it easy here, especially brick-and-mortar businesses. There are some hurdles that they all face: astronomical rents first and foremost, but also lengthy and expensive permitting processes and a complex, ever-changing state regulatory landscape. Business taxes are high relative to many other states and municipalities, and small businesses generally can not access the tax breaks and loopholes that allow large corporations to avoid paying them.

Then there are hurdles that fall disproportionately on BIPOC, immigrant, and women entrepreneurs. The most significant of these is the cost of and lack of access to capital. BIPOC-owned businesses receive less business financing than White-owned businesses, less often, and pay higher interest rates – and disparities remain even when controlling for creditworthiness. Women business owners receive fewer, smaller loans for higher interest rates than men – and, shockingly, all-women founding teams raised 2.2 percent of total VC funding in 2018.

Data Source: Federal Reserve 2020 Small Business Credit Survey                    

Black owned businesses are particularly challenged. And, as a product of the racial wealth gap, many Black entrepreneurs do not have access to “friends and family” capital, and so either can’t take a first step toward jump-starting their business, or must rely on credit cards to do so – feeding into their lack of access to other outside capital. In addition, Black-owned startups receive a fraction of the outside equity White-owned startups receive. 

The Bay Area had one of the worst rates of small business closure during the pandemic – including a 45% drop in open small businesses in San Francisco. While small businesses nationwide saw a 32.5% revenue drop from January 2020- March 2021, San Francisco’s lost 56% of revenue.

BIPOC-owned businesses fared the worst. Nationally, in the early days of the pandemic, active Black businesses declined 41% and Latinx, 32% versus 22% overall.  Delayed access to the federal Paycheck Protection Program (PPP) was one factor, and recent Federal Reserve Bank data show Black-owned firms were nearly half as likely as white-owned firms to receive all of the PPP funding they sought and were approximately five times as likely to receive none of the funding they sought.

Still, many dedicated and ingenious entrepreneurs were able to navigate ever-changing restrictions, maintain staff, and survive the worst of the downturn by spearheading new business models. Municipal leaders across the Bay Area are stepping up to make it easier for small businesses to recover, open, and operate. In San Francisco, London Breed introduced the Small Business Recovery Act to reduce bureaucracy in the business permitting process and increase flexibility for small businesses. And the governor recently announced $4 billion in small business grants and $6 billion in tax incentives as part of the California Comeback Plan.

But as we learned with PPP, obtaining government money can be slow, fraught, and inequitable. Meanwhile, as the Bay Area reopens, big challenges remain. There is a looming rent crisis for the smallest businesses. Despite recent job gains, many small businesses, especially restaurants, bars, and retail, are finding it hard to fill open positions: a situation that, as grantee Calmatters reports, is likely due to a multitude of factors: people, especially women, dropping out of the labor force, fear of contracting the virus in the workplace, some families finding it makes more financial sense to stay on unemployment, low-wage workers gravitating to other parts of the state, and low wages in general. 

As we emerge from the immediate crisis of the pandemic, how can our philanthropy help bring the small business sector back better and more equitable than before?

The Bay Area is home to a strong ecosystem of entities that support small businesses: local Chambers of Commerce and affinity-based Chambers (like Black, Hispanic, and Chinese American chambers), Small Business Development Centers, community lenders, business incubators and accelerators, statewide networks, and research and advocacy organizations.

Battery Powered will focus on entities that support small business owners and entrepreneurs who typically have less access to the capital, resources, and networks that underpin business success. These include:

• Friends and Family Capital. Investing in BIPOC entrepreneurs is a fundamental step in closing the racial wealth gap. Organizations like Runway, Battery Powered grantee Mission Asset Fund, and the REAL People’s Fund provide early-stage, affordable, patient, friends and family style capital for entrepreneurs of color, coupled with technical assistance, coaching and a community of mutual support. Cultural  rootedness and community trust are hallmarks of their work.

• Impact-First CDFIs. CDFIs (Community Development Financial Institutions) are nonprofit lenders serving small businesses that are typically unable to access credit from traditional banks. The Bay Area boasts several mission-driven CDFIs focused on entrepreneurs of color and women entrepreneurs; along with low-interest loans, they provide pro bono business supports and connections to community and government services. A number are partners in the California Rebuilding Fund, a new public-private loan program to support the state’s smallest businesses. 

• Entrepreneurship Centers and Accelerators. Building entrepreneurial skills and capacities is another critical element for success. Organizations like Renaissance Entrepreneurship Center have for decades supported socially and economically diverse people to start businesses that stand the test of time; newer models, like the by- and for-entrepreneurs Uptima Entrepreneur Cooperative, are providing culturally relevant bootcamps, academies, and advising.

• Networking and Advocacy. Despite their combined power as employment and economic drivers, when it comes to policy, small business voices and interests can be dwarfed by large corporations. There is strength in numbers, and organizations like CAMEO and Small Business Majority are convening networks, doing research on small business attitudes and needs, translating what they learn into policy recommendations, and advocating in Sacramento and Washington DC.

Personal choices matter too. Take inspiration from San Francisco Mayor London Breed’s 30-Day Small Business Challenge and make an effort to spend your dollars in our beloved local small businesses.